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Business in Practice: Alternative Dispute Resolution in Ireland and Russia

March 8, 2012

Effectiveness of Arbitration Clauses and Similarities in The Arbitral Process[1]

by Lev Gantly of Arthur Cox

Dispute Resolution has historically been and continues to be an issue of discomfort for Irish/Russian investors seeking to establish a presence or develop commercial relations in the Russian Federation or in the Republic of Ireland (jointly referred to as “Potential Investors”).

Courtroom based litigation can be protracted, laborious and expensive.  Additionally, the vast discrepancies between litigious proceedings in the two jurisdictions as well as obstacles such as the language barrier and the general apprehension inherent in being a party to commercial legal proceedings in a foreign jurisdiction, all play a part in disincentivising Potential Investors from taking that essential final step to sealing the deal.

For years, the trend in international commercial contracts (for the purposes of this note, international commercial contracts means contracts of a commercial nature concluded between two parties domiciled in different jurisdictions) has been to agree to a specific arbitration clause.

At its core, a well drafted arbitration clause should contain an explicit statement that disputes should be submitted to arbitration, it should define the legal relationship between the parties and the disputes which should be arbitrated and should also specify the arbitration institution that should resolve the disputes or specify the arbitrator for ad hoc arbitrating.  Ancillary points in such clauses would be the language to be used throughout the course of the arbitration, the governing law, the number of arbitrators, the identity of the arbitrator(s) etcetera.

The effect of such a clause would be that if a dispute were to arise out of the contract, the parties would have to bring the matter before an arbitral tribunal for final determination. Such proceedings are private, expeditious and cost effective.

That arbitrators can be selected by the parties themselves usually means that an industry professional will hear the case and make an impartial decision as to its outcome. This is in broad contrast to judges who rarely if ever have industry experience and in depth knowledge of sectors such as energy, logistics, maritime and many other contentious areas.

The law governing such arbitration clauses and in turn, arbitration proceedings that follow, depends entirely on the law that governs the contract. This is usually determined by the Governing Law clause in the contract.

What Potential Investors should take from this note is that the legislation governing arbitration proceedings in Ireland and Russia is very similar. Both the Irish Arbitration Act, 2010 and the Russian International Commercial Arbitration Act 1993 are substantially based on the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 21 June 1985 (“UNCITRAL Model Law”).

This essentially means that UNCITRAL Model law rules such as those on (1) appointment of arbitrators, (2) grounds for challenge of arbitrators, (3) jurisdiction of arbitral tribunals, (4) conduct of arbitral proceedings including the equal treatment of parties, place of arbitration, language, statements of claim and defence etc., (5) making of awards and termination of proceedings and those on (6) recognition and enforcement of awards as well as several others, are very similar if not identical in both Ireland and Russia.

In summary, Potential Investors should get comfort from the notion that if an agreement or a contract to which they are a party contains an arbitration clause, the resolution of a dispute that may arise from such an agreement or contract will be conducted and concluded in a very similar manner to what that Potential Investor may already have experience of in their home jurisdiction and if not, to what they would experience in their home jurisdiction should a dispute arise out of a similar domestic agreement or contract.

[1] This note is a general, high level overview and is neither a complete nor definitive statement of the law. Specific legal advice should be obtained before taking action.

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