Russian Legal Update - Third Quarter 2011

Certain provisions of Russian law imply that real estate disputes may be the subject of arbitration; however, none explicitly allow for such a possibility. The Supreme Commercial (Arbitrazh) Court of the Russian Federation (the "RF Supreme Commercial Court")1 has taken the position for more than six years that disputes concerning real estate may only be heard by Russian state commercial (arbitrazh) courts. The court's approach was based on the rules requiring public control over real estate through mandatory registration of titles and/or transactions by state authorities.2 As a result, Russian state commercial (arbitrazh) courts have enjoyed a monopoly on hearing real estate disputes and denied enforcement of awards of arbitral (treteiskiy) courts and tribunals on such matters.3

In a spring 2011 case disputing the execution of a Russian domestic arbitral court decision on the foreclosure of pledged (mortgaged) real estate, the RF Supreme Commercial Court appealed to the Constitutional Court of the Russian Federation (the "RF Constitutional Court") requesting that it rule on the constitutionality of the provisions of several Russian laws permitting real estate disputes to be submitted to arbitration. By means of Resolution No. 10-P, dated May 26, 2011, the RF Constitutional Court ruled that the disputed provisions of the Russian laws at issue comply with the Russian Constitution and that disputes on real estate located in Russia may in fact be subject to arbitration.4

The Constitutional Court noted that the state registration of rights to real estate, which provides public assurance of transparency and authenticity of real estate transactions, does not actually change the nature of civil relations with regard to real estate. Accordingly, the registration requirement does not preclude the possibility of real estate disputes being considered by arbitral panels and tribunals.

This position of the Constitutional Court is also fully applicable to real estate disputes involving foreign entities. The exclusive jurisdiction of commercial (arbitrazh) courts5 over such disputes bans agreements on change of venue, but does not prevent parties from using arbitral tribunals.

The Resolution of the Constitutional Court is final, direct and binding for all entities and state authorities.6 This means that a state commercial (arbitrazh) court can no longer deny the enforcement of an arbitration award issued in a real estate dispute on the grounds of improper venue.

Footnotes

1 The RF Supreme Commercial Court is the highest state commercial (arbitrazh) court of the RF. Commercial arbitrazh courts hear economic disputes between legal entities and/or individual entrepreneurs. The Russian term "Arbitrazh" should not be confused with the English term "arbitral." Arbitration (as opposed to commercial) courts in Russia are called "treteiskie sudi."

2 See Clause 27 of Information Letter No. 96 of the Presidium of the RF Supreme Commercial Court, dated December 22, 2005; Resolution No. 17373/08 of the RF Supreme Commercial Court, dated May 12, 2009.

3 The arbitration court may independently decide on its own competence to hear a case on the basis of an agreement which provides for arbitration, but its final award requires enforcement through an order of the state commercial (arbitrazh) court.

4 Although the particular case concerned domestic arbitration courts of the RF, we understand that the position of the RF Constitutional Court is also applicable to international arbitration forums.

5 See Chapter 32 of the Commercial (Arbitrazh) Procedure Code of the Russian Federation "Competence Regarding the Hearing of Cases Involving Foreign Entities".

6. Articles 6 and 79 of Federal Constitutional Law No. 1-FKZ "On the Constitutional Court of the Russian Federation," dated July 21, 1994.

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