Recent Russian sanctions – particularly those implemented by the EU and the US – have boosted interest in Asian arbitration markets among Russian businesses. James Rogers (editor ofInternational arbitration report) and Andrey Panov explore whether this presents more opportunities for Asian arbitration.
In what way do Russian sanctions affect commercial arbitrations?
The current sanctions regime may affect ongoing or anticipated arbitrations in a number of ways:
- Arbitral institutions located in countries implementing sanctions many need to obtain licenses from their governments to administer arbitrations involving sanctioned persons; this will also apply to law firms resident in such relevant states.
- Nationals from states implementing sanctions may also be prevented from arbitrating cases without obtaining relevant licences (this applies particularly to US nationals).
- Banks may delay or even be unable to process arbitration-related payments, depending on the status of the persons ordering such payments.
- The sanctions regime may form a part of the law applicable to the dispute either by virtue of the seat being in the relevant state or because the law applicable to the merits of the case is that of a state implementing sanctions. So, for example, EU sanctions may arguably be applicable to a dispute by virtue of the parties’ choice of English law to govern and/or Paris as a seat.
- The sanctions may also, in theory, prevent enforcement of an award in favour of a sanctioned person in a state that has adopted sanctions or – at least in theory – prevent enforcement of an award against a sanctioned person in Russia.
As yet, there are few examples to draw on to say which of these risks is most likely or relevant. The effect of sanctions will also differ depending on the level of sanctions against a particular person.
Broadly, there are three types of sanctions:
- Sanctions against certain persons, involving freezing of assets. Arguably, arbitrations involving such persons could be effectively blocked since institutions or their banks would be unable to accept payments made by such persons.
- Financial sanctions against certain companies restricting their ability to obtain long-term funding. In theory, such financial sanctions should not impact a case proceeding, other than to require institutions, law firms and arbitrators to obtain licenses, where relevant.
- Sectoral sanctions, restricting business relationships with Russian parties in certain sectors, such as the oil industry. It is likely that sanctions of this type will affect the outcome of a case, depending on the treatment of such sanctions under the relevant applicable law and contract.
Although there is some anecdotal evidence of arbitrations being delayed due to sanctions, we are not aware of any case where the sanctions regime has materially affected the outcome of a dispute. While the arbitral institutions admit that the sanctions have made their lives and internal procedures more complicated, this has not rendered them unable to administer disputes.
Are Russian parties concerned about sanctions?
The response of the Russian parties is mixed.
Many companies that carry out projects internationally (particularly those that are state-owned or controlled) have started looking into alternatives to long-standing leaders such as the LCIA, ICC or SCC. Some have even declared that the usual traditional venues will no longer be acceptable for their arbitrations. However, it would be premature to say that they are changing their policies with respect to acceptable arbitration venues altogether. Many major companies have come to realise that there is no ‘default’ arbitral institution and that choices should be made on a case-by-case basis.
Many Russian companies have not been affected – and are not likely to be affected – by the sanctions regime, and there does not seem to be an overwhelming move towards new arbitral institutions.
The attitude of many Russian companies is best demonstrated by a recent survey conducted by the Russian Arbitration Association (RAA). The majority (over 50 per cent) of those surveyed stated that, while sanctions did not affect the functioning of the Western arbitral institutions, they believed that the political situation overall ‘changed the attitude of European arbitrators to Russian companies’. Despite that, over 55 per cent of the respondents confirmed that they will continue including arbitration clauses in favour of the Western arbitral institutions in their agreements.
Do Russian sanctions present new opportunities for Asian arbitral institutions?
Asian arbitral institutions certainly believe the sanctions regime represents an opportunity for them, and they have increased their presence in the Russian market enormously over the past year. SIAC and HKIAC (probably the most active ones) are present at all professional gatherings in Moscow and St Petersburg, and both institutions seem to be intent on making themselves more Russian user-friendly. They have been hiring Russian-speaking members of staff, offering Russian translations of their rules and are looking at expanding their pool of Russian-qualified arbitrators. This has definitely raised Russian awareness of the alternative venues, which were largely unknown before.
More importantly, perhaps, we are likely to see more Russian businesses coming to Asia to make purchases they cannot now make with European or US suppliers, or for funding they are unable to find elsewhere. This increased level of Russian business activity in Asia will probably boost the number of disputes – and Asian arbitral institutions may be a more natural and practical choice for these types of disputes than Western ones.
Can Asian arbitral institutions solve the issues posed by the sanctions?
Choosing an Asian arbitral institution will address some of the issues involved, but not all. For example, the institutions may not need to wait for a licence to administer the dispute, but certain arbitrators may still be unable to accept appointments and the banks may still be unable or unwilling to carry out transfers involving funds of persons under sanctions.
Also, to the extent that the sanctions regime may form a part of the law applicable to the dispute, it may still affect the outcome of the case, no matter where the seat is. For that reason, some Russian companies will, no doubt, start looking at Hong Kong or Singapore law, rather than English law.
So, while choosing an Asian arbitral institution may be helpful, it is in no way a magic anti-sanctions pill.
Will Western arbitral institutions lose some of their Russia-related work to their Asia counterparts?
We will probably see a reduction in the number of Russia-related cases in the Western arbitral institutions and a corresponding increase in Asian arbitration centres, particularly SIAC and HKIAC. A recent article jointly published by the ICC, LCIA and SCC downplays the impact of sanctions on their ability to administer cases with Russian parties. However, the reduction in Russia-related cases in Western institutions may not all be down to sanctions. The increase of Russian business activity in Asia and the increasing awareness of Russian parties of alternative arbitration venues are both contributing factors. Singapore may be a more natural venue for arbitration of a Sino-Russian or Russian-Indian dispute, compared to, say, London. Just as Hong Kong may be a more convenient seat for an arbitration involving Russian and Venezuelan parties than, say, Paris.