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    St Petersburg University presents a project on investment arbitration institute for BRICS countries

    St Petersburg University has presented the BRICS international arbitration project that should simplify the resolution of disputes between a foreign investor and a host state. It shall respect the balance of interests of investors and states and increase the investment attractiveness of the BRICS countries.

    The announcement was made during the 3rd International Municipal BRICS Forum by Sergei Belov, Dean of the Faculty of Law at St Petersburg University. The discussion of the initiative was also attended by: Ivan Liubin, a faculty member of St Petersburg University; Sergey Salikov, Head of the Legal Department of the Russian Direct Investment Fund; Evgenii Evseev, a lawyer at E&Y; and Dmitry Kaysin, a lawyer at Rybalkin Gortsunyan & Partners.

    ‘St Petersburg University constantly monitors the field of international commercial and investment arbitration. Today, international investment arbitration is undergoing a crisis. It has ceased to be an effective tool for resolving disputes between investors and investment recipient states, and it is crucial to restore its credibility,’ said Sergei Belov.

    According to experts, one of the main problems with arbitration today is the inequality between the parties to a dispute. The balance of interests in current international arbitration institutions favours investors as the ‘weaker’ party. For example, investment arbitration does not necessarily require the exhaustion of national remedies.

    Unfortunately, this often discourages states from participating in international agreements regulating investment arbitration, as arbitral decisions substantially limit the sovereignty of states.

    Ivan Liubin, a faculty member of St Petersburg University

    Sergey Salikov, Head of the Legal Department of the Russian Direct Investment Fund, said that the fund, acting as a catalyst for attracting direct investment to Russia, has been raising questions about investors and states defending their rights. However, currently there is no adequate legal instrument, an independent arbitration institution that could resolve potential disputes impartially and without reservations between the BRICS countries.

    The BRICS international arbitration project, developed by specialists from St Petersburg University, could serve as such an instrument. An important feature of the new arbitration institution will be its delocalisation. It will be independent of the country where the dispute is heard and its procedural laws. It will ensure the predictability of its rulings, and thus increase the credibility of the institution.

    Other novel features of the new arbitration proposed by the experts from St Petersburg University include: a mandatory mediation procedure before each dispute is heard; internal appeal mechanisms; electronic document management; and an online format for proceedings. The latter is aimed at: reducing the cost of dispute resolution, which today averages about 10 million dollars per dispute; and speeding up the process, which in today’s practice may take several years. In-person dispute resolution should only be considered in exceptional cases.

    The experts also suggest introducing a new mechanism for selecting and appointing arbitrators and considerably increasing their number. ‘It is necessary to ensure the independence of all arbitrators and to prevent this community from becoming a private club excluding outsiders,’ said Evgenii Evseev, a lawyer at E&Y.

    The project of a new arbitration institution developed by lawyers from St Petersburg University was presented at the St Petersburg International Legal Forum and the St Petersburg International Economic Forum in the spring of 2021. The proposal was supported by: the Ministry of Justice of the Russian Federation; the Ministry of Foreign Affairs of the Russian Federation; the Russian Direct Investment Fund; and representatives of higher education institutions.

    The new arbitration institution is particularly relevant today when, despite globalisation, the idea of large associations more and more often proves unsuccessful. According to the lawyers, it is now more difficult than ever to regulate disputes on the basis of just one legal system because none of them is universal. The lawyers suggest reaching a consensus and implementing a revolutionary arbitration institution that would specialise in investment disputes on the basis of BRICS because the BRICS member countries already have close economic ties. At the same time, investors from other countries will be able to join international arbitration. To do so they will have to adopt two conventions: on the mutual protection of investments and on the establishment of an arbitration institution.

    Work on the project shall continue. The experts believe that the new arbitration will be able to develop a positive practice of dispute resolution and thus increase the investment attractiveness of states.