Arbitrating in Russia

26.11.2015 Arbitrating in Russia

Russia is likely not the first choice as a place of arbitration, as many foreign parties are usually concerned with potentially excessive interference form Russian judiciary and the quality of Russian arbitral institutions. Nevertheless, sometimes failure to agree on arbitrating in Russia may become a deal-breaker and hence not an option. Statistics and experience show that parties fairly rarely choose to arbitrate under the rules of leading European arbitral institution (such as LCIA, ICC or SCC) in Russia. Therefore, it is worth considering local options available.

Arbitrating under the Rules of ICAC

International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry (ICAC) is the oldest and the best know arbitral institutions in Russia, which has been around for over 80 years. While research has identified more than 2,000 of various arbitral institutions across the country, any other than the ICAC would be rarely an option for a cross-border dispute. ICAC also has a pretty significant case load, with more than 250 new cases administered every year.

The proceedings at the ICAC are also relatively cheap (three to four times cheaper than in ICC or SCC) and quick (with most awards rendered within 6 months of the tribunal's formation). The bulk of the caseload, however, consists of relatively simple and straightforward cases (some 70 to 80% of cases arise out of the sales or services contracts), which are also of relatively low value (80% of cases are below USD 1 mln). Hence, the ICAC arbitration may be an appropriate option for relatively simple cases, peculiarly governed by Russian law and heard in Russian.

However, the proceedings in the ICAC have their own specifics unknown to foreign users. The ICAC tribunals do not usually conduct pre-hearing conferences and rarely get in touch with the parties before the hearing. The parties have very little command of the proceedings which are fairly standardised and are difficult to adapt. The hearings are usually very short (no longer than half a day). The tribunals are less accustomed to hearing from witnesses and dealing with Western-style cross-examination. At the same time, the tribunals are more authoritative and do not always follow the parties' agreement on various procedural matters. Moreover, the ICAC is also known for paying low arbitrators' fees, which significantly limits the pool of non-Russian law qualified arbitrators with international experience.

For all these reasons, the ICAC is probably not the best choice for potentially fact-intense complex non-Russian law governed cases of high value.

Arbitrating under the Rules of RAA

The Russian Arbitration Association (RAA) was formed in 2013 by a number of law firms and private practitioners with a view to promoting arbitration in Russia. Since 1 July 2014, it offers arbitration services since recently. The RAA administers disputes under the UNCITRAL Arbitration Rules in accordance with the RAA regulations for arbitration proceedings, fee schedules and internal rules.

Depending on the agreement between the parties, the RAA may act as the appointing authority, the administering authority or both. If acting as the appointing authority, the RAA will assist in selecting the arbitral tribunal and deal with any issues relating to the appointment of arbitrators or their replacement. If acting as the administeringauthority, the RAA will:

  • scrutinise draft arbitral awards;
  • certify arbitral awards;
  • maintain custody of case files; and
  • administer the costs of arbitration proceedings.

The RAA has a special arbitrator nomination committee, which consists of seven prominent arbitration specialists elected by RAA members, which is charged with appointing arbitrators. Unlike in the ICAC, the general rule is that in cases with the amount in dispute over USD 1 mln. the president or sole arbitrator should not be of the same nationality as either of the parties, unless the parties agree otherwise. The appointment procedure for sole or presiding arbitrator is intended to ensure the parties' maximum involvement and transparency with the nominating committee providing the parties with the list of names which can be ranked by each of the parties in the order of priority – the candidate with the highest combined ranking will be appointed to serve as the sole or presiding arbitrator.

Draft awards must be scrutinised by the RAA board if the total value of the administered dispute is greater than $10 million – in such cases no award can be signed and issued by the arbitral tribunal without scrutiny. The RAA board may suggest that the arbitral tribunal make amendments regarding the form of the award and may also – without limiting the arbitral tribunal in its freedom to make decisions – draw its attention to points of substance.

The RAA also aims to ensure the efficiency of proceedings by penalising arbitrators for delays in rendering awards. Thus, the award should be rendered within two months of the close of proceedings. Arbitrators' fees are reduced by 10% for each month of delay (with up to a 50% reduction for not rendering the award within six months of the close of proceedings). While many institutions claim that they take into account the amount of time it took the tribunal to render the award when deciding on arbitrators' fees, the RAA is one of the few institutions (if not the only one) that has formalised this in its rules.

The RAA charges fees at rates somewhere between those of the Stockholm Chamber of Commerce and the International Chamber of Commerce. The fees are calculated on an ad valorem basis; this will likely give the RAA some competitive advantage, as it will attract world-class arbitrators who are willing to accept appointments for which they will be paid adequately.

It is understood that the RAA has not yet handled any cases, but this is unsurprising, given that it began offering the administered arbitration just over a year ago. The RAA is nevertheless an option to consider for Russian and CIS-related disputes, as it may well provide a better alternative to the ICAC while satisfying the desire of Russian parties to arbitrate in Moscow.

Authors: Yaroslav Klimov and Andrey Panov, Norton Rose Fulbright, Russia
First published in ExpertGuides


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