17 April 2019

To Russia With Love Hong Kong

This article was written by Andrei Yakovlev (EUME), Dorothy Murray (EUME), Alexis Namdar (EUME).

China and Russia share over 4000 km of border and now they share an arbitral institution as the Hong Kong International Arbitration Centre (“HKIAC”) becomes the first international arbitration institution to be recommended to administer arbitrations in the Russian Federation.

Since 2015, foreign arbitration institutions must be on an approved list of permanent arbitration institutions (“PAIs”) in order to administer Russian-seated arbitrations.  

On 4 April 2019, the Council for the Development of Arbitration to the Ministry of Justice of the Russian Federation recommended that HKIAC be granted PAI status. The Russian Ministry of Justice is expected to approve the recommendation by 25 April 2019.

As a PAI, HKIAC will be permitted to administer:

(i) international disputes seated in Russia within the territory of the Russian Federation; 

(ii) disputes between parties from any special administrative region;  and 

(iii) corporate disputes in respect of Russian companies which arise in several defined categories.  The permitted categories include disputes concerning share ownership, management disagreements and claims concerning the establishment, reorganisation or liquidation of Russian corporate entities.  

The practical advantages of PAI status are significant.  Most notably, a PAI administered arbitration is not an ad hoc proceeding under Russian law meaning that parties may agree to waive the right of challenge of any Award  before a Russian court (which is the non-waivable default position for any ad hoc proceeding).   This enhances speed and certainty of enforcement of awards.

Given the growing trade between China and its Russian speaking neighbours, PAI status will undoubtedly increase the attractiveness of HKIAC as an institution of choice for disputes involving Russian or CIS parties and Chinese counterparties seeking to agree a reputable institution on Russian territory.   As the Belt & Road Initiative provides economic opportunities for companies from both countries, and as companies from Russia expand into Asia and Chinese companies increase their presence in Russia, Hong Kong RAS looks to play a key role in the resolution of disputes arising from that cooperation and expansion.  

In recent years, the HKIAC has built up a panel of Russian-speaking arbitrators and translated the HKIAC rules into Russian. With Hong Kong RAS being reported as one of the top seats for respondents of a 2018 Russian Arbitration Association survey, the HKIAC is now able to bring the forum to them.  

[1]Federal Law No. 382-FZ dated 29 December 2015 “On Arbitration (Arbitral Proceedings) in the Russian Federation”
(as amended by, amongst others, Federal Law No. 531-FZ dated 27 December 2018).

[2]As defined under Russian law, for example: Kaliningrad Region and Primorsky Region special administrative zones.

[3]See Article 45(7) and (7.1) of the Federal Law and Article 225.1 of the Russian Arbitral Procedure Code.

[4]Certain limitations do remain imposed upon HKIAC, even as a PAI. As it stands, HKIAC does not have a division in Russia nor has it adopted additional “special rules” for corporate disputes. Under the Federal law, HKIAC is not, therefore, permitted to administer domestic arbitrations or arbitrate corporate disputes other than in the above categories. For example, no dispute arising out of derivative claims may be arbitrated.

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