In December 2015, when two bills effecting the arbitration law reform were signed into the federal laws by the President. The laws come into force on 1 September 2016, with some of the provisions becoming effective at later dates. One of the important changes concern arbitrability of corporate disputes, which will be discussing in this article.
What is a corporate dispute?
A corporate dispute for the purposes of the law is a dispute arising between the shareholders of a Russian legal entity, entity itself, its governing bodies and public law bodies – in different combinations. In 2009, the relevant amendments into the procedural legislation brought all such disputes within the exclusive jurisdiction of the arbitrazh (commercial) courts at the place of incorporation of a legal entity. The legislation also lists the categories of matters falling within the definition of corporate dispute. This was intended to exclude jurisdiction of any other court within Russia, as beforehand rather suspicious claims were routinely brought in various remote courts as a part of corporate raids tactics. The amendments provided for a single forum for resolution of disputes relating to a legal entity making disputes more transparent and easier to defend.
While the procedural legislation said nothing about arbitrability of such disputes, the court practice eventually put the possibility to refer them to arbitration into question. This was particularly unexpected with respect to the disputes arising out of the share purchase agreements, which also technically qualify as a corporate dispute for the purposes of procedural legislation. In the case of NLMK v Maksimov, the Presidium of the Supreme Arbitrazh Court upheld the lower courts' decisions that set aside an award rendered by the ICAC tribunal on the basis of non-arbitrability of corporate disputes in general.2 Since then the majority view was that all corporate disputes (within the meaning of procedural legislation) are not capable of being referred to arbitration, even though some courts suggested that the disputes under the SPA should be arbitrable.3
The arbitration law reform brings long awaited certainty in this respect, as the amended legislation clearly specifies which corporate disputes can or cannot be referred to arbitration.
Which corporate disputes can be arbitrated?
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, as described below; 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 reservations applicable with respect to all arbitrable corporate disputes are that the seat of arbitration shall inevitably be in Russia; and that the disputes shall be administered by an arbitral institution that holds specific governmental authorisation. According to the reform, all Russian arbitral institutions shall be registered as non-commercial entities and shall obtain authorisation to administer disputes by the Russian government. Foreign arbitral institutions should also apply for such an authorisation, if they wish to administer disputes seated in Russia.
The new legislation provides that the disputes falling within the third category can only be arbitrated if all shareholders of the corporation entered into an arbitration agreement. An arbitration clause may be included in the Charter of a Russian company, but needs to be adopted by 100% of the shareholders. It is no clear what happens if certain portion of shares changes hands after the relevant provision was included in the Charter. As for the arbitration clauses in shareholders agreements, arguably, they would only be enforceable if all shareholders (not just some of them) are parties to it.
Importantly, according to the new laws the arbitration agreements with respect to the corporate disputes can only be concluded after February 1, 2017, whereas the agreements concluded before that date are deemed to be incapable of being performed.
Special arbitration rules for corporate disputes
Special arbitration rules shall provide, in particular, that the arbitral institution shall inform the relevant entity about the corporate dispute (and the entity will inform its shareholders) and that the shareholders of the entity in question shall be able to join to the proceedings at any stage. The information on the commencement of the corporate dispute should also be published on the web page of the arbitral institution.
The Russian Arbitration Association and the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry are in process of developing special rules for corporate arbitration, but have not yet adopted them at the time of writing. Other institutions may well follow suit.
The new rules will likely apply only to the disputes arising out of the direct shareholding in the Russian company, rather than offshore structures holding shares in Russian entities. At least this has been a consistent practice so far in relation to the exclusive jurisdiction of Russian court in corporate disputes. Hence, the new rules will likely have limited impact on the way Russian shareholders disputes are resolved abroad.
It is possible that an option of arbitrating corporate disputes, instead of litigating them in Russian courts may be appealing primarily in the context of Russian-registered JV companies with limited number of shareholders some of which will be foreign investors. However, the confidentiality of the proceedings will be rather limited, as other shareholders and the public will inevitably know about the dispute. However, the awards would not be published, unlike the state court judgments. At the same time, the usual features of arbitration, such as ability to choose the specialist arbitrators and worldwide recognition of the resulting award may be welcomed by the parties to such disputes.
- Andrey Panov is a senior associate in the Moscow office of Norton Rose Fulbright (Central Europe) LLP
- Ruling of the Supreme Arbitrazh Court of 30 January 2012 No. VAS-15384/11.
- E.g.: Moiseenko v UR Oil Products Holdings Ltd (Resolution of the Federal Arbitrazh Court for the Moscow Circuit of 3 April 2013 in the case No. ?40-111506/2012) and Nestex AG v Klimov (Resolution of the Thirteenth Arbitrazh Appellate Count of 15 November 2013 in the case No. ?56-37022/2013).