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On the Issue of Adjudication in the Fuel and Energy Sector and Specialized Arbitration Courts in the Energy Branch

Andrey Gennadyevich Lisitsyn-Svetlanov, Member of the Russian Academy of Sciences Doctor of Law, Professor

In this article the author examines the future tasks of the development of the energy law, the importance of the non-court order of consideration of disputes in the sphere of energy, the importance and the tasks of specialized arbitration courts in the sphere of energy.

I am truly glad that this journal has seen light. The energy law development and improvement of the energy legislation need a debate platform. The all-Russian and international conferences on the energy law held in October, November and December 2013, whose chief convener was the Department of the Energy Law of Moscow State Law University named after O.E. Kutafin (MSLA), have once again confirmed the conclusion that this branch of law should evolve in multiple directions, including the legislative level, law enforcement, doctrine and teaching of jurisprudence.

I hope that the conducted legal research will encompass a wide range of problem aspects of the energy law, including the legal regime of energy facilities, legal regime of energy resources, corporate governance, contractual regulation, state regulation, self-regulation and international legal regulation of certain energy branches.

In this article we would like to focus on an important sub-field of the extrajudicial arbitration procedure, which is widely used in the energy industry.

The system of relations being formed in the energy industry is characterized by their legal diversity. They definitely include relations connected with the exploration and extraction of energy resources, production, processing, supply, storage and transportation of various types of energy, as well as design and construction of the energy facilities.

This list is clearly pointing to the combination of public and private-law origins of the regulation of the forming relations. The relations created in the public legal sphere and the possible disputes between their participants are resolved as part of the administrative procedure and in the arbitration courts of the Russian Federation in accordance with the Administrative Legal Code of the Russian Federation (ALC RF). As for the disputes from the sphere of the private law, an alternative to the judicial can be the arbitral form of dispute resolution (protection of rights). We should however note that a certain category of private legal disputes falls under the exclusive jurisdiction of the arbitration courts of the Russian Federation. An example from the sphere in question can be the disputes related to the real estate owned by the state (p. 2, Art. 248 ALC RF).

Depending on the character of the relations and composition of the sides, the contractual relations can be the subject of deliberation in the arbitration court (defined as the “domestic arbitrage”) or in the international commercial arbitration. The respective legal basis for the functioning of these two types of arbitration comprises two laws: Arbitrage Law No. 102-ФЗ of 24 July 2002[1] and International Commercial Arbitrage Law No. 5338-1 of 7 July 1993[2]. Since the adoption of these laws, legal practice has shown contestability of separation of the arbitration courts into “domestic” and “international”. Some arbitration courts created at that time were successful as both “domestic” and “international”, e.g. the Arbitration Court at the Moscow Chamber of Commerce.

The arbitration clause may allow referring disputes for consideration to either institutional or ad hoc arbitration courts. The domestic practice shows the preference giving to the standing arbitrations. Such preference may likely be explained by the fact that both the above-mentioned laws do not contain sufficiently detailed regulation of the ad hoc arbitration activity, while standing arbitrations operating for many years have gained a good reputation. This tradition found its continuation in the practice accepted in the energy industry, where several standing arbitration courts are currently in operation.

However, the active development of a draft law foreseeing “the optimization of the arbitration procedure” was launched in 2013. This resulted in the federal draft law “On the Arbitration Courts and Arbitration in the Russian Federation”[3], which was presented for public discussion. According to the explanatory note written by its authors, the draft law aims at creating an effective mechanism of the legal regulation of arbitration with the consideration of the international practice and the current state of the given institution in the Russian Federation. The suggested text triggered a lively debate, in particularly among the lawyers who possess years of practical experience in the area of commercial arbitration, as well in the business community, which forms the bodies of the arbitration in various spheres of economic activity, including the fuel and energy sector.

One can approach the draft law from various points of view. However, it is indisputable that the advantages of the suggested regulation should be primarily perceived and assessed by those who may become the participants of arbitration trials. Besides, the advantages of the new regulation should be obvious in comparison to the currently acting Law on Arbitration Courts of 2002, as the business community of the Russian Federation has got used to its application. Viewed through this lens, the suggested reform draws more criticism than support.

The arbitration form of the protection of rights is in itself an alternative-free absolute form of legal protection. It is acceptable when and as long as it is determined by the national legislation. The acceptability of the arbitration determined by the law is conditioned on the fact that the sides entering the legal relationship on mutual consent relinquish the guaranteed protection of the court and transfer their dispute for the resolution by private persons, who would act on the procedure agreed upon and accepted by the sides of the dispute. The reasons for resorting to arbitration are shaped by various factors. To a large degree, it is conditioned on the peculiarities of the legal system and the procedural legislation of a certain country. However, one can single out the main causes, which prompt entrepreneurs to give preference to the arbitration procedure of resolving a dispute. Firstly, it provides an opportunity to choose as arbiters the persons possessing special knowledge in the issues constituting the subject of the dispute; secondly, it enables the sides to examine the dispute in the agreed place and in the order convenient to the sides; thirdly, the sides can avoid going through “the multiple stages” of a dispute, which is prescribed by the procedural legislation of any country; fourthly, arbitration secures the confidentiality of the examination of the dispute.

Based on the above, one should assess whether the suggested draft law on the arbitration courts contains the clauses reflecting the very essence of commercial arbitration and is capable of creating an effective mechanism of “legal regulation of the institute of arbitration in the Russian Federation” as foreseen by the authors of the draft law. The assessment should be focused on the possibility of utilizing the arbitration form of dispute resolution in the area of fuel and energy complex. With respect to that, the trend towards limiting the creation and functioning of specialized standing arbitrations, granting them excessive publicity and transferring several issues related to the organization of the arbitration examination to the jurisdiction of the court, deserve special attention.

The contemporary international practice provides examples of successful functioning specialized arbitration courts. While the peculiarities of specialized arbitration, as opposed to the arbitration with universal jurisdiction, require special features both in the issues of its creation and the exercise of its functions. For Russia, where fuel and energy complex constitutes the basis of the economy, the specialized arbitration courts function is a natural phenomenon. This practice has found its convincing application in the existing circumstances, one of the examples of which is the functioning of the Arbitration Court at OAO Gazprom.[4]

OAO Gazprom, its affiliates and counteragents, whose activity is oriented at cooperation with Gazprom, objectively form the largest business community functioning on the basis of multiple contractual relations, which have their specificity not only vis-à-vis the other sectors of the economy, but also the other sectors of the fuel and energy complex. The peculiarities of other business communities may also require the arbitrations, where these communities can seek the opportunity to resolve the arising disputes with the assistance of specialists possessing in-depth knowledge of the branch, the character of the forming relations and the conditions of the fulfillment of the contractual agreements. With relation to that, the clauses of the law draft rejecting the possibility of the creation of arbitration courts by business companies, seem unfounded. Such a ban can only lead to complications in the creation of specialized arbitrations by incentivizing business companies to create NGOs fully controlled by those companies, which would possess the right to found arbitration courts. Besides, dispute resolution in ad hoc arbitration, as an alternative to the standing arbitration, provides for that the sides of the disputes, i.e. business entities, would manage the arbitration themselves.

Another clause of the draft law, which raises objections, provides for the authorization- rather than the notification-based order of founding arbitration courts and the need to apply for permits for the already acting arbitrations. The draft law comprises detailed requirements, with which every acting arbitration court should comply. Such an approach can create complications in founding specialized arbitrations. Finally, the draft law violates the principle of confidentiality by obligating the arbitration court to publish online a significant amount of information not only about the court itself, but also on the cases under consideration. This alone runs contrary to the principles of the arbitration process, and appears to be especially inacceptable for examining disputes within a particular business community.

The above-mentioned remarks constitute only a part of the critique, deserved by the draft law. However, it is important to pay special attention to these points because they reflect a dangerous trend aimed at stripping arbitration of its main feature, which is to serve as an independent alternative to the resolution of disputes in court.

[1] Federal Law No. 102-ФЗ of 24 July 2002 “On the Arbitration Courts in the Russian Federation” // Code of Law of the Russian Federation. 2002. No. 30. Art. 3019.

[2] Law of the Russian Federation No. 5338-1 of 7 July 1993 “On the International Commercial Arbitration” // Rossiyskaya Gazeta. 1993. 14 August.

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