On 10th of December, the Plenum of the Russian Supreme Court issued its Resolution No. 53 (hereinafter – the “Resolution”) addressing the certain state courts’ functions of domestic and international arbitration assistance and supervision. The Resolution is thought to be an attempt to pack scattered legal norms together in a comprehensive legal framework of arbitration in Russia and cure some of its grave flaws.
The legislative regulation of the arbitration in Russia is quite fragmented. There are at least four legislative acts containing arbitration provisions an several clarifications of the higher courts.
Thus, it has been always quite a challenge to grasp the full picture of the Russian arbitration regulations. An analyse of the case law revels that even judges of lower courts sometimes misunderstand some concepts of arbitration and apply the wrong norms which caused uncertainty in arbitration as an alternative dispute resolution mechanism.
In order to facilitate the development of arbitration in Russia by harmonizing the application of the arbitration legislation and avoiding its misuse, the Resolution provides for a comprehensive guideline embracing all key aspects of arbitration, including the system of sources of arbitration regulation, jurisdiction of state courts concerning arbitration matters, the arbitrability of disputes and an arbitration agreement, judiciary assistance in arbitration proceedings, and setting aside and enforcement of arbitral awards.
Importantly, that the Resolution gives special consideration to the gravest practices jeopardising development of arbitration in Russia. Most of arbitration friendly approaches concerning, for example, the form and content of arbitration agreements (including pathological ones), or clarification regarding arbitrability of some disputes were previously developed by higher courts and, therefore, only repeated in the Resolution.
However, it must be noted that there are several important suggestions which are especially noteworthy.
Public policy exception
The Resolution pays great attention to the public policy exception. Thus, it repeats all limitations earlier developed by the Supreme Arbitrazh Court such as:
• prohibition of the review on the merits;
• the following aspects of the case do not constitute the violation of public policy: application of the foreign legal provisions, which do not have equivalents in Russian law, an absent respondent, the lack of respondent’s objections against enforcement;
• extraordinary character of the public policy exception.
On top of that the Supreme Court undertook the attempt to further constrain the application of the public policy exception. It is stated that for the public policy exception to be invoked, the following two conditions shall be jointly met:
first, there shall be a violation of fundamental beginnings (principals) of super-imperative universal character, and the special social and public importance which underlie the economic, political and legal systems of Russian Federation, and
second, such violation can jeopardise the sovereignty and national security of the State, affect interests of vast social groups of people, and breach constitutional rights and freedoms of private citizens.
This provision stemmed from the definition developed by the Supreme Arbitrazh Court in 2013 which was construed by the lower courts in the way that the presence of any of two aforementioned condition suffices to the violation of public policy. By the explicit indication that the said conditions are complimentary and not alternative, the Supreme Court gave a clear message to confine the use of the public policy exception. It remains to be seen, whether this signal will be observed by lower courts.
Form of arbitration agreement
The Resolution suggests several new provisions loosening the requirements to arbitration agreements. Thus, the Resolution allows to conclude arbitration agreements by means of electronic messages. Further, in case of doubts regarding the arbitration agreement’s validity and practicability, the court shall consider not only the text of the arbitration agreement, by also other evidence of the parties’ intentions, including precontractual communications, negotiations and further parties’ conduct. The Resolution also clearly stated that a presumption for validity of an arbitration clause shall be applied.
On top of that, the Resolution touches upon some aspects of arbitration agreements regarding corporate disputes. In particular, it clarifies that an arbitration agreement incorporated in the charter of a company is binding for future shareholders and for the counterparties of the company if they have joined such arbitration agreement by means of a written accession notice.
Asymmetrical arbitration clauses
In 2012, the Sony Ericsson case attracted a lot of attention. In this case, arbitrazh courts found invalid a dispute resolution clause, because it provided only one party with the right to choose whether to apply to a state court or to the ICC. Thus, this clause was not only alternative, but also asymmetrical, which, in the opinion of the courts, violated the procedural equality of the parties. The decision of the Supreme Arbitrazh Court in this case left many questions unanswered, insofar as from its text it was unclear whether the entire clause was invalid, or only the part which granted additional procedural rights to one party in comparison to the other party.
This lack of clarity seriously rattled the arbitration community, as similar asymmetrical arbitration clauses are commonly used by English banks: under such clauses, a bank has the right to choose, at its own discretion, either LCIA arbitration or a state court, while a borrower only has the right to apply to the LCIA.
In order to avoid further doubts, the Supreme Court held that such asymmetrical arbitration clauses are generally valid but shall be applied equally. In other words, each party shall have equal rights to choose any means of dispute resolution offered by the asymmetrical clause.
This clarification is an important step forward since the invalidity of an asymmetrical clause was often only invoked at the enforcement stage. Now it is clarified that the clause remains valid and enforcement of arbitral awards rendered under it do not violate the public policy of the Russian Federation.
Non-conformity with arbitration procedure or legislation must be substantial
An important innovation of the Resolution is the fact that the Supreme Court indicated that not every violation of arbitration procedure or the law constitutes grounds for the setting aside of an arbitral award, or for a refusal to enforce it; only substantial ones, that is, “if the violation committed led to a substantial violation of the rights of one of the parties, causing an infringement of the right to a fair consideration of the dispute.” On top of that, the party must have filed objections against such non-conformity without an unjustifiable delay.
This provision should help prevent the setting aside of awards on formal grounds, when a violation of procedure in arbitration proceedings has in fact taken place but such violation is not substantial.
Summarising, it can be concluded that the Resolution is an important part of the arbitration reform launched in Russia in 2015 aiming at promotion of arbitration as one of several alternative dispute resolution methods. It seems that there are all prerequisites to expect that the Resolution will facilitate the harmonization of application of arbitration provisions by Russian courts and enhance the reliability and predictability in this sphere. However, it remains to be seen, whether these expectations will be lived up or not. However, the provisions of the Resolution shall be taken into careful consideration whenever arbitration with the Russian counterparty is on the cards.