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Arbitrating shareholders disputes in Russia – will it become a popular option?

Starting from 1 February 2017, parties are able to enter into arbitration agreements in relation to so called "corporate" or shareholders disputes.

By way of reminder, under Russian legislation, the definition of a corporate dispute embraces any dispute in relation to establishment of a legal entity in the Russian Federation, and management of, or participation in, such a legal entity. While the relevant provisions, if interpreted very broadly, can be deemed to apply even in the case of indirect shareholding in a Russian company (e.g. through an off-shore holding structure), to date there have been no cases where these rules would have been applied in such a manner. Therefore, presumably, only the disputes involving direct shareholders of Russian legal entities would fall under these rules.

The laws distinguish three categories of corporate disputes:

  • Firstly, corporate disputes involving a public element or public interests (e.g., disputes on state registration of corporations or shareholder disputes within the strategic companies) cannot be referred to arbitration and hence fall within the exclusive jurisdiction of Russian courts;
  • Secondly, disputes involving contracting parties only (e.g., disputes arising from share purchase and similar agreements) are arbitrable with some reservations, and
  • Thirdly, disputes potentially involving a greater number of parties (e.g., disputes relating to the challenge of corporate resolutions or arising out of shareholders agreements with respect to Russian entities) may be arbitrated under specifically developed arbitration rules for corporate arbitrations.

The shareholders disputes can only be referred to arbitration administered by an institution holding a permit from a Russian Government. At the time of writing only two Russian arbitral institutions obtained such – the Arbitration Centre at the Russian Union of Industrialists and Entrepreneurs and the Arbitration Centre at the Institute of Modern Arbitration. Also, the International Commercial Arbitration Court at the Chamber of Industry and Commerce of the Russian Federation (the ICAC) was exempted from the requirement to obtain a permit. It is expected that other arbitral institutions, in particular the Russian Arbitration Association (the RAA) would obtain relevant permits in the coming months.

Arbitration Rules for Corporate Disputes

Some of the arbitral institutions, including the ICAC and the RAA have already adopted and published the rules of arbitration of corporate disputes. These rules apply with respect to the disputes which potentially involve more than two disputing parties, e.g. disputes relating to the challenge of corporate resolutions or arising out of shareholders agreements with respect to Russian entities. Analysis of these rules ensures better understanding of how the procedure is going to function and, hence, better understanding of how appealing the procedure is going to be for a particular party.

Scope of the rules for arbitration of corporate disputes

Both the ICAC and the RAA rules provide that they apply only to arbitration of corporate disputes in relation to Russian-incorporated companies, but not to disputes of the second category (i.e. disputes arising out of share purchase agreements). Furthermore, parties may agree that the corporate rules will govern proceedings arising with respect to disputes of shareholders of a foreign entity, but at the moment it is difficult to see how this would work in practice and, most importantly, why shareholders of a foreign company would want to refer their disputes to arbitration under the Russian corporate disputes rules, instead of a neutral set of rules.

Parties to the arbitration clause

The ICAC rules provide that an arbitration clause may be incorporated into the charter of the entity or any separate agreement (or several agreements). If the clause is incorporated into the charter, it shall be binding upon the entity itself, all present and future shareholders and present and future directors of the entity.

The RAA decided not to govern the subjective scope of the arbitration clause in its corporate rules, but the RAA model clause recommended for insertion into the charter provides that the entity concerned and all present and future shareholders will be parties to the clause. Unlike the ICAC rules, neither the RAA rules, nor the RAA model clause mention directors of the entity as possible parties, but they would most likely fall under the definition of "third parties" for the purposes of the RAA Rules.

Interestingly, the model wording suggested by the RAA provides that the arbitration clause in the charter is an irrevocable offer for third parties that are not shareholders of the entity to become parties to the clause.

Notification about the dispute

Both the RAA and the ICAC rules provide that upon receipt of the claim, the institution must (i) notify the concerned entity and provide it with a copy of the claim and (ii) publicly post a statement regarding the dispute on the institution's website. That statement does not need to contain any details about the dispute apart from the fact that a claim has been filed. The very disclosure of the existence of the dispute may however already be problematic for some users.

Further, upon receipt of the notice the entity must notify its shareholders, though failure to notify does not preclude arbitration from continuing.

Shareholders' right to intervene

The RAA and ICAC rules provide, in line with the law, that any party to an arbitration agreement shall have the right to intervene at any stage of the proceedings and have the rights and duties of a party to the arbitration. The RAA rules make a distinction between a party that intervenes as a co-claimant or as a 'third party' (typically a party opposing claims and not advancing any claims in its own name). Such a third party under the RAA rules will have all procedural rights and duties of a party, except those rights that only a claimant may enjoy (e.g. the right to amend the claim).

Importantly, the party intervening in the proceedings has to accept the state of the proceedings at the time of its intervention.

At all stages of the proceedings both institutions will send to all parties to the dispute any and all procedural documents submitted by the other parties as well as any and all decisions rendered by the arbitral tribunal.

Formation of the tribunal

The ICAC rules provide that, unless the parties agree otherwise, three arbitrators shall be appointed by the ICAC itself. If the parties wish to participate in the formation by appointing arbitrators, all claimants and all respondents will have to jointly appoint one arbitrator for each side.

The RAA rules similarly stipulate that all parties jointly will have to agree on all three arbitrators and that the RAA will appoint the whole panel if the parties fail to agree on the composition of the tribunal.

Identical claims

Under the rules of both institutions, identical claims (claims with identical requests for relief based on the same legal grounds) will have to be heard in a single set of proceedings. Claims filed after the first arbitration with identical claims has commenced will be treated as requests for intervention.

Furthermore, the RAA rules provide that if an identical claim is submitted after a final award in the initial dispute has been rendered, the newly constituted arbitral tribunal will have to dismiss such claims due to the res judicata effect of the final award rendered in the first proceedings.

Effect of the awards

Both the RAA and ICAC Rules provide that, once rendered, any award shall be binding upon all parties to the applicable arbitration clause regardless of whether they intervened in the dispute. In other words, the award would have a res judicata effect even with respect to the persons that did not take part in the proceedings.


It seems that the option to arbitrate may not be very popular due to a significant number of potential procedural complications. At the same time, it may be very appealing to foreign investors establishing joint ventures in Russia. If a joint venture entity is established in Russia, the number of shareholders will likely be limited to two or three and the likelihood of this increasing is limited. In such circumstances, a foreign investor may prefer Russian-seated arbitration over Russian litigation. And indeed, based on the author's experience, many foreign investors consider in this context arbitration of shareholders disputes in Russia.

Certainly, to date there have been no reported arbitrations of corporate disputes under the new rules. For this reason, it is difficult to foresee all potential challenges the parties and arbitrators would be facing when arbitrating such disputes.