LegalOctober 30, 2019

A legal system evolves arbitration in russia

Russia has a proud legal tradition, which today is often more efficient, quicker and even cheaper than the legal systems of most other jurisdictions. Nevertheless, by 2015 its commercial arbitration system was considered too liberal and too fractured for the needs of one of the world’s biggest economies. This book provides an in-depth, fascinating insight into the 2015 reforms in the country’s arbitration system, replete with all the intrigue and nuances one expects of a country as diverse and important as Russia.

It would be naïve to believe that arbitration is somehow immune from political issues and considerations
Andrey Kotelnikov, Lecturer and academic at Robert Gordon University in Aberdeen, Scotland and author of Arbitration in Russia

A Most Russian Book

Arbitration in Russia is a book written by arbitration experts Andrey Kotelnikov, Sergey Kurochkin and Oleg Skvortsov, and provides a comprehensive coverage of Russia’s legal framework regarding domestic and international arbitration. Although Russia has been a free market economy since the 1990s, it was only with the reforms of 2015–2017 that arbitration in Russia became more fully aligned with international commercial arbitration standards.

This book by these prominent Russian experts outlines the current legal landscape in the aftermath of the reforms. It provides a thorough overview of arbitration in contemporary Russia, which should prove invaluable to the worldwide community of arbitrators, dispute resolution practitioners and academics in this exciting field.

Introducing Andrey

An interview was conducted with the book’s academic editor and co-author, Andrey Kotelnikov, an affable, engaging man with a clear passion for all things arbitration. He is a graduate of Central European University (CEU) in Budapest, holds an LL.M in International Business Law from the University of Manchester (UK), and a PhD from the USLA.

While still working towards his first law degree in Yekaterinburg, Andrey decided to seize the opportunity to study in Budapest. For him, studying at CEU was a “big eye-opening experience as I discovered a whole world out there. And it was there that I got a real taste for comparative law”. Andrey pointed out that, although his international career is not unusual in European terms, it may seem unusual by Russian standards, especially outside Moscow.

Andrey practiced as a civil servant with the Russian Securities Market Commission and then worked in the energy industry for eight years as head of a department leading the commercial law team. Andrey also taught domestic and comparative litigation and international commercial arbitration at Urals State Law Academy in Yekaterinburg. It was there that Professor Yarkov, the head of civil procedure, became Andrey’s mentor in arbitration.

The reason why Andrey loves arbitration is that it is a field where one can be immersed in international law and the legal systems of different countries. It’s what he calls a “golden thread” between Russian and international arbitration trends,principles and communities – and it fascinates him.

Today, Andrey is a full-time lecturer and academic at Robert Gordon University in Aberdeen, Scotland. His interests encompass international commercial arbitration, comparative civil justice and procedure; investment arbitration, alternative dispute resolution (ADR), and international business law

Why This Book?

For Andrey and his two collaborators, the answer to that question was very simple: they realized that there was very little in the literature offering a comprehensive overview of arbitration in Russia. As he says, “It was a niche that was begging to be filled, so why not us?!”.

As for getting published with Wolters Kluwer, Andrey explained how for them the global information services company was undoubtedly “number one on our list,” especially given WK’s strong tradition in publishing arbitration-related books. So for them it was an obvious choice to approach Wolters Kluwer.

What Took Russia So Long?

Russia has generally followed the New York Convention, the UNCITRAL Model Law and the European Convention on Arbitration since the 1990s, yet it was only in 2015 that the country decided to overhaul its arbitration system. But why did it take so long?

Andrey pointed out that there was nothing wrong with Russian legislation before 2015. It simply wasn’t working well enough. Generally, legal practice in Russia continues to be problematic given it’s still a relatively young market economy. When practising law in Russia, loopholes and ‘grey’ areas of law are exploited, far more easily so than in other more mature market economies where certain legal ‘shenanigans’ are considered unacceptable by lawyers.

By 2015, there was the recognition that the ‘liberal’ model imposed on the country since the 1990s had not entirely worked for the arbitration field in Russia. Some good had come of it, however. The field had become less elitist and Moscow-centric. That meant that smaller cities and remote areas had been able to develop their own arbitration centers. Arbitration had become democratized.

The Effect of the 2015 Reforms

Now a license to operate as an arbitration center is required. As a result, only seven arbitration centers have been approved to date. Thus, many smaller or remote areas are now without arbitration centers, which is problematic.

However, according to Andrey, there has been a subsequent modest rise in ad-hoc arbitration because it has become so difficult to be approved as an arbitration institution. Andrey actually views this as a promising development since ad-hoc, as opposed to institutionalized, arbitration tends to be more flexible and less bureaucratic.

The Russian Behemoths: State-Owned Entities

The state-owned sector continues to be massive in Russia and a major part of the country’s GDP. For now, the new arbitration regime does not apply to procurement made by public authorities’ and certain state-owned entities, since public-funded projects are considered too ‘important’ for arbitration and therefore can only resort to the court system should a dispute arise.

However, those entities that fall outside the above category, particularly those in the natural resources field, remain beholden to the 2015 arbitration regime. The 2015 reform produced a list of matters that are capable of settlement in arbitration and those that are not. ‘Natural monopolies,’ as they are known in Russia, have not been taken outside the reach of arbitration. There remain unresolved issues in this regard, so how the arbitration case law unfolds in the coming years regarding these entities will be fascinating for an expert like Andrey.

Resistance to A Proud Russian Tradition

There is an interesting aside that is worth discussing here and provides little-known context for this book. According to Andrey, it is not generally known that the Russian court system is quicker, more efficient and less expensive than its counterparts in other jurisdictions.

Russia is also fairly advanced in electronic justice and case management systems, which have been in place for quite some time now and are ahead of similar initiatives in most so-called ‘Western’ jurisdictions.

Then why the reluctance by foreign companies to use the court system in Russia? The relative speed, efficiency and less expensive features of the Russian court system should surely be appealing for foreign companies too.

Yet multinationals remain ‘suspicious’ of using Russian courts, especially if there is a Russian counterpart that has government funding or links. That ‘fear’ is palpable. Perception is everything. Conversely, there is still quite a lot of anti-American sentiment among Russian corporations and, in particular, Russian state entities. So arbitration, whether it is seated in Russia or in Europe, remains by far the best alternative.

Sanctions, What Sanctions?

With the above in mind, the issue of the ongoing sanctions that have been levied against Russia by the U.S. and EU does beg the question: are the sanctions having any impact on arbitration in Russia?

Andrey recalls the recent St. Petersburg International Legal Forum at which many arbitration institutions from around the world were present. One question asked was whether arbitration institutions were being affected by the Russian sanctions. The reply by the representative of an established arbitration centre was that the sanctions seemed to be of little effect. Far more problematic in practice, in that man’s opinion, were the sanctions against Iran, given that the sanctions against that country are far more severe than those against Russia.

However, Andrey does acknowledge that, “it would be naive to believe that arbitration is somehow immune from political issues and considerations”. He points out that the sanctions do add a layer of complexity – but that the impact remains fairly modest for Russian arbitration.

And The Future of Russian Arbitration?

Andrey admits that many of his colleagues are very pessimistic about Russian arbitration due to the 2015 regime, which is disparagingly referred to as the ‘conservative model’. However, Andrey remains fairly optimistic. He is hopeful the model will be ‘softened’ and become less bureaucratic, especially with more approved arbitration institutions.

He believes the regulations are well-written and superior to the arbitration statutes of many other countries. Furthermore, Russia already has a large, well-established arbitration community and there is growing interest in this field of law among Russian law students.

The future of Russian arbitration appears dynamic and exciting, albeit challenging. That is why the book Arbitration in Russia couldn’t be better timed.

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During a series of podcasts we will bring you insightful analysis, commentary and discussion from thought leaders and experts on current topics in the field of International Arbitration, IP Law, International Tax Law, Competition Law and other international legal fields.
During a series of podcasts we will bring you insightful analysis, commentary and discussion from thought leaders and experts on current topics in the field of International Arbitration, IP Law, International Tax Law, Competition Law and other international legal fields.