VIAC TO BECOME SECOND FOREIGN INSTITUTION ACCREDITED TO HEAR RUSSIAN CORPORATE DISPUTES

On 18 June 2019, the Vienna International Arbitral Centre ("VIAC") received a recommendation to be recognised as a "permanent arbitration institution" ("PAI") in Russia. Coming only a few months after the Hong Kong International Arbitration Centre ("HKIAC") became the first foreign institution to receive PAI status, this development is yet another milestone in the rapidly evolving Russian arbitration landscape.

As explained in our previous blog post, after formally obtaining “permanent” status the VIAC will be able to lawfully administer a variety of Russian corporate disputes. Until recently, the few arbitration institutions that had received PAI status were all Russia-based, which meant that commercial parties had very limited choice when selecting a method to resolve their disputes through arbitration.

The VIAC applied for "permanent" status shortly after the 2016 Russian arbitration reform came into force and the PAI regime was introduced. On 18 June 2019, the Russian Council for the Development of Arbitral Proceedings (the "Council"), which is responsible for issuing recommendations on such applications, voted overwhelmingly in favour of VIAC's application.

In accordance with the Council's positive recommendation, the Russian Ministry of Justice is now due to sign a decree formally including the VIAC on the register of foreign arbitration institutions with PAI accreditation. This is expected to take place this month. Once the VIAC is formally included on the register, like the HKIAC, the VIAC will be able to administer the following range of disputes:

• international disputes seated in Russia (save for certain types of corporate disputes which are subject to special rules);
• certain procurement disputes seated in Russia; and
• a restricted range of corporate disputes (including disputes arising out of the ownership of shares in a Russian legal entity, the management of a legal entity and the activities of share registrars).

As at the date of publication, the VIAC has not expressed an intention to open a branch or representative office in Russia and will therefore not be able to administer domestic disputes between Russian legal entities unless they arise from one of Russia's "special administrative regions", which encompass the Kaliningrad and Vladivostok regions.

Moreover, as explained in our previous blog post, certain types of Russian corporate disputes can only be administered by PAIs which have deposited "special corporate arbitration rules". Unless and until the VIAC chooses to deposit such rules, it will also be unable to administer "special" corporate disputes, including disputes arising out of the incorporation, reorganisation and liquidation of legal entities and shareholders' derivative claims.

In essence, therefore, the VIAC's new powers exactly mirror those of the HKIAC, which entered the PAI register on 25 April 2019.

According to its own statistics for 2015-2018, the VIAC generally hears only a small number of disputes which involve Russian parties – there were between 5 and 9 Russian parties every year for an average of around 60 new disputes received by the VIAC. Given its new status as a PAI, however, the VIAC may become increasingly popular as an arbitration institution of choice for Russian parties and parties to Russia-related contracts in the coming years.

Comment

The addition of another reputable foreign institution to the PAI register has been welcomed as a positive step by the Russian arbitration community at large as it will widen the range of options available to commercial parties seeking to resolve their disputes through the arbitration process. It is notable that VIAC is the first European institution to receive PAI status in Russia.

Although at the date of publication no further PAI applications from non-Russian institutions appeared to have been lodged for review by the Council, it may well be that the HKIAC and the VIAC's recent success in obtaining PAI accreditation will encourage other foreign institutions to follow their lead and contribute to the further development of international arbitration in Russia.

For more information, please contact Alexei Panich, Partner, Nicholas Peacock, Partner, Alexander Khretinin, Senior Associate, Olga Dementyeva, Associate and Vanessa Naish, Professional Support Consultant or your usual Herbert Smith Freehills contact.