Mediation Framework Adopted In Russia - Arbitration & Dispute Resolution

A set of mediation laws¹ came into effect in Russia on January 1, 2011, creating a framework for the extra-judicial mediation of disputes, using independent parties as mediators, with the aim of reducing the burden on the Russian judicial system.

Mediation is defined as an out-of-court procedure for settling disputes, conducted with the consent of the disputing parties. Mediation must be conducted according to the principles that it is voluntary and confidential, the parties must be cooperative and be treated equally, and the mediator must be impartial and independent.

Mediation is not a new development in Russia, but the Law on Mediation has institutionalized mediation through a comprehensive legal framework, which is a welcome new development. The Arbitrazh Procedure Code previously set out the possibility of using an intermediary for settling disputes, as well as the possibility of settling disputes through conciliation procedures. However, the Law on Mediation is designed to set out the basic regulation of mediation activities in Russia and to create benchmarks for further developing the procedures.

What Disputes Can Be Resolved through Mediation?

The Law on Mediation does not set out an exhaustive list of disputes where mediation may be used, although it does stipulate that disputes in civil matters (including those associated with entrepreneurial activities), labor relations or family issues may be resolved with the help of mediation.

The Law on Mediation states that mediation may not be used with respect to:
collective labor disputes;
civil, labor or family disputes that affect or involve rights of third parties not participating in the mediation; or

disputes affecting or involving "public interests."

Mediators, therefore, are only entitled to consider private law disputes, where a party is not a public authority and which generally do not involve administrative, tax or other relationships of a public law nature.

If a dispute is currently being heard by a state or arbitration court, the parties are not restricted from using mediation as an alternative procedure.

Legal Basis for Mediating

Mediation may occur if the parties agree in writing (in a standalone agreement or within a mediation clause of a larger agreement) and the parties may agree to mediation either before or after a dispute emerges.

When drafting a mediation agreement or clause, the parties are entitled to state that if a dispute arises under such an agreement or clause, the parties agree not to file suit in court for a certain period of time, in order to attempt to resolve the dispute via mediation. As a general principle in Russia, a party to a dispute is entitled to file a claim with a state court if the party believes that it is necessary to protect its rights. Unfortunately, Russian legislation currently does not clearly define whether a state court can remand or decline a claim that is filed in violation of a mediation clause.

It is important to note, however, that a dispute may not be transferred to an arbitration court in Russia if an agreement contains a mediation clause.

Mediation can also be agreed by a party accepting a written proposal for mediation from the other party to a dispute. However, if one of the parties to a dispute has proposed, in writing, that mediation be carried out, without a response from the other party within 30 days, mediation is deemed not to have been agreed upon. A participant to a dispute may also ask a mediator, or a special organization that acts to promote mediation,² to make a proposal to the other party detailing the reasons why mediation should be used.

The mediation procedures start when the parties to a dispute sign an agreement (subsequent to the initial mediation agreement or clause) to subject their dispute to mediation procedures. The agreement must be made in writing and contain the following information:

subject of the dispute;
mediator, mediators or the organization acting to ensure that mediation is carried out;
procedure for conducting the mediation;
terms of the parties' agreement for the allocation of expenses associated with conducting mediation; and
deadline for conducting the mediation.

Note that from the moment the parties enter into an agreement to mediate, under the amendments made to the Civil Code,³ any statutory limitation period is stayed while the mediation is carried out.

Procedure and Terms for Mediating

The Law on Mediation does not set out detailed rules for resolving disputes out of court. Everything is determined by the participants to the dispute. In a mediation clause the parties may:

independently establish the procedure for the mediation;
refer to the mediation rules approved by the organization conducting the mediation; and
authorize a mediator to independently determine the procedure for the mediation, considering the circumstances of the dispute, the desires of the parties and the need to resolve the dispute as quickly as possible.

The Law on Mediation stipulates that throughout the entire mediation procedure, the mediator may meet and maintain contact either with all parties together or with each of them separately. However, the mediator must maintain neutrality in its actions and may not give preferential treatment by ignoring the rights and legal interests of any party. Neither is the mediator entitled to make proposals regarding settling the dispute (though the parties may agree on granting the mediator such authority). If the mediator receives information from a party that relates to the mediation, it may disclose the information to the other party only with the consent of the party that provided the information.

The mediation period may be determined by the parties in the mediation clause, but may not exceed 180 days. At the same time, the law encourages the mediator and the parties to take all possible measures such that the procedure is finished within no more than 60 days.

It should be noted that if mediation is initiated by the parties after the dispute is transferred for consideration by a court, the period for conducting the mediation must not exceed 60 days. Moreover, by a joint petition of both parties, the court is entitled to postpone the proceedings in the case for the mediation period.

Mediation Results

If a mediation results in the parties finding a mutually acceptable means of resolving the dispute, they should sign a mediation agreement. This agreement must be entered into in writing and must contain the parties, details, subject of the dispute, mediation conducted and mediator, as well as the agreed obligations and the terms and conditions for fulfilling them. A mediation agreement does not need to be notarized.

Depending on the manner in which the mediation agreement is adopted, there are significant differences in its legal structure.

In particular, if a mediation agreement is entered into by the parties after a dispute has been transferred for consideration by a court, it may be approved by the court as an amicable agreement under procedural law, the law on arbitration courts or the law on international commercial arbitration.

If a mediation agreement is reached by the parties without the dispute being transferred for consideration by a court (including an arbitration court), the agreement is treated as a civil transaction (an agreement) aimed at establishing, altering or terminating the rights and obligations of the parties. Such a transaction may be subject to the usual rules of civil law on termination fees, novation, debt forgiveness, offsetting of uniform counterclaims and compensation for damages. In the event that the agreement is not performed, the other party may file a suit in a court and make a claim, for example, for compensation for losses, ordering specific performance of the obligations or for payment of penalties and/or interest for the use of another party's money.

Qualification Requirements for Mediators

The Law on Mediation provides that a mediator is an independent individual that the parties engage as an intermediary in settling a conflict, and assisting the parties to reach a decision regarding the merits of the dispute.

The independence of a mediator is expressed primarily in that he/she may not:

represent the interests of any party;
provide the parties with legal, consulting or other assistance;
act in this capacity if he or she is personally (directly or indirectly) interested in the outcome, including being a blood relative of any of the parties;
make public statements regarding the merits of the dispute without the consent of the parties; or
be a state or municipal employee.

The mediator for a particular case may be one or several persons. Special organizations may offer mediation services.

The activities of a mediator may be carried out both on a professional or a non-professional basis by persons that have reached the age of 25 who have a higher professional education and have completed training under a program for training mediators.

Mediation may be performed by a mediator both on a paid or an unpaid basis, but special organizations acting to promote mediation may only mediate on a paid basis. Mediators and specialized organizations are paid for their services by the parties to the dispute in equal proportions, unless they agree otherwise.

Confidentiality of Mediation

To ensure fairness and confidentiality, the Law on Mediation prohibits a mediator from disclosing, without the parties' consent, any information pertaining to a mediation procedure which has become known to him/her in the course of conducting the mediation.

A mediator is not subject to questioning in a civil or arbitrazh procedure about the circumstances that have become known to him/her in performing the mediation. However, these guarantees of confidentiality do not apply to the questioning of a mediator in connection with a criminal investigation or trial.

The Law on Mediation also prohibits demanding any information that the mediator or the organization conducting the mediation may have in connection with the mediation. Exceptions to this rule are permitted only by federal law or an agreement between the parties.

The confidentiality of information associated with mediation must be observed not only by the intermediary but by the parties as well. Unless the parties have agreed otherwise, at any court proceedings the parties and other attendees in a mediation are not entitled to refer to any:

proposals of one of the parties to use mediation or a party's readiness to participate in it;
opinions or proposals expressed by one of the parties concerning the possibility of settling the dispute;
acknowledgments made by one of the parties in the course of mediation; or
readiness by one of the parties to accept a proposal for settling the dispute.

Therefore, if the parties do not reach an agreement on resolving the dispute in the course of the mediation procedure, the acknowledgements, opinions or proposals expressed during the mediation procedure may not be disclosed to the court. However, during the hearing for the dispute, the court must explain to the parties their right to settle the dispute via mediation.

Advantages and Disadvantages of Mediation

There are a number of advantages to using mediation compared to resolving disputes in state courts, listed below.

Confidentiality. In contrast to court proceedings, which are public, mediation allows the parties to resolve a conflict without exposing the facts/dispute to the media and other parties.
Fast and efficient means of settling disputes. Mediation may last no longer than six months, unlike judicial proceedings, which may be drawn out for several years.
Attention to detail. General purpose courts in Russia are generally not as capable of considering the many nuances of a dispute and rely exclusively on the law. Judicial proceedings do not allow for factoring in the broader spectrum of the conflict as well as a chosen mediator can.
The mediator's lack of authority to render prescriptive decisions. Since the final decision is made by the parties to the conflict, the dispute resolution process preserves the prospect of further collaboration between the parties. Moreover, as mediation is not oriented towards deciding in favor of one party, but to a mutually constructive search for solutions, with the mediator's assistance the parties can focus on resolving the issue.
Anti-corruption element. Since the mediator does not make the final decision on the dispute, there is less likelihood that the mediator will be influenced by "outside factors."
Voluntary implementation of the decision reached based on the results of the mediation. When a dispute is resolved using mediation, the arrangements reached generally last longer and correspond to the actual state of affairs, which makes implementing them mutually acceptable to the parties, unlike judicial decisions, towards which the parties often remain hostile after they are pronounced.

However, there are also certain disadvantages to mediation as an alternative method to dispute resolution, compared to litigation or arbitration, such as:

Impossibility of enforcing an out-of-court mediation agreement. Because a mediation agreement entered into by the parties without transferring the dispute to court, is treated as a civil transaction, an interested party is not entitled to enforce the agreement without initiating judicial or arbitration proceedings. However, this does not refer to mediation agreements concluded in the course of judicial proceedings, which possess the legal force of an amicable agreement.
Uncertainty regarding the significance of a mediation clause for court proceedings. Russian law does not address the issue of whether a mediation clause may be an obstacle to transferring a dispute directly to court. Given such legal uncertainty, there is a risk that a mediation clause may be simply ignored by one of the parties in favor of a court proceeding.

Conclusions

We do not expect strong growth in the use of mediation in Russia in the short term. However, we would recommend considering the possibility of using mediation, particularly in corporate and labor disputes, where mediation has been successful in the UK and the U.S. The growing popularity of mediation in Russia may also help Russian companies reduce the reputational damage that is often associated with litigation.

Footnotes

1. Federal Law No. 193-FZ "On an alternative procedure for settling disputes with the participation of an intermediary (mediation procedure)" dated July 27, 2010 (hereinafter, the "Law on Mediation") and Federal Law No. 194-FZ "On amending certain legislative acts of the Russian Federation in connection with the adoption of the Federal Law 'On an alternative procedure for settling disputes with the participation of an intermediary (mediation procedure) dated July 27, 2010.'"

2. The most respected organization that acts to promote mediation in Russia is the Autonomous Non-Profit-Organization Scientific and Methodological Center for Mediation and Law.

3. See Article 1 of the Federal Law dated July 27, 2010 No. 194-FZ "On amending certain legislative acts of the Russian Federation in connection with the adoption of the Federal Law 'On an alternative procedure for settling disputes with the participation of an intermediary (mediation procedure).'"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Russian Federation: Mediation Framework Adopted In Russia