Russian Supreme Court voices support of commercial arbitration after court review

On 26 December 2018, the Presidium of the Supreme Court of the Russian Federation approved a review* of court practices for cases related to assisting and controlling domestic and international commercial arbitration courts.

The review clarifies topical issues related to domestic and international commercial arbitration, including highly relevant issues such as model arbitration clauses, alternative arbitration clauses and the resolution of state disputes in arbitration.

The Supreme Court’s explanations all supported arbitration proceedings as an alternative method for resolving commercial disputes, and the decisions taken on most of the controversial issues addressed in the review make arbitration attractive.

Standard arbitration clauses are enforceable by default

The Supreme Court indicated that any arbitration agreement which is consistent with a model arbitration clause of an arbitration institution is enforceable by default. Any doubts must be interpreted in favour of the validity and enforceability of such an agreement. For example, the court referred to the arbitration clause recommended by the International Chamber of Commerce (ICC). The court noted that the rules of arbitration specified in the clause regulate the formation and functioning of the arbitration tribunal and the procedure under which this tribunal will resolve a dispute. Consequently, there is no doubt about the enforceability of such a clause.

It is important to note that this position is different from the previous Supreme Court opinion regarding a case where the ICC standard arbitration clause was ruled to be unenforceable, as previously reported. This case was widely criticised in the legal profession and even led to a change in the ICC model clause. The point of view expressed in the review is expected to help prevent similar situations in the future.

Alternative arbitration clauses are acceptable

In the review, the issue of alternative dispute resolution agreements (i.e. agreements providing claimants with the right to apply to international commercial arbitration or to a state court) is analysed in detail for the first time. The Supreme Court noted that these agreements do not give an unreasonable advantage to any of the parties. Therefore, such optional clauses are not against the law.

The issue of “disparate” clauses was considered separately. These clauses give one party (e.g. the lender) the right to choose between the state court and arbitration while the other party (the borrower) is deprived of this right and can only submit a dispute to arbitration. The Supreme Court clarified that such a clause is illegal, but only in that it violates the rights of the borrower (i.e. regarding its right to go to court). Therefore, in order to restore balance, the borrower is given the right to file a claim in state court in accordance with the general rules. In this way, the arbitration agreement remains valid.

The position of the Supreme Court significantly softens the approach to “disparate” clauses. Previously, courts deemed such clauses as wholly void, thus depriving the lenders of the ability to enforce arbitral awards against borrowers in Russia. Given the new clarifications, when a contractual dispute is arbitrated abroad based on a disparate clause, Russian courts will be less likely to refuse to enforce the relevant arbitral award.

Disputes with state-owned companies can be arbitrated, disputes over government procurement cannot

The Supreme Court clarified that disputes regarding the contract system for procurement of goods, works, and services for state and municipal needs cannot be arbitrated. Currently, Federal Law No. 44-FZ dated 5 April 2013* regulates these relations.

On the contrary, disputes related to contracts based on Federal Law No. 223-FZ dated 18 July 2011* can be arbitrated as a general rule, despite the fact that state-owned companies (i.e. state corporations, state institutions, companies with state participation of more than 50%) are parties to the contracts.

These clarifications put a stop to any questions as to the arbitrability of disputes involving state-owned companies. Previously, many such companies tried to avoid arbitral awards enforced against them, citing the public nature of their activities.

If you have any questions on the matters referred to in this eAlert, please do not hesitate to contact CMS Russia experts Sergey Yuryev and Igor Sokolov or your regular contact at CMS Russia.

* In Russian