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The agreement stipulates dispute resolution in Asia. Advantages for Russian party

October 2015 - Litigation & Dispute Resolution. Co-Publishing von Goltsblat BLP.

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The agreement stipulates dispute resolution in an Asian arbitration centre. Advantages enjoyed by the Russian party

Kent Philips, Partner, Head of International Arbitration BLP

Rimma Malinskaya, Dispute Resolution Practice, Head of Group in the Goltsblat BLP

– Specifics of the arbitration proceedings in Asia

– Risks to be taken into account when applying to a certain arbitration centre

– Advantages of considering disputes in Singapore

The agreement stipulates dispute resolution in an Asian arbitration centre. Advantages enjoyed by the Russian party

Kent Philips, Partner, Head of International Arbitration BLP

Rimma Malinskaya, Dispute Resolution Practice, Head of Group in the Goltsblat BLP

International disputes involving Russian parties are routinely resolved in the leading arbitration centres outside Russia. Sometimes foreign counterparties insist on a neutral venue and arbitration centres in London, Paris and Stockholm have historically been the popular choices by parties. In some cases, as the Russian parties hold these aforesaid arbitration centres in high regard, they themselves submit their disputes to these arbitration centres as a matter of choice.

Be that as it may be, it is a good time for Russian parties to start thinking critically about whether they should be taking advantage of the increasing competition between arbitration centres around the world by choosing arbitral seats outside of Europe, and even consider other options to resolve their disputes e.g. before the Singapore International Commercial Court. In particular, there may be comparative advantages arising from the differences in the legislative and legal systems. There is, of course, the practical issue of economic sanctions by the European Union (“EU”) and the United States of America (“US”). Further, following some high-profile disputes heard before English courts, there are signs that the faith of Russian parties in the English legal system is — rightly or wrongly — not as absolute as it once was.

Key Asian arbitration centres are distinguished by independent courts and experienced arbitrators

The arbitration centres in Asia, particularly Singapore and Hong Kong, now offer credible alternatives to the traditional arbitration centres in Europe. Various statistics have demonstrated that in the past 5 years, the arbitration centres in Asia have become more popular among international arbitration users. For instance, ICC statistics list Singapore as the third most popular seat (behind London and Paris) and the Singapore International Arbitration Centre (“SIAC”) was listed as the 4th most popular international arbitration centre (after London Court of International Arbitration (“LCIA”), International Chamber of Commerce (“ICC”), and the International Centre for Dispute Resolution (“ICDR”)).

The success of Hong Kong and Singapore is a product of many factors, some of which are common to both. This is founded on the strength of the rule of law itself, with fair, neutral and independent courts being at the heart of this. They are the principal beneficiaries of the practical and perceived difficulties in terms of fairness and efficiency faced by those litigating commercial disputes in other parts of Asia.

It is also an advantage that both Singapore and Hong Kong inherited the English legal system, with their domestic laws being based on common law and generally closely following English law. International business is comfortable with English law as the substantive law of the contract. For Singapore at least, most senior arbitration practitioners will have had at least some experience with civil law, particularly with the applicable laws in Indonesia which are derived from the Dutch civil codes.

Both jurisdictions are longstanding signatories of the New York Convention, backed by arbitration laws based on the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), and have well established pro-arbitration stances. Hong Kong (with Hong Kong International Arbitration Centre (“HKIAC”)) and Singapore (with SIAC) have also benefitted from having their own arbitral institutions championing the cause of arbitration in Asia. The panels of arbitrators in HKIAC and SIAC feature some of the world's leading arbitrators. Other eminent arbitration figures at a global level also feature prominently in their governing bodies, with SIAC recently appointing Gary Born as its new President of the SIAC Court of Arbitration.

Key Asian arbitration centres provide Russian parties a neutral venue

In terms of practical considerations for Russian parties in deciding whether to opt for these arbitration centres in Asia, we would indicate, first, the location of these centres. This might seem trivial in this century of global connectivity but if the majority of the likely factual or expert witnesses or your legal team is located in Siberia or Far East, travel expenses could be reduced considerably by choosing the seat of arbitration closer to Asia.

Favourable location of the arbitration centres is a good advantage but not the only one. In view of the changes in the geo-political landscape, arbitration centres in Asia provide credible and comfortable alternative for Russian parties, even for those that are not situated close enough to Asia to benefit from the lower costs of travel.

It is known that Asian countries have not supported US and EU’s sanctions against Russia or introduced their own, apart from Japan, and, therefore, these States constitute a neutral forum for Russian parties. In particular, having the seat of arbitration in Singapore at the very least decreases the likelihood of an arbitral tribunal interpreting the US and EU’s sanctions as imperative norms of the seat of arbitration that are to be applied irrespective of the applicable law.

Further, as English language, which is so widely spread and accepted as a universal way of communication in Russian business, is one of the official languages in Singapore and Hong Kong, Asian arbitration centres could arguably be considered free of language barriers for Russian parties. In any case, parties can always choose Russian as the language of the arbitration. In fact, SIAC and HKIAC now offer parties the options to choose Russian-speaking arbitrators, secretariat staff, and even arbitration rules in Russian.

As mentioned above, adherence to the rule of law and support of the arbitration by judicial system are the widely recognised features of Singapore and Hong Kong. Procedural rules in SIAC and HKIAC would be familiar to those acquainted with European arbitration centres rules and many arbitration practitioners speak highly of the independence of the judiciary in Singapore and Hong Kong as Lord Hoffmann did in his December speech at a lunch seminar at Hong Kong.

All these as well as other features of the most popular arbitration centres in Asia make Asia’s arbitration centres a rather attractive alternative for Russian business: the same quality of arbitration without the risks of sanctions.

Russian parties should nevertheless review the specifics of the arbitration centre which one is inclined to choose. This is to avoid any belated discovery of unexpected peculiarities in the arbitral procedure that may not correspond to one’s expectations. For example, if the parties agreed on dispute resolution in PRC but failed to expressly agree on the language of the arbitration, the arbitration shall be conducted in Chinese, even if none of the parties is from China. This will both result in increased translation and interpretation costs of the arbitration and decrease in the pool of available arbitrators.

That said, consulting legal practitioners who are located in the country of the arbitration centre or are experienced in dealing with the relevant arbitration centre can easily help to mitigate any risks arising from differences in legal traditions and procedures.

Advantages of resolving disputes by arbitration in Singapore

Singapore is probably the most globalised country in the region in terms of the breadth of its appeal to business not connected with Singapore. It serves a number of jurisdictions and is widely chosen as the place for dispute resolution as an alternative to Indian courts, where the concerns about delays in the Indian judiciary (for appeals in particular) are acute. Despite the positive recent developments, foreign parties remain reluctant to agree to India as the seat of the arbitration. Singapore has hence been the main beneficiary.

SIAC is just one of the institutions present in Singapore. The ICC has an office in Singapore but does not administer arbitrations there. The AAA's ICDR has a presence there, as do specialist institutions such as the Singapore Chamber of Maritime Arbitration and WIPO. Ad hoc arbitrations are still common. The development of Singapore as an arbitration centre has had strong government support. There are excellent facilities at Maxwell Chambers, a dedicated facility for arbitration. Efforts have also been made to ensure that parties looking to bring their disputes to Singapore have a full range of integrated dispute resolution options. In this regard, the Singapore International Mediation Centre (“SIMC”) is a new mediation centre with an excellent set of rules and has been set up with the specific intention of resolving international commercial disputes.

Another new initiative is the Singapore International Commercial Court (“SICC”), a new division of the Singapore High Court with a distinguished panel of international judges. It has its own set of rules, including provisions for disclosure of documents, procedures which do follow the best practices of litigation processes in the world, and a flexibility offered to parties which is familiar to international arbitration lawyers. Establishing the SICC demonstrates the commitment made to attract disputes unrelated to Singapore, emulating the experience the English Commercial Court has had, particularly with Russian cases.

Advantages of resolving disputes by arbitration in Hong Kong

Hong Kong has Model Law-based arbitration legislation, which has been amended to ensure that it meets the latest needs of the international arbitration. Hong Kong has its own arbitration institution in the form of the HKIAC, set up in 1985. It is nominated as the appointing authority under the local arbitration legislation, the Arbitration Ordinance 2013.

It has seen significant growth in recent years, notwithstanding the substantial increases in mainland Chinese institutional arbitration as noted below. It is amongst the most innovative of institutions as seen in some of the key developments in its latest (2013) rules with the provisions for multi-party arbitrations being a notable example. It is also known for its relatively light touch in terms of administration without ,for example, the centralization of China International Economic and Trade Arbitration Commission (“CIETAC”) or the scrutiny of awards under the ICC. Hong Kong is the home in Asia for the ICC, which administers arbitrations there under the same rules as it does elsewhere. CIETAC has opened a sub-commission in Hong Kong, to which Hong Kong curial law applies. Ad hoc arbitrations (some under the UNCITRAL Arbitration Rules) are common and will be familiar to those used to arbitrating in London.

Further, the Hong Kong Courts have a long established supportive stance towards international arbitration. Hong Kong's traditional appeal has been to the resolution of disputes in the commodities and construction sectors. While these remain important, the scope of disputes now resolved in Hong Kong is much broader, with 47% of cases for 2013 being described as ‘commercial’ and another 27% ‘corporate'. Often seen by external parties  as the gateway to mainland China, Hong Kong is a global hub for international disputes even if its caseload is still slanted towards mainland China-related work. It is sometimes perceived that Hong Kong is not a "neutral" seat for those doing business in mainland China but this does not reflect the reality.

Conclusion

Singapore and Hong Kong, and their arbitration centres, are at the leading edge of thinking and developments in international arbitration, and key arbitration innovations are being promulgated in Asia. Both are now mature and credible alternatives to London, Paris, Stockholm and other European centres. They benefit from a strong commitment to the rule of law, neutral independent court system with a tradition of respect for arbitration, sound legislative framework, institutions with a track record of promoting arbitration and progressive thinking, a choice of professionals available (locally and from Europe), arbitration friendly infrastructure and choices as to language.

At a time when Russian parties are and ought to be looking for other dispute resolution solutions around the world, arbitration in Asia has much to offer.