By 22 February, 2017 0 Comments Read More →

ICAC’s new “kompetenz-kompetenz” dilemma in domestic arbitration

ICAC at Russian Chamber of Commerce

Since 27 January 2017, due to the profound Russian arbitration law reform effective from 1 September 2016, the ICAC at the Russian CCI (the “ICAC”) may also deal with domestic (non-international) arbitration.

The question arises as to whether the ICAC may now resolve internal disputes under pre-reform arbitration clauses: at the time of their conclusion it had no jurisdiction in domestic arbitration under the law, and the parties involved, therefore, did not enjoy the opportunity to express their intent to submit internal disputes between them to the ICAC.

Expansion of the ICAC’s competence

The ICAC is the leading Russian arbitral institution dealing with international commercial arbitration that is recognised all over the world. It has particularly strong influence on arbitration in CIS and eastern European countries. Annually, arbitrators conduct under its rules about three hundred arbitration proceedings to which one or all of the parties are usually foreign.

Until the recent reform of the Russian arbitration law the ICAC was able to resolve only international arbitration disputes, that is, the ones featuring a foreign element. Now the ICAC may also tackle internal disputes: it has adopted the appropriate rules which became effective this year on 27 January after their deposition with the Russian Ministry of Justice.

The “Kompetenz-Kompetenz” principle remains an essential basis for arbitral tribunals’ activities. It means that it is for the arbitrators involved to rule on their own jurisdiction.
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The key element in finding the tribunal’s competence (jurisdiction) over a particular dispute consists in a properly worded and effective arbitration agreement signed by the parties.

Core of the dilemma

The interpretation of the ICAC’s arbitration clause aiming to submit all the disputes between the parties to a contract to the ICAC’s consideration has now become challenging in some cases. It relates to the ICAC’s arbitration clauses concluded by the parties before 1 September 2016 (that is, the reform’s effect date).
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As mentioned above, the ICAC was not able to resolve internal disputes before the arbitration reform. Some existing commercial contracts, however, can include provisions conflicts under which may lead to either international arbitration due to the presence of a foreign element or domestic (non-international) arbitration depending on the circumstances of the case.

For instance, (i) a multi-party contract between foreign and national entities contains the ICAC’s arbitration clause, and a dispute arises only with respect to national parties to such contract (no foreign element) or (ii) a contract with the ICAC’s arbitration clause initially involved a Russian company with a foreign investment as one of its parties and, afterwards, a national entity acquired the foreign share (no foreign element in result).

Before the 2016 arbitration reform, disputes stemming from contracts that had the ICAC’s arbitration clause in cases as exemplified above were not subject to consideration under this court’s rules because they did not qualify as having a foreign element and, therefore, as relating to international commercial arbitration. After the reform, it does not seem that obvious whether or not it is possible to interpret the pre-reform ICAC’s arbitration clauses as allowing the submission of internal disputes to arbitration under its rules.

Interpretation options  

Two opposite approaches appear conceivable:

First, the ICAC’s arbitral tribunal may find its competence over internal disputes brought to the court − even when the parties reach no new arbitration agreement that clearly grants powers to the ICAC’s tribunal to resolve such internal disputes. They may argue that the initial pre-reform ICAC’s arbitration clause contains an express intent of the parties to submit any disputes over which the ICAC is competent to this particular court, and now it has jurisdiction over internal disputes as well (the positive approach);

Second, the ICAC is not competent in the circumstances discussed as the parties of the arbitration clause agreed to file for the court’s consideration only international commercial arbitration disputes as this was the only possible ICAC jurisdiction recognised by the law at the time (the negative approach).

Notwithstanding that it is possible to find strong arguments for grounding either approach, in the author’s opinion, the negative approach seems more logical and supported by the law as, in accordance with the reformed legislation, arbitration clauses must be interpreted by applying the legislation that was in effect at the moment of their conclusion. This could infer that the ICAC has no powers to consider internal disputes based on pre-reform arbitration clauses as they were not able to cover domestic arbitration for it was not legally within the ICAC’s jurisdiction at the time.
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Practical importance

The resolution of the said dilemma is of importance to judicial practice as the enforcement of the ICAC’s awards is at the disposal of the Russian state commercial courts. A state commercial court may not allow enforcing an arbitral award if it deems that the arbitral tribunal did not have jurisdiction to decide the merits of the dispute. Moreover, if the winning party does not file for the judicial enforcement, the award may be challenged based on the lack of the ICAC’s jurisdiction before a state commercial court.

In this light, if the ICAC follows the positive approach and the state commercial courts do not support it, the parties will end up losing time and costs associated with the arbitral proceedings, as they will face a need to bring their dispute to a state commercial court in the end. At present, there is no sufficient judicial practice on the matter to indicate the trend because the ICAC has very recently adopted its rules of arbitration of internal disputes.

Considering the time required to settle disputes before the ICAC and to enforce or challenge its awards afterwards following the state commercial courts route, it may take up to half a year to see how judicial practice tackles the mentioned problem. Before that, in order to avoid risks completely it may be worth concluding that new arbitration agreements expressly submitting internal disputes to the ICAC’s arbitrators’ consideration meet the post-reform requirements when both parties agree to the jurisdiction of this arbitral institution.

Oleg Haritonov, M.Jur (Oxon), MCIArb, Adv.

Senior Associate of the Litigation and Arbitration Practice


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