Russian firms involved in disputes may turn to Hong Kong as city’s rising arbitration skills shine bright

PUBLISHED : Saturday, 09 June, 2018, 7:04pm
UPDATED : Saturday, 09 June, 2018, 9:12pm

Russian counter-sanctions in response to the United States’ and other Western countries’ sanctions have often been sneered at by Western politicians – think John McCain sarcastically bemoaning on Twitter about not being able to holiday in Siberia when he was issued with a travel ban by the Russian authorities.  

But as sanctions have been tightened and extended repeatedly over the past few months, the Russian government has decided to up the ante and aims to impose sanctions that are likely to have a more noticeable financial impact on US and EU interests.

On June 4, President Vladimir Putin signed into law a counter-sanctions act, with the rather wordy title of “On measures (Countermeasures) in response to the unfriendly actions of the USA and other foreign states”. The act significantly extends the potential scope of Russia’s counter-sanctions, targeting the US and “other foreign states” – a broad term, which can be understood to cover nations whose policies on sanctions are aligned with the US’.

The initial proposed bill included specific restrictions on goods and services, but as it went through the Russian legislative process it was amended to remove these references in favour of providing a framework and procedure that can be called to action when the president sees fit or following advice from the Russian Security Council – which is chaired by the president and made up of ministers, representatives from the regions and heads of government agencies.

Restrictions may apply to the import or the use of services from companies registered in counter-sanctioned countries or from companies with any shareholding held by an individual or company from these countries.

With Western sanctions bearing down on some Russian companies and individuals there is a mix of frustration and fatigue at the hurdles that can be present when wishing to do business in many Western nations. As opening bank accounts in EU countries, such as Latvia and Cyprus, has become increasingly difficult for some, Russian businesses are logically thinking of elsewhere to store their assets and access banking services. Also, wealthy Russians based in Britain are being asked to explain the sources of their wealth. While this may not immediately lead to Russian expats rushing to remove their children from English schools or selling second homes in Europe, the economic consequences for trade and business is likely to be more reactive.

Asia’s growing international clout and its status as a reliable and not-particularly-political partner is leading some Russians to consider its potential as a destination for listing companies, opening bank accounts, incorporating businesses and litigating and resolving disputes.

Russian firms involved in large-scale cross-border deals or transactions involving an international partner traditionally choose to enter into contracts regulated by a jurisdiction other than Russia, often English law. Such contracts can include clauses for disputes to be resolved through arbitration with London, Geneva and Stockholm continuing to receive legal work from Russian companies.

However, many of the contracts before courts and tribunals will have been entered into during better times – a shift to another jurisdiction takes time to feed through the system. Recent rising stars for arbitration venues have been the Hong Kong International Arbitration Centre, along with the Singapore International Arbitration Centre.

Without significant policy changes on the horizon it seems troubles with sanctions and counter-sanctions will persist for some time – the next round of sanctions from Western countries is likely to prompt Russian authorities to respond with something a bit punchier than travel bans. But one man’s loss can be another man’s gain and it may be that jurisdictions in Asia, including Hong Kong, stand well-placed to gain most of all.

Robert Houchill is a solicitor with Russian law firm Maxima Legal, where he heads the immigration desk and often assists with international projects, particularly cross-border transactions in western Europe