VIAC to become the first European foreign arbitral institution licensed under Russia’s new arbitration legislation

The Vienna International Arbitral Centre (VIAC) has announced that the Council for Enhancement of Arbitration of the Ministry of Justice, an advisory body under Russia’s Federal Law on Arbitration dated 29 December 2015 ('the Arbitration Law'), has recommended granting it the status of a permanent arbitration institution (PAI); the form of permit envisaged under the Arbitration Law. Once VIAC has been granted the government permit, it will be the first European arbitral institution recognised as a PAI under the Arbitration Law. This development expands the choice of eligible arbitral institutions for Russian-related corporate disputes, thus benefiting users of arbitration in Austria and Russia.

According to the Arbitration Law it is mandatory for Russian arbitral institutions to obtain the status of a PAI to administer arbitration proceedings. Foreign arbitral institutions are only recognized as 'institutional' in Russia with such a permit. This is relevant for corporate disputes, as such disputes can only be arbitrated in institutional arbitration, ie before arbitral institutions with the PAI status. If an arbitration is administered by a foreign institution without the PAI status, it is considered ad hoc. In the case of ad hoc arbitration, parties may encounter difficulties in future enforcement proceedings in Russia in relation to corporate disputes.

There are only four arbitration institutions in Russia that qualify as PAIs. In addition, in April 2019 the Hong Kong International Arbitration Centre (HKIAC) became the first foreign arbitral institution to qualify as such. VIAC is the second. As a PAI, it will become eligible under Russian law to administer arbitrations arising from certain categories of Russian 'corporate disputes', for example disputes arising from share purchase agreements and share pledge agreements relating to Russian companies, and arguably, disputes arising from Russian companies’ shareholders’ agreements. This, as well as, arbitrations seated in Russia arising from non-corporate commercial disputes, which the VIAC can administer irrespective of the PAI status. (See the Global Arbitration Review article by Alexey Yadykin in relation to the issues and limitations faced by HKIAC, which would also be applicable to VIAC).

However, there are a number of disputes that VIAC cannot administer. First, VIAC will not be in a position to administer purely 'domestic disputes'. In order to do so it would need to establish a local Russian branch, which it has not done. Second, under Russian law there are certain categories of disputes arising out of corporate transactions that can only be administered by a PAI if it fulfils specialized corporate arbitration rules. To date, such rules have only been developed by three Russian arbitration institutions with PAI status but not by foreign institutions. Finally, to the extent a corporate dispute relates to a Russian company deemed a 'strategic entity' under the country’s foreign investment legislation, it would be non-arbitrable (subject to carve-outs) and cannot be referred to arbitration, even to a PAI.

Parties involved in international commercial disputes with the seat in Russia administered by VIAC will be able to exclude by 'express agreement' the jurisdiction of the Russian courts regarding the appointment of arbitrators, consideration of a request to challenge arbitrators, termination of arbitrator’s powers, and reviewing the tribunal’s decision as to jurisdiction. Further, the parties can expressly agree that the award rendered by the arbitral tribunal is final and not subject to appeal.

Our firm’s top rated international arbitration group combines strong arbitration practices in both Austria and Russia. Both offices can offer in-depth expertise into the specificities of VIAC and Russian law, making us uniquely suited to advise on Russian-related international arbitrations at VIAC.