On 25 January 2012 the State Duma of the Russian Federation passed, in the first reading, a draft law amending the Law No. 5338-1 dated 07 July 1993 "On international commercial arbitration" ("the Law").
The draft law of the Ministry of economic development of the Russian Federation provides for several amendments concerning:
— the definition and form of an arbitration agreement;
— the granting of an injunction by the arbitration authority; and
— the finality of an arbitration award.
Arbitration agreement
According to the proposed definition, an arbitration agreement is "an agreement of the parties to transfer to arbitration a particular or all disputes arising between the parties in their legal relationship regardless of whether this relationship is of contractual nature or not".
As a rule, an arbitration agreement is made in a written form. However, the draft law applies to any form of arbitration agreement as long as it duly provides the necessary information.
In addition, the draft law allows for an arbitration agreement via e-mail, provided that it meets the legal requirements applied to contracts which are signed via means of electronic communication.
Requirements for injunction
An injunction may be granted at any time during an arbitration upon a reasonable request of a claimant in order to:
— "freeze" the existing state of affairs between the parties and save evidence necessary to resolve the dispute;
— prevent damage to a party or violation of arbitration proceedings by a party's actions; or
— "freeze" the defendant's assets in order to execute an award.
Preliminary injunction
The key amendment to the Law concerns the power of an arbitration court to adopt an injunction before a claim is filed and the counterparty is notified (i.e. prior to the lawsuit).
Such a measure shall be taken only if there is a significant risk that notifying the counterparty (subject to the general rule) would frustrate the aim of the injunction.
An arbitration ruling on a preliminary injunction is binding on the parties and is in force for 20 days. Not being an arbitration award, it can't be enforced through a state court.
A court of arbitration is empowered to adopt or set aside an injunction within the abovementioned period and shall notify the respective party of its decision. Consequently, the arbitration court provides the party with an opportunity to challenge such decision.
Consequences of injunction being granted
Due to the fact that an injunction can cause damage to the "affected" party, the arbitration court may demand collateral security be provided by the requesting party. Such security is obligatory for a preliminary injunction, unless the arbitration court considers it unnecessary.
A court of arbitration may amend, suspend or cancel any injunction rulings upon the request of any party. On extraordinary occasions this may be done by the court of arbitration at its own discretion.
A party requesting an injunction shall be liable for any damages to the counter-party if the arbitration court finds the adopted injunction to be wrongful.
Nevertheless, the draft law does not amend the current cooperation procedure between courts of arbitration and state courts in respect of injunctions within arbitration.
Currently, only state courts are empowered to force an arbitration party to abide by an injunction. Upon the party's request, a state court adopts an injunction de jure and de facto against the defendant.
Subject to the Russian Arbitrazh Procedure Code ("the Code"), a requesting party shall provide the court with a copy of the arbitration agreement, as well as a copy of the claim witnessed by the arbitration court.
Thus, the preliminary arbitration injunctions proposed may not be enforced de facto without amendment to the Code (at least in relation to the copy of a claim requirement).
Finality of an arbitration award
According to the draft law, if the parties did not explicitly agree upon the arbitration's finality in the arbitration agreement, the award may be challenged within a state court only subject to Article 34 of the Law. Thus, the new definition provides an opportunity for the parties to eliminate any chance of challenging an arbitration award.
If you have any questions on the matters outlined to in this Alert and would like further information how the above may affect your business, please do not hesitate to contact CMS experts Sergey Yuryev or Igor Sokolov or your regular contact at CMS.
On-line version of this Alert can be viewed here.
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