Arbitration is a Bear necessity

Russia must up its game in managing corporate disputes if it wants to attract investment

Russia is seen by many as a significant growth market, not least due to its natural resources.

However, a report published recently by TheCityUK has found that Moscow’s limited scope for managing corporate disputes is holding the city back in its ambition to become a key global financial centre.

In principle, Russia does provide the necessary core legal framework for the conduct of international commercial arbitrations. The law of international commercial arbitration in the country is contained in the 1993 Law on International Commercial Arbitration. The Russian Federation is also part of the framework of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the ’New York Convention’).

However, despite the relatively long history of international arbitration in Russia, the country does not enjoy the reputation or user-confidence that would mark it out as a leading arbitration jurisdiction. More often than not, London, Stockholm or Geneva are chosen when it comes to selecting a forum for the resolution of large-scale Russian disputes.

One of the perceived problems is the rule that foreign arbitral awards are enforced through the commercial court at the location of the respondent or its assets. This means that more than 80 commercial courts spread throughout the territory of the Federation can be called upon to perform the function that, in jurisdictions such as England and Wales, is performed by a specialist court in the capital city.

Among the judges at these Russian commercial courts, the levels of experience in dealing with international arbitration and the enforcement of foreign arbitral awards differ.

This, together with the fact that there is no formal system of case law precedent in Russian law, means there can be some inconsistency in the way in which the norms of the New York Convention are applied.

Added to this is the question of which disputes can be made subject to arbitration in Russia.

In the past year, some courts in the country have issued decisions finding that corporate disputes relating to Russian companies cannot be subject to arbitration. This follows an earlier controversy over whether real estate disputes could be subject to ­arbitration.

These sorts of issues have long been the subject of comment, and reform of arbitration law in Russia is already underway. However, many commentators contend that the present amendments to the system do not go far enough.

TheCityUK’s ’Interim Report of the Alternative Dispute Resolution (ADR) Work-Stream’, which consists of Western and Russian law firms, is now being reviewed and considered by the Russian government, which will respond later this year.

The report suggests more wide-ranging reforms, using best practice in other jurisdictions as a yardstick. With the political will that now exists to make Moscow an attractive place for foreign investors, the time is ripe to introduce a comprehensive package of reform that will enhance the law and practice of arbitration in Russia.