International Commercial Arbitration in the presentday Russia some

International Commercial Arbitration in the present-day Russia: some facts and ideas [October 2012]

Contents 2 Background…………………………………………. . 3 ICA from the point of view of the Russian ICA itself, a look “from the inside”…………………. … 4 Statistics regarding ICA………………………………. , …………. . 5 Statistics regarding ICAC………………………………. , …………. …. . . 6 The Law “On International Commercial Arbitration” (1993)…………………. . 11 Still in transitional period…………………………. . . ………………. …… 12 Certain tendencies of the ICA development in Russia …………………………. … 13 New positioning of the ICAC……………………. . 18 ICAС in terms of its interaction with the state courts and public authorities, a look “from the outside”……. 19 Competition between the state courts and impact on the ICA ……………………… 20 4 stages of development……………………………………………. 21 Amendments to the Law On International Commercial Arbitration……………………. . 26 Current issues on the edge ……………………………………. . 27 Reference to the ICA in the decrees of the Constitutional Court ……………. . 30 Russia’s accession to the WTO and the ICA…………………………………. . 31 Additional information…………………. . …………………………………. 32 Conclusion ……………………………………………. . . ………………. 33

Background This presentation gives an overview on activities of international commercial arbitration (ICA) in the present-day Russia from 2 perspectives: Ø from the point of view of the Russian International Commercial Arbitration (the ICA) itself, a look “from the inside”. Ø from the point of view of interaction of the ICA with the state 3 courts and public authorities, a look “from the outside”.

ICA from the point of view of the Russian ICA itself, a look “from the inside” 4

Statistics regarding ICA Russia: Arbitration vs. State Commercial Courts (caseload) Applications for setting aside and enforcement of arbitral awards Commercial disputes considered in state commercial courts 2009 3 770 / 88 (enforcement of foreign awards) 1 409 503 2010 4 054 / 145 1 197 103 2011 3 409 / 174 1 078 383 5 *Source: ICAC official web-site www. tpprf-mkac. ru

Statistics regarding the ICAC (1) • The number of claims is constantly growing, achieving more than 250 annually in 2009— 2011, in comparison with 155 complaints annually in average for the period from 2003 to 2008. 6 The statistics on claims achieved annually by ICAC, 2003— 2011* *Source: ICAC official web-site www. tpprf-mkac. ru

Statistics regarding the ICAC (2) V. K. • The dominant type of disputes considered by ICAC are disputes related to the agreements of purchase and sale (deliveries) with 162 related cases reviewed in 2011 (67, 7 %). Subject matter of disputes in 2010 7

Statistics regarding the ICAC (3) 8 © V. Khvolei

Statistics regarding the ICAC (4) • The leaders among regions applying to the ICAC are East and West Europe (499 claims for 2003— 2011), CIS and Baltic States (562 complaints for the same period) Breakdown of claims by participation of each country resident companies (in total for 2003— 2011, excluding Russia) European countries, most actively applying to ICAC in 9 recent 5 years (2006— 2011) *Source: ICAC official web-site www. tpprf-mkac. ru

Statistics regarding the ICAC (5) Some interesting facts • For 2003— 2011 in total there were 1731 complaints reviewed by ICAC in Moscow with involvement of foreign companies, including 1419 claims where one of involved parties was Russian company. • For 2009— 2011 there were 30 cases on bankruptcy and 25 cases related to concurrent proceedings considered in the ICAC. • The highest claim amount in ICAC for 2009 was 71 130 000 USD, for 2010 — 207 883 835 USD, for 2011 — 20 240 262 USD. 10 • The average period between claim submission and rendering of decision was 8, 97 months in 2009; 9, 64 months in 2010; 9, 61 months in 2011. *Source: ICAC official web—site www. tpprf—mkac. ru

The Law “On International Commercial Arbitration” (1993) • It is necessary to make a clear distinction between the stage before 1993 and the one starting from 1993 when the Law “On International Commercial Arbitration” based on the UNCITRAL Model Law (1985) was passed. • The adoption of this Law in 1993 gave a new impetus to development of the ICA in Russia. 11 • Despite the current discussions, the role of the Russian Chamber of Commerce and Industry is a cornerstone.

Still in transitional period I presume that the transitional period of Soviet times still lasts today. The past background influences the ICAC in some respects. • Specific institution of the reporters in the ICAC. • The role of the Secretariat of the ICAC. Logistics and technical issues. • Prevailing number of scholars, and not practitioners, among the arbitrators. It also ensures the good quality of awards. • Specific features of the fee policy. 12 One more important feature Particular attention in Russia to publication of the ICAC and the MAC (Maritime Arbitration Committee) awards. Until the 1970 s the parties and the sums were disclosed, since then and until now the confidentiality has been kept.

Certain tendencies of ICA development in Russia (1) The growth in activities of the Russian Chamber of Commerce and Industry — characterized by development and release of several new documents in recent years: • The Rules for Assistance by the ICAC to the Arbitration in Accordance with the UNCITRAL Arbitration Rules (1999); • The ICAC Conciliation Rules (2001); 13 • The Rules on Impartiality and Independence of Arbitrators (2010).

Certain tendencies of ICA development in Russia (2) • Constitutional cases: 10 since 1999 Ø violation of right for judicial defense by the arbitral procedure; Ø waiving the right for state courts defense by signing the arbitration agreement; Ø arbitrability of the real estate disputes; Ø arbitrability of the corporate disputes. 14 • A milestone in ICA development in Russia: the launch of the International Commercial Arbitration Review. • Growing number of arbitration events being held in Russia. • Increasing involvement of the new generation of lawyers in the ICA activity. • Changes in the arbitrators’ roster in 2009: growing share of new arbitrators.

Certain tendencies of ICA development in Russia (3) The development of competition. • The Survey “Russia as an Arbitration Forum” organized by the ICC in Russia. http: //www. iccwbo. ru/news/0/305/ • Final Report of ADR Work—Stream — discussion of the possibility to create a new arbitration centre. UK—Russia Liaison Group on Moscow as an International Financial Centre. http: //www. thecityuk. com/uk—financial—services-overseas/international-financial 15 centres-initiative/moscow-international-financial-centre/moscow-internationalfinancial-centre-alternative-dispute-resolution-work-stream/ • Establishing of the Russian Arbitration Association in December 2012 in Moscow by the pool of international and Russian law firms.

Certain tendencies of ICA development in Russia (4) • Constant growth of complexity of all issues. • Tendency for strengthening of the conflict of interest for arbitrators and law firms. • More favorable approach to the enforcement of the foreign arbitral awards since 2007. Case 1. Loral Space & Communications (USA) v. Global. Tel, CJSC (Russia), 2009 16 Notification of the defendant (subsidiary of Russian strategic telecommunication company) by LCIA was due because the place of arbitration was agreed by the parties in the loan contract and from the date of the first notice the defendant had enough time to obtain visa for his representative. Notification may consist of more than one document and each document may in part contain data about hearing, i. e. place, address, time. Form of due notification should be determined according to the Rules of particular arbitration (Decree of the Presidium of the Supreme Commercial Court No. 10718/08 as of January 20, 2009; Decree of the Presidium of the Supreme Commercial Court No. 10613/08 as of January 20, 2009).

Certain tendencies of ICA development in Russia (5) Case 2. Stena Ro. Ro AB (Sweden) v. Baltic Factory (Russia), 2011 17 The Supreme Commercial Court recognized and enforced the award of Arbitration Institute of the Stockholm Chamber of Commerce against Russian strategic factory for more than 20 million EUR. Corporate consent should be determined by the law of the country where the company was established (Sweden in that case). If the Russian law and the Swedish law regarding the procedure of obtaining the corporate consent do not coincide, there is no ground for the Russian state court to reconsider the decision of the foreign arbitral tribunal. Russian courts even should recognize and enforce the award in the part of estimated losses because these losses were established under Swedish applicable law and in accordance with the contract agreed by the parties, and are comparable to Russian civil penalties (Decree of the Presidium of the Supreme Commercial Court No. 9899/09 as of September 13, 2011.

New positioning of the ICAC 4 “Yukos” cases 18 Time: 2006 Claimant: Yukos Capital s. a. r. l. (Luxemburg). Respondent: Yuganskneftegaz (former major oil-producing subsidiary of Yukos Oil OJSC). Subject matter: to recover debts arising out of loan agreements made in 2004. Total amount of cases: more than 11 billion rubles (about 330 million euro). Outcome: claims satisfied. Awards challenged at state commercial court and annulled. Then enforced in the Netherlands. Enforcement procedure re interest on the awards also pending in UK. The Nikolay Maksimov v Novolipetsk Steel Plant Time: 2011 Claimant: Nikolay Maksimov (a major Russian businessman). Respondent: The Novolipetsk Steel Plant (one of the largest steel producers in Russia). Subject matter: to recover debts arising out of a share purchase agreement made in 2007. Total amount of cases: 9. 5 billion roubles (approximately 237 million euro). Outcome: claim satisfied. Awards challenged at state commercial court and annulled. The court found that it was a corporate dispute and as such non-arbitrable. Then the awards enforced in the France. Enforcement procedure also pending in Netherlands.

ICAС in terms of its interaction with the state courts and public authorities, a look “from the outside” 19

Competition between the state courts and impact on the ICA • Confrontation between the Supreme Court and the Supreme Commercial Court: struggle since 1999 for the corporate disputes + enforcement of foreign arbitral awards. • Confrontation between the Supreme Commercial Court and the Constitutional Court: non-openness of the Supreme Commercial Court to take into account the Constitutional Court views. 20 • Confrontation between the Supreme Commercial Court and the arbitral tribunals: the intention of the Supreme Commercial Court to control and dominate.

4 stages of development 4 3 2 21 1 From 2008 until present. From 2002 to 2007. The competence of state commercial courts. From 1993 to 2002. The competence of the courts of general jurisdiction. The Soviet stage until 1993.

4 stages of development (2) 2 Stage. From 1993 to 2002. Practice of the courts of general jurisdiction with regard to arbitration 22 • In 1993 – 2002 the courts of general jurisdiction were competent to hear cases on enforcement and small experience of courts setting aside of arbitral awards and on challenging the validity of arbitration agreements. These courts historically had limited experience in dealing with such cases. • Therefore they generally treated them with caution. Also, by virtue of law such cases were heard by the courts of 2 nd level (instance), rather than by 1 st level courts. As result, their judgments were usually balanced and devoid of extremities. • It should be noted, however, that at the time when these courts where competent to hear arbitration-related cases, the practice of challenging and voiding arbitration agreements upon the non-parties’ claims came into existence and was not suppressed.

4 stages of development (2) 3 stage – generally unfavourable. From 2002 to 2007. The competence of state commercial courts. Some cases of that period: Decree of the Presidium of the Supreme Commercial Court No. 2853/00 as of January 14, 2003 Award covered not only the corporate questions of withdrawal of member from the Russian joint venture caused by inappropriate conduct of Russian party but also the questions of reorganization and current economic activity of the company. Motion of Italian company to recognize and enforce the award of ad hoc Stockholm International Commercial Court against Russian company was rejected because this award contained decisions on matters (reorganization of Russian joint venture) that had to be considered only under Russian law through Russian law procedures. 23 Decree of the Presidium of the Supreme Commercial Court No. 3351/04 as of October 26, 2006 The Supreme Commercial Court refused to enforce the award of ICAC because the courts of lower instances did not examine the fact of possible unfair conduct (abuse of right) of the party claiming damages. If the courts would have come to the conclusion that the conduct had been unfair, the courts had to establish, whether that circumstances precluded the right of the company to defend its rights.

4 stages of development (3) 4 stage – tendency to some extent to favor arbitration. From 2008 until present. The recent significant cases: Decree of the Presidium of the Supreme Commercial Court No. 16727/09 as of March 30, 2010 24 The Supreme Commercial Court specified that even the bill of landing was not signed but contained the arbitration clause and the parties to the case performed the contract, the arbitration agreement was properly made between the parties in accordance with parties’ will and implicative actions. Consequently the arbitral tribunal specified in the bill of landing would be competent to consider the case. Decree of the Presidium of the Supreme Commercial Court No. 1787/11 as of June 14, 2011 (Hipp v. Sivma case) Courts of lower instances concluded that the award of the International Court of Arbitration at the Austrian Chamber of Commerce was contrary to the public policy of the Russian Federation because parties agreed only to consider disputes under the Rules of Arbitration and Conciliation of the named arbitral tribunal and did not concluded the valid and clear arbitration agreement due to the ambiguity of the arbitration clause. Parties to the case participated in appointment of arbitrators and therefore expressed their consent for the dispute resolution by this particular arbitration institution. The award of the International Court of Arbitration at the Austrian Chamber of Commerce was recognized and enforced.

4 stages of development (4) 4 stage. From 2008 until present. The recent significant cases: Decree of the Presidium of the Supreme Commercial Court No. 2608/11 as of July 26, 2011 25 Courts of lower instances acted beyond their competence by rejecting Cypriot company’s claim to enforce the award of ICAC and by reevaluating the evidence. Defendant participated in the arbitral proceedings and was able to submit all necessary evidence to prove its position in the arbitral proceedings, the state courts did not conduct the expertise to find whether the documents were forged. The Supreme Commercial Court quashed the decisions of lower courts and enforced the award.

Amendments to the Law “On International Commercial Arbitration” Key aim of amendments: Ø to renew the Law on ICA in accordance with UNCITRAL Model Law; Ø to reduce the control of state courts over arbitral tribunals. 26 The current situation: what was done and what was not RF Ministry of Economic Development elaborated the draft law amending the current Law on the ICA in accordance with UNCITRAL Model Law on International Commercial Arbitration, with amendments as adopted in 2006, including new provisions on the form and definition of arbitration agreement and interim measures. The first draft of the Russian law did not contain the provisions on grounds for refusing recognition or enforcement of interim measures. However subsequently these provisions were added to the second draft of the Russian law.

Current issues on the edge (1) 27 The necessity to consider ICA in a general context of the situation around the domestic arbitral tribunals in Russia. The fight of the Supreme Commercial Court with the biased (“pocket”) arbitral tribunals. • If the arbitral tribunal is affiliated by one of the parties to the civil law contract (“pocket” arbitral tribunal), than the principles of impartiality and equity would be infringed. Claims to enforce the award of such “pocket” arbitral tribunal should be rejected. • Decree of the Presidium of the Supreme Commercial Court No. 17020/10 as of May 24, 2011 — the first case when arbitral tribunal within the Sberbank group was qualified as “pocket” arbitral tribunal because the other company from Sberbank group was the party to the contracts. • Decree of the Presidium of the Supreme Commercial Court No. 16541/11 as of May 22, 2012 — case of Lukoil “pocket” arbitral tribunal. • Case No. А 41 -21121/11 — the case is still pending in the Supreme Commercial Court. The Supreme Commercial Court would have to deal with the following issue: not each link between the party to the dispute and the arbitral tribunal would automatically cause the impartiality of the last one.

Current issues on the edge (2) Arbitrability of the disputes regarding real estate • Decree of the Constitutional Court No. 10 -P as of May 26, 2011: real estate disputes are arbitrable. The case was initiated by the Supreme Commercial Court denying arbitrability of such disputes. • The public character of dispute precluding the arbitrability of the dispute depends not from the type of the property but from the parties to the case and specific nature of the dispute. 28 • Need for state registration of the real estate is not an element of the dispute and does not change the nature of the relations between the parties.

Current issues on the edge (2) 29 Arbitrability of the corporate disputes • Corporate disputes are not arbitrable in Russia and are expressly withdrawn from the jurisdiction of ICA. • In the case NLMK v. N. Maximov regarding the debt under share purchase agreement the Supreme Commercial Court specified that due to the direct provision of law only state commercial courts are competent to resolve corporate disputes. Therefore ICAC who passed the award in that case did not properly analyzed the nature of the transaction (Ruling of the Supreme Commercial Court No. VAS 15384/11 as of January 30, 2012). • Constitutional court received two applications asking to clarify whether the arbitrability of corporate disputes was constitutional. However Constitutional Court escaped from the direct answer (Ruling of Constitutional Court No. 1804 -О-О as of December 21, 2012, Ruling of Constitutional Court No. 1488 -О as of July 17, 2012).

Reference to the ICA in the decrees of the Constitutional Court (1) 30 From 1999 by the present moment the Constitutional Court considered 10 applications concerning the nature of international commercial arbitration in the light of the Russia Constitution. Each challenged provision of the Law on ICA was qualified as constitutional. The decisions of Constitutional Court covered the following issues: 1) even if Law on ICA does not provide for setting aside the award due to violation of material law, the applicant, who voluntarily signed an arbitration agreement, should follow the rules of arbitration procedure and may submit claim on setting aside the award to the state court (Ruling of Constitutional Court No. 214 -О as of October 26, 2000); 2) resolution of the dispute through arbitration does not constitute the denial of justice (Ruling of Constitutional Court No. 191 -О as of December 9, 1999); 3) real estate disputes are arbitrable.

Russia’s accession to the WTO and the ICA • According to the List of Specific Commitments on Services that Russia specified entering WTO only advocates (Russian lawyers admitted to the Russian bar) may “carry out representation in arbitration tribunals. ” • However the term arbitral tribunal was translated into Russian as “state commercial court. ” The Constitutional Court approved that “arbitration tribunals” in the text of Specific Commitments of Russia shall mean state commercial courts instead of arbitral tribunals in the real sense (Decree of the Constitutional Court No. 17 -P as of July 9, 2012). 31

Additional Information • ICAC is celebrating it’s 80 th years anniversary in 2012 — related conference is planned for November 30 2012 in Moscow. • www. CISArbitration. com – useful resource on arbitration in Russia and CIS. 32

Conclusion The past of arbitration in Russia is in general quite impressive, the present is very interesting and intriguing while the future looks quite promising. 33

Developed by: Alexander Muranov, Managing Partner Alexandra Khizunova, Associate Daniya Zaynullina, Head of PR Muranov, Chernyakov & Partners Law Firm (Russia, Moscow) 34 Website: http: //www. rospravo. ru