The reform of the arbitration procedure is making progress

According to information published on the website of the government on 20 April 2015, the Russian Government Commission on Legislative Activity has approved draft legislation titled Arbitration (arbitration procedure) in Russian Federation to reform the arbitration procedure, based on a suggestion of the Russian Ministry of Justice.

The need for the arbitration reform in Russia is evident. The tradition of arbitration began with the advent of the market economy, but it developed irregularly. The current Federal Act from 24 July 2002, No. 102, Arbitration in the Russian Federation, emerged 13 years ago and is outdated. Currently, due to the development of market relations, arbitration in Russia has become significant. According to Kommersant, since 2015, the average number of arbitration decisions has doubled, and in some regions, it has grown 5-10 times.

The idea of reform emerged in 2012, when President Vladimir Putin, in an address to the Federal Assembly, declared the necessity to ensure effective guarantees on property and the execution of contracts in Russia. For this reason, reforming the arbitration procedure is crucial. Vladimir Putin pointed out the necessity of regulating the procedure of establishing institutional arbitration agencies and their activity, including but not limited to setting minimal requirements related to internal documents and organization. Moreover, as he stated, the arbitration procedure reform is designed to eliminate “pocket” arbitration courts and “unload” the state courts. Pocket arbitration courts exist when a party to a dispute is the organizer of the arbitration court. In other words, such arbitration courts are affiliated with one of the parties to a dispute.

The president commissioned the Russian Ministry of Justice with proposing a draft reform bill. The Russian government was supposed to submit the draft for consideration to the State Duma by 15 July 2014. However, in June 2014, the Russian Government Commission on Legislative Activity considered the draft to be too “regulated” and removed it from the agenda. The main objection of the commission was that the Russian Ministry of Justice suggested establishing expert commissions under the aegis of the ministry to grant organizations the permission to create arbitration courts. There were fears that such a committee would eliminate artificially “disagreeable” arbitration courts and promote corruption.

The Russian Ministry of Justice then prepared another draft, which the commission approved. At the present, the new version is unavailable to the public. However, it already is known that, before the commission’s approval, the authors of the proposed legislation excluded a disputed clause requiring a noncommercial organization to get permission to establish an arbitration court. According to the latest draft, the Ministry of Justice only has the right to terminate an arbitration court’s activity if it systematically violates the principle of impartiality.

The head of the arbitration apparatus, under the aegis of the Russian Union of Industrialists and Entrepreneurs, Alexander Zamaziy, pointed out that the regulation would “establish order” and solve the problem of pocket courts. He emphasized that the activity of noncommercial organizations is “much more transparent and that the access to accountability is simpler” than in commercial organizations. According to him, the regulation will help diminish the number of pocket arbitrations, eliminate violations in the arbitration procedure connected with the seizure of the property and other matters, and generally increase the attractiveness of arbitration as an alternative means of dispute settlement.

There is also information that the new version of the draft contains a provision for civil liability related to noncommercial organizations for losses parties may incur as a result of nonperformance or improper performance of a permanent arbitration institution to follow prescribed administrative procedure because of intent or gross negligence.

To improve the quality and the authority of the arbitration procedure, the draft enables retired federal judges to act as arbitrators. At the present time, retired judges do not have such a possibility. 

In general, the legal community views the reform positively. Experts think that the draft will improve the Russian arbitration system. However, not all lawyers are equally optimistic about the authors’ approach to the problem of pocket arbitrations. Some are concerned that, although the approach of the Ministry of Justice is rather severe and uncompromising, it never fully will solve the problem of the arbitration courts’ impartiality.

The Russian government is expected to approve the draft soon and then submit it to the State Duma.

The Russian-language version of this posting appears here.