1.01 In 1901, I. V. Gessen, a prominent lawyer in Tsarist Russia, published an article on arbitration in the encyclopaedia Blokgaus. According to Gessen, the history of arbitration in Russia can be traced back to the seventeenth century; the Congregational Code of 1649 (sobornoe ulozhenie) had a single provision on treteiskii sud (arbitration).1 In 1831, the Statute on treteiskii sud was enacted, and was accommodated in the Svod zakonov volume X which was published in 1833.2 There was an ‘obvious influence’ of the French decree on arbitration of 16–24 August 1790.3 In this Statute, there were two different systems of arbitration: statutory arbitration and voluntary arbitration. Statutory arbitration was not based upon the parties’ free will. This was a system in which parties were mandated to choose arbitration because of the overloaded court docket. Arbitrators were not chosen by the parties; they were mostly officials from the court administration, and disputes primarily involved corporate matters. Statutory arbitration was troubled by ‘serious and endless red tape’.4 The Statute also provided for ‘voluntary arbitration’ based on the agreement of the parties. All civil cases, with some exceptions such as family law matters, could be brought to voluntary arbitration but it was very unpopular, and ‘almost no one used it’.5
1.02 Statutory arbitration was abolished by the Great Judicial Reform of 1864, and only voluntary arbitration remained in the Rules of Civil Procedure (ustav grazhdanskogo sudoproizvodstva). After all, ‘arbitration can successfully function only when there is a possibility to operate on the free will of the parties’.6 Not much development was seen (p. 2) in arbitration after the Great Judicial Reform.7 A chapter on treteiskii sud was accommodated in the Rules together with another chapter on conciliation procedure.8 All disputes that could be handled and decided by the civil court could be arbitrated, except for those involving civil registration, minor’s property tights, fiscal matters, etc. Arbitrators were called intermediaries (posledniki), and the system of arbitration was subject to strict formalities which prevented its wider use. For example, arbitration agreements had to be notarised and various requirements were provided for in the law. Non-compliance with those requirements led to the invalidity of the award. Parties had to agree on the nomination of ‘odd numbers of arbitrators’, which was obviously difficult to achieve.9 The outcome of arbitration was a final award ‘in accordance with conscience, and not with the letters of Law’. The award could be appealed to court.10
1.03 The Rules were not restrictive on the scope of arbitration, but in 1887, on the initiative of the Ministry of Justice, in order to prevent abuses and circumvention of laws, restrictions were introduced in arbitrating disputes involving real estate. According to Volkov,‘out of political consideration and for the protection of the fiscal interest, the idea of arbitration was significantly undermined’.11
1.04 There was a further move by the government to reduce the scope of arbitration by amending the Rules. Arbitration was viewed with suspicion not only by the legislature and the courts, but also by legal scholars and practitioners. According to the State Council report of 1887, flagrant ‘circumvention of law’ took place. In the end, the number of cases referred to arbitration by the parties was ‘insignificant’;12 the populace resorted to arbitration ‘extremely rarely’.13 Volkov pointed out that:
The survey serves as a proof that general arbitration, due to strong formality of our legislation and excess suspicion towards its activities from the courts, in reality, is excluded from legitimate civil transactions and only used by those people who need to circumvent the law.14
Thus, even after the Great Judicial Reform of 1864, arbitration was still viewed with suspicion because of the abusive manner in which it was utilised. It should be noted that this mistrust of arbitration is not dissimilar to the situation in Russia a century and a half later. One of the principal concerns of the Ministry of Justice and the Supreme Commercial Court in the arbitral reform process in 2010 was to prevent widespread abuse that occurred primarily in domestic arbitration.
(p. 3) 1.05 In the late 1890s, with the development of trade in wheat and other commodities, both within Russia and also with foreign entities, an arbitral institution or a commission was created at the commodity exchange in order to settle disputes in an expedient manner. This move was supported by the Ministry of Finance with the intention of introducing some order to the trading. The Ministry, for example, issued an instruction for the establishment of an arbitral committee at the St Petersburg Wheat Exchange. In 1901, the Ministry granted power to establish arbitral institutions at the remaining exchanges. Almost all commodity exchanges in Russia consequently became equipped with an arbitral institution.15
1.06 After the Bolshevik Revolution, all laws of the Tsarist regime, including the Regulation on Civil Procedure, were abolished. By the decree on the court No. 1 of 1917,16 which was one of the first decrees of the Bolsheviks, all existing judicial organs such as the territorial court, the judicial chamber, the Ruling Senate, military and maritime courts, commercial courts as well as the procuracy, advocates’ chamber, and juge d’instruction were abolished. On the other hand, this decree accommodated arbitration as a means of settling civil law disputes.17 If the parties desired, they could refer disputes in civil cases to arbitration on which a special decree was to be issued. This decree was issued on 3 February 1918.18 Arguably, issuance of this decree can be attributed to the non-state nature of arbitration which was preferred by the Bolshevik government, as well as their lack of confidence in state courts.19 In fact, several years after the French Revolution, the French law on arbitration was enacted. The revolutionary regime was of the view that this was a usual and natural way of settling commercial disputes and rendering justice.20
1.07 After the Civil War came to an end, there was a short spell of New Economic Policy (NEP), which allowed the existence of a limited scope of market economy. Companies were permitted to operate, although as Lenin put it, ‘abuse of NEP should be met with harsh measures’. Despite the absence of any law on arbitration other than the decree on the court No. 1, some trade associations set up an arbitral institution.21 However, with the launch of ‘wholesale socialist industrialisation’ in 1928, such associations disappeared together with their arbitral institution.
(p. 4) 1.08 The perceived problem of those arbitration institutions by the political leadership in the first half of the 1920s was that state enterprises could become parties to arbitration. This meant that the state could lose control over the disputes involving such enterprises. Therefore, a specialised system for the settlement of disputes between state enterprises was introduced, the State Arbitrazh?(gosarbitrazh) Despite its name this was, in fact, a state agency and had nothing to do with party autonomy. State enterprises had no choice but to refer disputes to this body. It should be noted that in 1992, after the collapse of socialism, the system of commercial courts was created on the basis of the State Arbitrazh.
1.09 In the area of international commercial arbitration in the 1920s, foreign trade contracts began to provide for arbitration for disputes between the parties. It was not only foreign trade contracts that had an arbitration clause, concession agreements also provided for arbitration. Triggered by a government decree on concession in 1920, the number of concession agreements increased in the mid-1920s. These agreements provided for arbitration as a means of dispute settlement. For example, the concession agreement between the USSR government and a Japanese consortium over an upstream oil project in North Sakhalin provided for the jurisdiction of the Soviet courts but added that this did not exclude arbitration if both parties agreed.22 From 1925, concession agreements began to contain ‘elaborate arbitration clauses’, providing for ad hoc arbitration outside the USSR.23
1.10 In 1932, A. G. Goikhbarg, a Marxist lawyer who drafted the 1922 Civil Code of the RSFSR (Russian Soviet Federal Socialist Republic), wrote that ‘almost all contracts and orders signed by our trade representatives have got a so-called arbitration clause’. This was because foreign companies did not want their disputes to be handled by Russian courts, while Russian foreign trade organisations preferred not to have the disputes settled by a foreign court, as ‘they were always biased’.24 Chambers of commerce in various jurisdictions started to set up their arbitral institutions, but it was only in 1923 that the ICC Arbitration Court was established. Thus, many of those contracts provided for ad hoc arbitration, rather than institutional arbitration.
1.11 However, according to Goikhbarg, several years of arbitration practice revealed that they had not enjoyed as much impartiality as they had expected to. In his view, foreign courts were biased, but arbitration was even worse. The chairman of the arbitral panel was often appointed by a ‘neutral organisation’, which, in reality, was ‘hostile to us’.
1.12 With the end of the NEP period, the USSR government policy turned against concession. The most celebrated case of dispute on concession is the Lena Goldfield case where a company which was operating a gold mine in the Lena region had its operation (p. 5) terminated by the Soviet government in 1929. The company initiated arbitration in which the USSR government was ordered to pay compensation. After several years of inter-government negotiation, the USSR government finally agreed to pay in installment, but the payment was stalled by the start of the Second World War.25
1.13 Two permanent arbitration institutions were established in Russia in the early 1930s: the Foreign Trade Arbitration Commission (VTAK) and the Maritime Arbitration Commission (MAK) attached to the USSR Chamber of Commerce and Industry. Both institutions had their respective statutes endorsed by the legislature.26 In the brochure introducing VTAK, B. A. Landau, its council member, stressed the shortcomings of ad hoc arbitration, particularly its low quality and the lack of understanding of the Soviet foreign trade system, the Soviet economic regime, and Soviet law on the part of the arbitrators. Furthermore, ‘arbitrators were extremely susceptible to anti-Soviet agitation led by some foreign groups’. Thus, it was perceived that there was a bias towards Soviet organisations in ad hoc arbitration. This led to the creation of the arbitral institution in the USSR in the form of VTAK.27
1.14 Goikhbarg, in light of the latest increase in contracts with foreign companies, encouraged Russian entities to make efforts to include an arbitration clause which refers the dispute to the recently founded VTAK. In another article published in 1936, he concluded that ‘without doubt, our trade representatives will be successful in the near future in agreeing with foreign companies on shifting arbitration to the USSR’.28
1.15 It is known that Goikhbarg played a role in the creation of the Foreign Trade Arbitration Commission, but it is not certain who the president was, since the Commission underwent a purge in 1936 with most members of the Commission executed, and documents confiscated by the NKVD (People’s Commissariat of Internal Affairs). It is presumed that Lindau was the first president of the Commission.29
1.16 During the Soviet period, only the above two institutions, VTAK and MAK, both attached to the USSR Chamber of Commerce and Industry, handled international arbitration. The former handled disputes on foreign trade transactions, while the latter specialised in maritime disputes. When limited foreign investment into the country was allowed in 1988, VTAK was renamed MKAS (the International Court of Commercial Arbitration), reflecting the expansion of the scope of its activities from foreign trade (p. 6) disputes to disputes involving foreign investment. Both MKAS and MAK had respective statutes (polozhenie) which had an effect equivalent to law.30
1.17 Statistics indicate that, in 1934 the Commission had one case with a foreign party (Mongolia) as a claimant. The number increased to seven in 1937, and to twelve in 1938. Since the late 1960s, the number of cases was mostly above 100, a great majority of them brought a foreign party, but from socialist countries. This is not surprising, since the COMECON (Council for Mutual Economic Assistance) Treaty provided for arbitration atVTAK. Between 1978 and 1981, VTAK accepted a total of 1,036 cases, 90 per cent of them being disputes with companies from COMECON and other socialist countries. The number exceeded 200 cases a year between 1980 and 1984. In the tumultuous years between 1989 and 1993, the number of cases that reached MKAS, the renamed VTAK, was around 200 but this decreased in 1993. In particular, the number of foreign claimants sharply fell, while the number of cases with Russian entities as claimants significantly increased.31
1.18 From the late 1970s, some disputes between Soviet entities and companies from the capitalist world came to be arbitrated outside the USSR, for example, in Stockholm and Paris. Between 1975 and 1979, around ten cases between a Soviet entity and a company from the capitalist world were settled by arbitration outside the USSR, while MKAS disposed of twenty-nine such cases.32
1.19 Arbitration in Soviet Russia was handled by the above two institutions. Apart from the State Arbitrazh (gosarbitrazh), which was a state agency handling disputes between state enterprises, there were no commercial arbitration institutions. An encyclopaedia of legal knowledge published in the 1960s had no entries for either ‘arbitrazh’ or ‘treteiskii sud’.33 An exception is a book published in 1962, where a reference is made to ‘treteiskii sud’ operating in limited geographical areas. It also refers to the ‘provisional statute on treteiskii sud’. The author was in favour of arbitration as a means of settling disputes without the involvement of the state which matched the political climate of shifting limited power from the state to social organisations.34 Obviously, this move did not bear fruit under socialism.
1.20 As a result, there was no comprehensive law on arbitration in the socialist period. There was no need for it. Soviet law did not allow the court to intervene in the activities of VTAK. The award made by VTAK could not be set aside by the court. Enforcement of the award was not an acute problem, since under the Soviet legal system, VTAK awards carried authority and therefore enforcement procedure was not necessary.35 (p. 7) Only towards the end of socialism when the USSR opened up for foreign investment, was the decree of the Presidium of the USSR Supreme Soviet on the enforcement of foreign arbitral awards enacted.36
1.21 Occasionally, in the socialist period, the neutrality of the Soviet arbitral institutions was questioned, but overall, those arbitral institutions maintained their credibility throughout that time.37 On the other hand, there were some inconveniences with arbitration in Russia, such as the mandatory use of Russian language and the limited choice of arbitrators. In a majority of East–West joint ventures and major projects, Stockholm, not Moscow, was chosen as the arbitration venue.38
1.23 In 1992, as part of judicial reform in the process of the shift to a market economy, a provisional statute on domestic arbitration (treteiskii sud) was enacted.39 The next year, the Law on International Commercial Arbitration (mezhdunarodnyi arbitrazh) was adopted. The Law on International Commercial Arbitration was based upon the UNCITRAL (United Nations Commission on International Trade Law) Model Law of 1988. As such, it was primarily procedural and was silent on organisational matters. The provisional statute was replaced by the Law on Arbitration (treteiskii sud) in 2002.
1.24 There were no rules on the establishment nor liquidation of arbitral institutions. In the first place, whether or not institutions other than MKAS and MAK were allowed to handle international commercial arbitration was not clear. No statute existed that prohibited or allowed arbitral institutions to arbitrate international commercial disputes.40 Under the then prevailing notion of ‘what is not prohibited by law is allowed’, this meant that any arbitral institution could handle such disputes.
1.25 As an outcome of the Arbitration Reform of December 2015 (hereinafter, ‘the 2015 Arbitral Reform’), the new law on arbitration provides that arbitral institutions, once permission is given by the Ministry of Justice, may handle both domestic and (p. 8) international arbitration. This was the first time the right to handle international commercial arbitration was specifically accommodated in law.
1 I. V. Gessen, ‘Treteiskii sud’, in Entsiklopedichsekii slovar’ Brokgauza (St Petersburg, 1901), Tom XXXIII, p. 773. For the history before 1649, see W.-P. Reese, Das Schiedsgerichtliche Process—Varfahren nach russichem Recht (Dorpat, 1847), S.5–S.29.
3 Gessen (n. 1), p. 772. F. B. Kaiser, Die Rissische Justizreform von 1864 (Leiden, 1972), S.130–S.132.
4 Volkov (n. 2), pp. 86–7.
5 Kaiser (n. 3).
7 Gessen (n. 1), p. 773.
9 Volkov (n. 2), p. 88.
10 Tiutriumov (n. 8), p. 1599.
11 Volkov (n. 2), p. 90.
12 Gessen (n. 1), p. 773,
13 Volkov (n. 2), p. 91.
14 Ibid. In the footnote, A. Boronikovski is quoted to have pointed out that disguising a transaction in the form of an arbitral award is easier: ‘judges of the state courts have to be deceived for this purpose, while with arbitration, it is not difficult to reach an agreement’.
15 Volkov (n. 2), pp. 92–3.
18 J. N. Hazard, Settling Disputes in Soviet Society (New York, 1978), pp. 9, 443–56. Decree of the VTsIK, 3 February 2018, Sob. Uzak. RSFSR No. 28, item 366. At that time, the people’s commissar of justice came from the Leftist Socialist Revolutionaries, not the Bolsheviks. According to M. V. Kozhevnikov, this was not popular among the populace. Quoted by Kucherov (n. 17).
19 Hazard (n. 18), pp. 8–9, 444–5.
21 Hazard (n. 18), pp. 451–6.
23 V. V. Vedeer, ‘The 1921-1923 North Sakhalin Concession Agreement: The 1925 Court Decisions between the US Company Sinclair Exploration and the Soviet Government’ (2002) 18(2) Arbitration International 187.
25 A. Nussbaum, ‘Arbitration Between the Lena Goldfields Ltd. and the Soviet Government’ (1950) 36(1) Cornell Law Review 31ff.. V. V. Vedeer, ‘The Lena Goldfields Arbitration: The Historical Roots of Three Ideas’ (1998) 47(4) International and Comparative Law Quarterly 747–92.
26 MKAS (International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation), the successor of VTAK, in conjunction with the Chamber of Commerce and Industry and the State Institute of International Relations, published a compilation of documents on its history since its establishment in 1932 in two volumes. Mezhdunarodnyi kommercheskii arbitrazh: opyt itechestvennogo regulirovania/samoregulirovaniia (Moscow, 2012), Tom I and II.
27 Lindau in MKAS et al. (n. 26), Tom I, pp. 148–55.
28 A. G. Goikhbarg, ‘Perenos arbitrazha v SSSR’ (1936) 9–10 Vneshniaia torgovlia 1–2. MKAS et al. (n. 26), pp. 146–7. See also (2012) 5 Treteiskii sud 82–5 for Goikhbarg’s articles.
29 MKAS et al. (n. 26), Tom I, pp. 141–6.
31 MKAS et al. (n. 26), Tom I, pp. 114–15.
37 The case involving an Israeli company and a Soviet foreign trade organisation in 1958 at the time of the war in the Middle. See R.Starr,‘Contracting with the Soviet FTOs’, Business Transactions with the USSR, New York 1976., pp.179–182.
39 Provisional Statute on Arbitration (Vremennoe polozhenie o treteiskom sude). This law was only applicable to domestic arbitration. It was replaced in 2002 by the Law on Arbitration (zakon o treteiskom sude).