Dispute Resolution and Mediation Practice Newsletter (Issue 1, 2014)

Ministry of Justice promotes reform of commercial arbitration

The Russian Ministry of Justice has drafted a package of bills and has raised public discussion on the reform of commercial arbitration proceedings in the Russian Federation.

It was previously announced that, upon the instructions of the President of the Russian Federation, the Russian Government had prepared a set of measures to reform and develop commercial arbitration proceedings. The goals of the legislation are to:

• Increase the attractiveness of the arbitration form of dispute resolution.
• Adjust the number of arbitration institutions while simultaneously enhancing the quality of their work.
• Eliminate the “dependent” arbitration courts (i.e., courts established by or related to one of the parties)
• Prevent criminal conspiracies within the commercial arbitration courts.
• Ensure the competitiveness of Russian arbitration tribunal compared to the existing preference for the "off-shoring" of major disputes involving Russian companies.
• Only non-commercial organizations will be entitled to establish commercial arbitration courts, after receiving a preliminary permit from a specialized commission under Russian Ministry of Justice.

The legislative task force drafting the bills has tried to resolve the admissibility issue in arbitration disputes. The draft law includes a provision that states:

The disputes arising out of civil and other private relations are deemed admissible, provided the disputing parties may freely exercise their procedural rights as provided for by the legislation of the Russian Federation within such disputes (to make modification to causes and subject-matter of lawsuit, to plead no defense, to withdraw a case and enter into an amicable agreement).

There is no doubt that the decisions of commercial arbitration courts will no longer be published as before. Confidentiality is one of the most notable benefits of arbitration proceedings from the perspective of Russian companies. However, new requirements to maintain the court records for up to 10 years and to publish information on filings of corporate lawsuits with a specified arbitration court will be introduced.

Despite the fact that the Ministry of Justice actively promotes the reform of commercial arbitration courts (arbitration tribunals) and the expansion of their areas of competence, the Supreme Arbitrazh Court of the Russian Federation conversely has awarded judgments narrowing the scope of admissible lawsuits. The Supreme Arbitrazh Court of the Russian Federation rendered a decision where the disputes arising out of contracts on the lease of forest plots were held to be inadmissible in arbitration. The three judges noted: “The bundle of public interest, public entity, public (budgetary) funds prevails over the conveyance of forest plots under lease." This means that “arbitration tribunals are incompetent to adjudicate contractual matters concerning formation of agreements on the lease of forest plots, as well the invalidity thereof."

This decision by the Supreme Arbitrazh Court of the Russian Federation is an example of inconsistencies with the goal to develop, rather than restrict, alternative dispute resolution in Russia. In January 2014 the Supreme Arbitrazh Court of the Russian Federation excluded from its adjudicative competence any disputes relating to state and municipal contracts, due to the excessive concentration of socially significant public elements in such relations. According to experts, the Supreme Arbitrazh Court’s approach is unjust and inconsistent with international trends, considering that the number of disputes with public entities constitutes a substantial share of commercial arbitration hearings in foreign jurisdictions.

Russian President signs the law establishing a renewed Supreme Court of the Russian Federation

On 6 February 2014 President Vladimir Putin signed a set of laws that unify the two highest judicial bodies, the Supreme Court and the Supreme Arbitrazh Court of the Russian Federation. They will go into effect in August 2014.

President Putin signed three laws:

• Law of the Russian Federation on amendment of the Constitution “On the Supreme Court of the Russian Federation and Prosecution Office of the Russian Federation”
• Federal constitutional law “On the Supreme Court of the Russian Federation”
• Federal constitutional law “On the Judicial System of the Russian Federation”

These new laws concluded the process of the formation of the re-established Supreme Court of the Russian Federation as a unified ultimate judicial body that adjudicates civil, criminal, and administrative cases. The Supreme Court will also resolve economic disputes and other cases within constitutional jurisdiction of the courts.

The renewed Supreme Court will provide instructions on the issues of judicial practice and will exercise judicial review over courts of general jurisdiction, as well as arbitrazh courts. Consequently, the new Supreme Court of the Russian Federation will not fall within the system of general jurisdiction courts, which will be subject to other federal legislation.

The Supreme Arbitrazh Court of the Russian Federation is abolished by the new laws, and its powers have been transferred to the jurisdiction of the Supreme Court of the Russian Federation.

Legislation advances to impose new restrictions on real estate transactions by foreigners and their Russian subsidiaries

A bill drafted by the Ministry of Economic Development, which would impose significant new procedures and regulations on real estate transactions by foreigners, has completed public discussion and is now awaiting examination and an anti-corruption review by the Government and delivery to the State Duma for consideration.

The new law would require foreign individuals and entities to receive permits to execute transactions on real estate located within Russia.

The permit would be issued by the Federal Migration Service as a prerequisite to any transactions, as a result of which the ownership or right to real property is either created or conveyed to, or on behalf of, foreign individuals, foreign legal entities, foreign associations that are not legal entities under foreign law, stateless individuals, and Russian legal entities with foreign interest in amount of more than 50%.