ENFORCING FOREIGN ARBITRAL AWARDS IN RUSSIA: SURVEY FROM THE RUSSIAN ARBITRATION ASSOCIATION

In late November 2018, the Russian Arbitration Association (“RAA”) published a detailed study on the application of the New York Convention in Russia between 2008 and 2017. The Working Group of the RAA analysed 10 consecutive years of case law on the recognition and enforcement of foreign arbitral awards in the Russian courts. The study provides valuable statistical data on the success rates of Russian enforcement proceedings under the New York Convention and uncovers interesting trends for those looking to enforce in the jurisdiction.

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ICC modifies standard arbitration clause to make explicit reference to the ICC International Court of Arbitration

As discussed in our recent blog post, the Moscow Arbitrazh Court and appeal courts recently found that a reference to the arbitration rules of an arbitral institution was not sufficiently clear evidence that the parties had agreed on that specific institution to administer the resolution of their disputes. The case related to the ICC standard arbitration clause and the ICC has applied to the Russian Supreme Court for clarity on its approach.

However, in the meantime, the ICC has issued an additional modified standard arbitration clause “to take account of the requirements of national laws and any other special requirements that the parties may have“. The ICC then proceeds to state that it is “prudent” for parties wishing to have an ICC Arbitration in Mainland China or in Russia “to include in their arbitration clause an explicit reference to the ICC International Court of Arbitration“.

The modified clause proposed by the ICC is as follows:

“All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

For further information, please contact Alexei Panich, partner, Nick Peacock, partner, Alexander Khretinin, senior associate, or your usual Herbert Smith Freehills contact.

Alexei Panich
Alexei Panich
Partner
+7 49 5363 6515
Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803
Alexander Khretinin
Alexander Khretinin
Senior Associate
+7 49 5783 6777

English Court rejects Ukraine’s attempt to set aside enforcement order on grounds of state immunity

The English Court (the “Court“) has dismissed an application by Ukraine to set aside a court order permitting Russian investor, PAO Tatneft, to enforce an arbitral award against Ukraine.  Ukraine argued that it was immune from the Court’s jurisdiction by virtue of the State Immunity Act 1978. The Court found that Ukraine had not waived its right to rely on state immunity arguments, despite not having raising them in the arbitration. However, it found that Ukraine had agreed to submit the disputes in question to arbitration under the Russia-Ukraine Bilateral Investment Treaty (the “BIT“) and was therefore not immune from proceedings in connection with the arbitration by virtue of s9(1) of the State Immunity Act 1978 (“SIA“).

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HKIAC signs cooperation agreement with Russia’s IMA

On 6 March 2018, the Hong Kong International Arbitration Centre (HKIAC) and the Institute of Modern Arbitration of the Russian Federation (IMA) signed a Cooperation Agreement that aims to support and promote the development of international arbitration and other dispute resolution options in Russia and Hong Kong.

This is a further development in HKIAC’s on-going efforts to meet growing demand in the Russian market for disputes to administered by established Asian arbitration institutions, such as HKIAC and the Singapore International Arbitration Centre (SIAC), which has signed a similar cooperation agreement with IMA.

In recent years, HKIAC has built up a panel of 30 Russian-speaking arbitrators, translated the HKIAC rules into Russian, and hosted and participated in a number of events in Russia. HKIAC has also announced that it is developing a new set of Administered Arbitration Rules, with innovative features “that will bring a new level of arbitration experience to users in Russia and other parts of the world”.

According to a recent survey by the Russian Arbitration Association, Russian users have indicated that Asian centres including SIAC, HKIAC and CIETAC are viable alternatives to the more traditionally-used European arbitral institutions such as ICC, SCC, LCIA and the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC). In addition, the survey indicates that Singapore and Hong Kong are increasingly popular seats, and the laws of these jurisdictions are respectively the sixth and seventh most popular choices among the survey respondents.

 

Inside Arbitration: Issue #4 of the publication from Herbert Smith Freehills’ Global Arbitration Practice

We are delighted to share with you the latest issue of the publication from Herbert Smith Freehills’ Global Arbitration Practice, Inside Arbitration.

In addition to sharing knowledge and insights about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.

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Russian arbitration: are international sanctions impacting party choice?

Ever since the introduction and then expansion of international sanctions on Russia (in particular by the US and the EU), arbitration practitioners have questioned whether this will prompt a change in the party selection of international arbitration in Russia-related commercial agreements.  Specifically, whether historically popular arbitral venues outside Russia (London, Stockholm and others in Europe) will see a decline in favour of venues in Asia (e.g. Singapore, Hong Kong and others). Anecdotal evidence suggested that several Russian parties were indeed looking East (see our prior blog post here).  Now however a survey conducted by the Russian Arbitration Association (“RAA”) suggests that despite the introduction of sanctions, the arbitration landscape has remained relatively stable with fewer changes than might have been anticipated. 

The RAA Survey published earlier this year indicates that arbitration is still the preferred method of dispute resolution and that the historically prevalent venues of London and Stockholm remain for now the most preferred seats outside of Russia, with Geneva and Paris also remaining (slightly) preferred to Singapore and Hong Kong.  The ICC, SCC and LCIA remain heavily favoured as overseas arbitral institutions, while English law remains the most common choice of parties alongside Russian law. 

The survey nevertheless indicates that choices of Russian law and a Moscow seat of Arbitration are on the increase and that Asian arbitration seats (as well as Dubai and New York) are being considered and used by parties to Russia-related commercial contracts.

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Russian Arbitration Reform: Key Changes

On 1 September 2016, the following federal laws came into force in Russia: the Federal Law On Arbitration (Arbitration Proceedings) in the Russian Federation and the Federal Law on Amendments to Certain Legislative Acts which introduced a number of changes, in particular, to the Arbitrazh Procedure Code, the Civil Procedure Code and the Law on International Commercial Arbitration (collectively, the "Laws"). Russian arbitration regulation has materially changed as a result of these Laws.

The reforms were initiated in 2013 on the instruction of the President given to the Federal Assembly with a view to developing Russian arbitration legislation. Two of the main goals of the reforms were to:

  • Provide clearer and more detailed regulation of the arbitration process in order to encourage businesses to use arbitration as a dispute resolution mechanism more actively, decreasing the workload of the state courts;
  • Fight with so called "pocket" arbitration institutions (i.e. those which are incorporated by large corporations / banks to hear disputes with their counterparties).

The Laws have made many significant amendments, most of which can be placed under the following two categories: (1) the administering of arbitration proceedings; and (2) the arbitration process. This update deals with the most significant amendments.

 

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Round 2 to Russia: the battle continues as the largest arbitration awards in history are set aside by the Hague District Court

In a long-awaited decision published yesterday, the Hague District Court ("Court") has set aside the US$ 50 billion awards in favour of the former majority shareholders of Yukos on the basis that the Tribunals lacked jurisdiction to hear the disputes. 

The Court accepted the Russian Federation's contention that, pursuant to Article 45 of the Energy Charter Treaty ("ECT"), its decision not to ratify the ECT meant that it was only bound by provisions which were compatible with Russian law.  The dispute in question, which concerned relations of a public-law nature, could not be referred to international arbitration under Russian law. 

This high-profile decision may have implications on the enforcement proceedings against Russia's assets currently pending in at least seven jurisdictions and also raises questions about the effectiveness of the ECT for investors in Russia.

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Upcoming Webinar: Sanctions Update: Ukraine and Russia

Monday 22 September 2014, 2.00pm – 3.00pm BST

The international sanctions landscape has continued to develop in response to the situation in Ukraine.

On 12 September, the EU and US both published details of expansions to their existing sanctions against Russia, including in relation to the restrictions on certain Russian companies’ ability to access the EU/US capital markets. Both the EU and US have also designated additional individuals and entities under their respective asset freeze regimes.

In this webinar we will provide:

  • An overview of the current sanctions, including the amendments to the EU and US sectoral sanctions
  • An overview of relevant EU institutions and decision-making processes in relation to sanctions
  • An update on any further EU and US developments during the course of this week
  • An opportunity to pose your questions to our expert team.

Speakers:

If you would like to register for this event please click here. We will then send you an email with the event details and confirmation of your log-in address. If you have queries about the webinars or the registration process please contact: Prudence Heidemans, Webinar co-ordinator, London.

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The largest Arbitration Awards in history: Three Majority shareholders in Yukos awarded total damages of over $50bn from the Russian Federation

On 18 July 2014, the Claimants in three related arbitrations administered under the 1994 Energy Charter Treaty and the 1976 UNCITRAL Arbitration Rules prevailed against the Russian Federation.  The Claimants[1] were former shareholders of the OAO Yukos Oil Company (“Yukos”), which had emerged in the early 2000s as the largest private oil company in post-Soviet Russia.

Although the arbitrations were brought separately by each Claimant and not consolidated, the Parties appointed the same arbitrators to each Tribunal (collectively, the “Tribunals”) and the Tribunals proceeded to hear and decide the claims together in three substantially similar awards (the “Awards”).  The Tribunals found that the Russian Federation had unlawfully expropriated the assets of Yukos, in contravention of its obligations under international law, through a series of targeted measures taken between 2003 and 2007.  Put together, in monetary terms the arbitration Awards are by far the largest ever made public, as the Tribunals awarded total damages to the Claimants of more than US$ 50 billion. The Tribunals also ordered Russia to reimburse the Claimants for arbitration costs of € 4.2 million and costs of representation of more than US$ 60 million.

Of particular note in the Awards is the Tribunals’ consideration of the doctrine of “unclean hands” in international law, along with the application of the doctrine of contributory fault. The Tribunals’ decision to reduce to Claimants’ recovery by 25%, following the same approach adopted in the recent case of Occidental Petroleum and another v Ecuador, is likely to attract significant attention and may set a precedent for future investment treaty cases. However, the Tribunals’ extensive analysis of the Parties’ submissions concerning valuation, damages, and the awarding of interest will also add to the body of jurisprudence available to practitioners and arbitrators faced with similar questions.

The decision could prompt other Claimants (including some of the over 50,000 other minority shareholders in Yukos) to move forward with claims against the Russian Federation. For claimants from ECT signatory states, the Tribunals’ decision to uphold the continued application of the substantive protections of the ECT, at least for qualifying investments made before Russia withdrew from the ECT in August 2009, is likely to make the ECT an attractive option under which to bring such claims.

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