First of all, foreign investors start looking at Russia as a useful investment option in a time of recession. While investing in Russia, they try to be sure that possible disputes will be resolved independently and according to rules which they may easily understand. That is why arbitration clauses are often included in investment contracts relating to the construction of real estate which are concluded by foreign investors with Russian partners.

Secondly, there is a particular deficiency in Russia which gives a reason for referring disputes to foreign arbitration. Unfortunately, corporate law is relatively new and still developing in Russia. In particular, shareholders’ agreements were only officially legitimised in Russia in June 2009.1 Russian entrepreneurs sometimes structure their deals under the English or Cyprus jurisdictions, even if no foreign person is involved in the deal. This opens the opportunity to use the convenience of shareholders’ agreements and other tools available in these jurisdictions. In such cases, Russian parties prefer private arbitration tribunals to foreign state courts. This helps to avoid political risk in some cases.

While construction in Russia is currently not as active as it was before the recession, we think that many new construction projects involving foreign investors will start soon. That is why it is very important to determine which disputes related to construction and, more broadly, to real estate as a whole may be referred to an arbitration tribunal under Russian law.