Russian Appetite For Local Arbitration Remains Low, For Now

Aug 9, 2019
Law360 (August 8, 2019, 4:59 PM EDT) -- A move by Russia to allow arbitral institutions from Hong Kong and Vienna to administer disputes within its borders has expanded the range of options for companies doing business in Russia, but it's unclear whether that will change a deep-seated preference in the country to arbitrate disputes abroad.

The Vienna and Hong Kong centers now join three institutions in Russia that are able to administer Russian corporate disputes, providing options to international businesses that may be wary of local arbitral institutions with ties to Moscow amid lingering concerns of undue influence and possible corruption.

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Several years ago, Russia enacted legislation aimed at modernizing its arbitration landscape. Among the adopted changes was the requirement that foreign arbitral institutions register with and obtain permission from the Russian government, part of an attempt to ensure that the minimum standards in the arbitration laws are being met.

The requirement came about through efforts to stop the practice of so-called "pocket arbitration courts," many of which were linked to large Russian corporations. For example, the Russian natural gas giant Gazprom — which is majority-owned by the Russian government — had its own arbitration court, to which the company referred all of its disputes, according to Roman Zykov, the secretary-general of the Russian Arbitration Association.

But the reform efforts, and particularly the licensing requirements, have been criticized even within Russia. Many stakeholders say that the reform efforts have come up short, and that they may not persuade wary foreign companies, or even Russian companies, to arbitrate their disputes in the country.

"It's a turbulent time. I don't think everyone is satisfied and happy with what's going on," Zykov said.

He noted that of the three domestic institutions allowed to administer arbitrations in the country, two are closely connected to, and perhaps even funded by, the Russian state.

Complicating matters is the fact that enforcing arbitral awards in Russia remains a dicey affair.Although about 80 percent of arbitral awards are recognized and enforced in Russia, most of those are very small cases, according to Zykov.

He noted that of awards valued at more than $10 million, only about one out of three is enforced in the country.

"Russian courts are still heavy-handed when dealing with arbitration," said Zykov. "I wouldn't say it's crazy to go arbitrate in Russia, but I would say it's safer and more predictable in terms of the results to do it in one of the established jurisdictions."

By Caroline Simson