Russian Arbitration Debates

28 Марта 2017 Russian Arbitration Debates

On 28th March 2017, the third round of arbitration debates was held in Russian Union of Industrialists and Entrepreneurs (RSPP) with the support if RSPP, RAA and the law firm EPAM.

This round of arbitration debates aimed at the discussion of the most topical problems of arbitration in Russia, having regard to the fact that the Russian arbitration reform was very high.

The debates called together a large number of jurists wishing to hear the latest tendencies in arbitration and to share their points of views with colleagues.

The format of arbitration debates was as follows: each point of view was presented by two teams, each of those were given some time to express their position, after which the parties could have exchanged the rejoinder of the opposite party (using the language of the foreign arbitral process, so-called rebuttal and surrebuttal).

The arbitration debates were divided into two sections on two issues:

1) The possibility of the transfer of disputes between two Russian on international arbitration, and

2) The finality of the arbitral award and the right to challenge.

Moderator of the first section, a partner at the international law firm Baker & McKenzie, the Chairman of the executive board of the Russian Arbitration Association Vladimir Khvalei pointed out in his welcoming word before the debate of the first section that the question of whether Russian parties without a foreign element could submit their dispute to a foreign arbitral institution remained open in Russian law.

The reason for the discussion, he explained, was the sensational in the legal community definition of the Arbitration Court of Moscow (hereinafter "ACM") from 20 January 2017 in the case а40-219464/16 (hereinafter referred to as "definition"), later cancelled by the Arbitration Court for the Moscow Circuit (hereinafter referred to as "ACMC") and submitted for reconsideration by the order of the Arbitration Court for the Moscow Circuit.

In this case ACM refused the execution of the Foreign Arbitral award, as "in the circumstances specified, since the consideration in the territory of the Republic of Singapore of a dispute between legal persons registered in the territory of the Russian Federation is incompatible with the principles of the construction of the legal system of the Russian Federation, the recognition and enforcement of the foreign court's decision should be refused in connection with the violation of the public policy of the Russian Federation".

The opinion that "purely Russian parties may resolve the dispute in foreign arbitration" was defended by the partner of law firm Lidings Stepan Guzey, and the opinion that "Russian dispute could not be transferred to the foreign arbitral institution" was defended by the lawyer of EPAM, the law-firm, Mikhail Samoylov.

Lawyers were given 10 minutes to represent their positions and 5 minutes for rebuttal and surrebuttal.

Stepan Guzey specified the following:

"A dispute that is not burdeneded by a foreign element may be transferred to a foreign arbitration institution. There's nothing wrong with that. The Russian Federation is now in the trend of world arbitration tendencies. New laws-including the Federal Act № 382, Federal Act № 409, and even the Russian legislation on International Commercial Arbitration - are based on different recommendations of international commissions, councils, etc.

I am referring to the UNCITRAL Model Law (hereinafter referred to as "UML"). UML contains the recommendation stating that an international dispute means internationalism not only in the substantive right sense, but also in legal proceedings. Both UML and Russian legislation uphold the idea of the autonomy of the arbitration clause from the basic obligation.

Thus, the parties assume the resolution of a dispute in a foreign instrumentality in the arbitration clause, and this becomes their right to autonomy of will, and there is nothing wrong about it.

If we look at the russian enforcement practice, there are also no arguments against this point of view.

Depending on the literal interpretation of the decision of the Presidium of the Supreme Arbitration Court from 16 July 2013, № 2,572/13 based the case № A27-7409/2011, it can be seen that, in accordance with generally accepted practice, the arbitration or forum selection clause, except the cases of the exclusive jurisdiction of the russian state courts, lodges with jurisdiction the institution specified in the reservation.

The same is true for the Arbitration Procedure Code of the Russian Federation and the Council of Europe recommendations.

Russia, in the perspective of international commercial arbitration, is in an international trend.

Talking about the definition of the ACM, the Court did not failed. The supreme courts before that, and the ACMC in this case, said that it was necessary to first to look in the information letter of Supreme Arbitration Court of the Russian Federation No. 156, which dealt with the question of the public policy of Russia. The ACM decided not to think and to write it simply, as it was to the simplest wording of unwarranted reference to the public order.

In a violation of public policy, the ACM had to justify what was violated. The ACMC, however, did not accept the new Act and submitted the case for a new consideration"

"The only non-legal aspect of the situation is the very existence of such Russian-Singapore and Russian-French arbitration, - said Mr. Guzey. All these centres are the creations of the only one person - Mr. Kravtsov. Perhaps the ACM noticed this dubious Russian-Arbitration Centre and immediately understood the situation."

Stepan expressed the hope that the Court of First Instance would refuse the plaintiff to recognize and enforce this arbitral award, giving a reasonable cause.

To the question by Vladimir Khvalei on what the solution to such a situation could be like and what could be done on the spot by a judge of the Court of First Instance, Stepan replied that it was possible to involve the arbitration centre as the third party in a dispute in the context of the discovery of documents, and promised to think it over during the opponents' speech.

Mikhail Samoylov notes that his position was fundamentally the opposite.

"Purely Russian disputes without a foreign element cannot be transfered to a foreign arbitration, but an award must be recognized and enforced in the territory of the Russian Federation. 

In general, I agree with Stepan, that such disputes can be referred to a foreign arbitration, but not today. Nowadays, there is no such an advanced regulation of international arbitration in Russia as in Sweden, Switzerland, etc. Perhaps in 10, 20, 30 years, such disputes could be referred to a foreign arbitration, but not now

In this case, we have faced the question of the relationship between international and domestic arbitration. The new Arbitration Legislation (Federal Act № 382) does not divide these two concepts.

Stepan is right, at dealing with these questions, we can use the instructions of international organizations, but the developers of UML, which was taken as the basis of the Russian Law on International Commercial Arbitration, were referring to all the doctrinal approaches that existed at that time.

However, UML is not a law of a direct effect. It can only be applied in the territory of a country by the enactment of special laws (The russian law concerning ICA ).

The Russian Law on International Commercial Arbitration applies only when at least one party to a dispute between commercial enterprises is abroad.

It is understandable why the parties have approached this dubious arbitration institution: The latter did not wish to follow the registration procedure as PDAU in accordance to the Federal Act № 382.

It is also important to understand whether the New York Convention of 1958 (which focuses only on international disputes) or rules of customary arbitration applies to such arbitration.

It cannot be deduced from the present regulation of international commercial arbitration in Russia that Russian parties only may refer a dispute concerning the assets in Russia to a foreign arbitration institution. Regulation in the Russian Federation is not wider than the regulation of UML for now"

To the question of Mr. Khvalei about what Mr. Samoylov would have done when faced with similar disputes, the latter replied that he would not have taken a decision in connection with the non-arbitrability of a dispute. Non-arbitrability of the dispute arises from the absence of a foreign element, and it is better not to engage the notion of public policy.

Rebuttal

During his objections to Mr. Samoylov, Mr. Guzey pointed out that he would have chosen, as a judge, the proposed path of non-arbitrability of a dispute. However, in the absence of special

clauses in the proposed arbitration agreement, and taking into account Singapore as the place of arbitration, the Singapore Law on ICA should be applied to the legal relations.

"My position, Stepan noted , is that by discussing the current regulation, the rules in Russian Legislation on ICA in the area of prohibition or authorization are divided into permissive, prohibitive and discretionary rules (direct or implied)."

Under the existing Russian law, the act of the Parties that transmit a purely Russian dispute to foreign arbitration is the exercise of a direct disposition of the law. Based on the principle of autonomy of the will of the parties, the freedom of contract, taking into account the private legal nature of legal relations, the parties may submit their dispute for consideration to any organ.

Moreover, in the clause proposed in the present case, the parties had envisaged both the prorogation and the arbitration agreements.

In addition, such interpretation of Russian law is shared by the Federal Customs Service and the Federal Tax Service in their instructions: There is no prohibition on the submission of a dispute to foreign arbitration in the Russian Federation."

Surrebuttal

In response to Mr. Guzey's objections, Mikhail Samoylov first agreed with Stepan that it was not possible to write imperative provisions for arbitration, since arbitration itself implied independence from the State, but noted that the last trend was to reduce autonomy. This was a consequence of a government policy: purely Russian disputes should not go outside the bounds of Russia.

Makhail said, "Today we all have to understand what international commercial arbitration is. And the margins for the set limits should not be imposed.

The purpose of the current legal regulation of Permanent Arbitration Institutions in Russia (PDAU) is to reduce the number of abuses of arbitral tribunals.

The ACM in its definition takes into account the transitional period and the ongoing reform of arbitration in Russia.

Yes, today, specifically Russian disputes cannot be referred to foreign decisions. But it will last until a certain time."

In the heated discussion that followed the first section of the debate, Vladimir Khvalei suggested the colleagues to discuss the nature of the arbitration centre and its recognition, as well as the question of the arbitrability of a dispute, the possibility of "home" disputes moving abroad.

As the result, after the traditional vote tabulation, it turned out that the vast majority of in the lawyers in the hall were in favour of the possibility of the transferring a purely Russian dispute to a foreign arbitration.

The second section was devoted to the category of finality of the arbitration award. The main question for the colleagues was: Whether it flows from art. 40 if the Federal Act No. 382 the and other provisions of the Russian legislation that an award of arbitration, (subject to the existence of a final clause) is not subject to revocation or is still subject to.

The "proponents" of finality of the arbitration award were lawyers Yegor Chilikov and Olga Tsvetkova, the opponents of finality (and the point that the decision could be rescinded)-Oleg Kolotilov (Kulkov, Kolotilov and partners) and Dmitriy Cherniy (EPAM).

Olga Tsvetkova, while describing the legal field of the problem, noted that "the Russian court cannot disregard the parties' direct agreement that the decision cannot be disputed. It's a straight flow from art. 40 of the new law, the same was explained by the Supreme Court of the Russian Federation in 2005 in the information letter No.96. The same position is also observed in the definition of No. 754 of the Constitutional Court of the Russian Federation from 1 June 2010.

The right to negotiate a clause on the finality of an arbitration award is the exercise of the freedom of contract.

Art. 30 of the Federal Act No. 382 is also set within the framework of the Supreme Court of the Russian Federation and the Constitutional Court of the Russian Federation approaches and the world trend. The purpose of the arbitration reform in Russia is to make arbitration more attractive to parties, especially foreign. And one of the ways to do so is to provide the finality of the arbitration award."

Hereafter Olga gave the floor to Yegor Chilikov, who described how the system worked in the practice of enforcement.

Yegor divided his performance into two parts - the political and legal content of the existed mechanisms for verifying the arbitral award by the state court, and its' potential.

With regard to the political and legal content of the present mechanisms, Yegor told about the aims and objectives of the arbitration reform: To make the Russian Federation a more attractive place for arbitration, to increase investment attraction primarily for foreign investors. At the same time the role of art. 40 of Federal Act No. 382, bringing in such a risky assumption as a right of the parties to make an arbitral award final, is to minimise the control of the Russian State Courts.

Yegor also told that now , when there are two mechanisms for the control of arbitration set in the Arbitration Procedure Code of the Russian Federation -the institution of the reversal of an arbitral award and the institution of recognition and enforcement of the award - in practice this leads to the delay in obtaining the writ obligatory. The principle of finality of the award (art. 40 of Federal Act No. 382) enables to avoid these long procedures. Moreover, it was possible to avoid abuses by concluding a final judgement clause.

The general idea that both lawyers wanted to prove: there were already sufficient mechanisms in Russian legislation to verify the arbitral award and the finality of that award - that was a permissible right of the parties. Yegor gave the following elements of checks and balances to the right to refuse challenge:

1) Refusal of the right to challenge is the direct expression of the will of the parties

2) The finality clause does not preclude the judicial verification of itself

3) Control at the stage of recognition and enforcement of the award is maintained

4) There is "administrative" control over arbitration institutions (PDAU); It is prohibited to use the right to refuse ad hoc proceedings.

Afterwards, the word was given to the opponents of the theory of finality to lawyers Dmitry Cherniy and Oleg Kolotilov.

Dimitry Cherniy presented his position on this matter.

"On the one hand, the legislation allows the parties to make a final decision, on the other hand, in terms of judicial practice and, in part, in legislation loopholes which make it possible to question such finality in individual cases." The courts enjoy using such loopholes.

First of all, para. 1 (e) of art. 5 of the New York Convention 1958 is in favour of our position, and it which states that an arbitral award may be revoked.

The mere fact that it could be revoked suggested that there should be a procedure for revocation. And parties are unlikely to bend the provisions of the International Convention by their agreement.

However, there is a stronger argument: The Supreme Arbitration Court of the Russian Federation clarified in the decree 2070/10 that the condition of the arbitration agreement on finality may be waived if public policy is violated.

And there is no contradiction to the explanation of the Plenary nor in the art. 40 in the Federal Act No. 382, nor in the Arbitration Procedure Code of the Russian Federatio.

In the discussion about the balance of the finality of the decision, it was also important to take into account the question of the investment attraction and the question of the rationality of the control of the award.

It is not an uncommon mistake that while discussing the finality of the decision lawyers often fail to pay attention to the defeated party and its interests. And for the latter, on the contrary, the final arbitral decree is a disadvantage.

In summering his thesis, Dimitry called upon the colleagues to pay particular attention to the interests of the clients and, depending on the latter, to advocate or waive the finality clause of the arbitration award.

Oleg Kolotilov, at the beginning of his remarks, emphasized the fact that the final category of the finality of award was the legal fiction. The very possibility of revoking it (which the Arbitration Procedure Code of the Russian Federation gives to the parties) did not allow to conclude that the decision was final.

Moreover, the finality of award was always lacked in fact, since the parties had the opportunity to propose to the court arguments against severabity both of the decision and of the arbitration clause.

The thesis of Oleg and Dmitry also caused a broad discussion among the assembled professionals. In particular, Maxim Kulkov, moderator of the session, proposed to discuss the work of this principle in PDAU as opposed to ad hoc arbitration, and also expressed his view: The literal interpretation of art. 40 in the Federal Act No. 382 did not allow to make different conclusion to be drawn except that "a final arbitral award is not subject to abrogation". Since the legislation of the Russian Federation does not recognize the doctrine of precedent, even the numerous judicial practice, given by the opponents of the final decision, is not persuasive in the present debate: The provisions of Federal Law must prevail.

During the discussion, the colleagues had suggested that the autonomy of the parties should be the dominant principle, as it was the main advantage of arbitration. Meanwhile, the respect for the autonomy of will must be limited to certain limits. In drawing up the list of grounds (which were not yet in a certain form) for the revocation of an award, consideration should be given, among other things, to the rights of third parties.

Mr. Martynov, the arbitrator of the arbitral tribunal at Russian Union of Industrialists and Entrepreneurs (RSPP) and ICAC, observed that in discussing international arbitration all had forgotten about national arbitration.

With regard to the subject of the first section, Mr. Martynov noted that it was important to be aware of the fact that there was a foreign element in interpreting the Russian Law on International Commercial Arbitration.

In response to the subject of the second debate section, Mr. Martynov said that the final decision and the failure to contest a descision must be separated. The failure of a party to contest a decision is a separate set of issues. Provided that it was important how the abandonment was expressed.

The speaker suggested the state court,= that it was necessary to understand the actual will of the parties, perhaps, indirectly expressed in the arbitration agreement.

Rebuttal:

Olga Tsvetkova, in response to the opponents ' remarks, added that, during the development of Federal Act No. 382, the preliminary draft of art was art. 40, where there was a list of exceptions to the finality of the arbitrationl award, but then the legislator decided to abandon the novel, by what he expressed a will to the comprehensive nature of the right of the parties to agree on the finality of the arbitral award.

Surrebuttal

During the objection to Olga's remarks, Dmitry Cherniy once again called for the interests of the clients to be taken into account first, and referred to the judicial practice where the courts removed the veil of "the sanctity" of the final arbitration clause.

He also reminded about existing option, which also raised doubts to the indisputability of the final award clause: the prosecutor's ability to challenge the arbitral tribunal's descision. In such a case, of course, the finality could also be limited by the court.


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