Russians have been moving their business and dispute resolution to Asia for over a decade, but new sanctions following the invasion of Ukraine has significantly hastened that process. Dispute resolution hubs like Singapore, Hong Kong and Tokyo are increasingly attracting Russian businesses following the implementation of Western sanctions, and that trend is set to continue as the conflict drags on.
Russia’s relationship with Europe and the West had been deteriorating since Putin’s occupation of Crimea in 2014. But it hit new lows once Russia marched its troops into Ukraine in February 2022. Western alliances, including the G7, NATO and the EU, imposed a flurry of sanctions on Russian oligarchs, companies and banks, crippling their ability to conduct business in tradition-ally favoured jurisdictions like London. To keep money flowing in, Russia rapidly increased trade with Asia – in economic powerhouses like China, India and Southeast Asia – and dispute resolution has followed.
Sanctions have influenced how Russian businesses and counterparties look at arbitration agreements, says Hong Kong-based attorney Denis Brock, who chairs O’Melveny & Myers’ international disputes and arbitration practice, and heads the firms Asia litigation practice.
“There are two aspects: concerns of Russian businesses, and concerns of those doing business with Russian companies. Given the sanctions in place, doing business with Russian companies is restricted. Russian businesses will find it difficult to transfer funds to arbitral institutions to pay fees and to pay international counsel to represent them. Those doing business with Russian entities may encounter difficulty enforcing awards in their favour: it may be difficult for Russians to transmit funds internationally to satisfy awards,” notes Brock. In terms of sanctions, Asia has had a mixed response to Russia’s invasion of Ukraine. Russia’s largest trading partner, China, has refused to condemn Russian actions. In fact, in 2023, bilateral trade between the nations grew 36 percent year-on-year to $134.1 billion. India has also remained largely neutral and in fact, has ramped up import of Russian oil in the last year, with overall bilateral trade between the countries reaching a record high of $45 billion. Other large economies like Japan, Singapore and Taiwan have imposed sanctions more in line with the West, but, in many cases, not going as far as their Western counterparts. Hong Kong has also maintained its neutrality.
Given the friendlier environment, Russian businesses have increasingly pivoted to China, India, Southeast and Central Asia, with arbitration centres like Hong Kong and Singapore seeing more Russian cases.
SINGAPORE AND HONG KONG
Since 2014, when the U.S. and EU started sanctioning Russian companies, businesses from the country have tended to prefer dispute resolution under arbitrational institutions in Asia – including the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) - rather than the LCIA or the ICC, says Kie Matsushima, a Tokyo-based special counsel at Japan’s Anderson Mori & Tomotsune. Russia’s traditionally favoured seat
of arbitration – London – has witnessed a steep decline in interest from Russian parties. As per statistics released by the London Centre for International Arbitration, Russian party involvement in its arbitral proceedings has dropped from 7 percent in 2018 to 2.7 percent in 2022.
While numbers from the SIAC and the Hong Kong International Arbitration Centre do not necessarily indicate a steep rise in Russian parties availing their services, some arbitration lawyers believe that Russia’s eastward movement following the implementation of sanctions has brought more arbitration to Asian centres, and to some more than others.
Let’s start in Singapore, a global arbitration hub which has been actively courting Russian business for the last two decades.
Lawrence Teh, Dentons’s global co-head of international arbitration, says that Dentons has historically received significant arbitration work from Eastern Europe, including Russia, both globally and in Singapore. He adds that Singapore is seen as a popular arbitration seat among Russians when dealing with Chinese and other Asian counterparties, as it is considered a neutral venue.
“Singapore was a good place for Russians particularly if they were trading with a Chinese or any other Asian counterparty. The Russians wouldn’t prefer to arbitrate in China in the same way that China would prefer not to arbitrate in Russia. Therefore, Singapore became a very acceptable result,” he notes. Singapore usually only implements United Nations sanctions in international conflict scenarios, and not those imposed by the U.S. or the EU, says Teh. But on this occasion of the conflict in Ukraine, Singapore has adopted a different approach and imposed limited sanctions against four Russian banks – VTB Bank, Vnesheconombank, Promsvyazbank and Bank Rossiya.
The implementation of sanctions against these banks has affected the Singapore arbitration market a little. “Banking becomes more difficult. Russians will find that if they’re using these four banks that have been sanctioned, they may have difficulty paying advances on costs to arbitral institutions on time,” says Teh. Singapore has also always been fair to Russian parties in arbitrations. Despite hostilities in Ukraine, Singapore-based tribunals and courts continue to make and recognise awards in favour of Russian parties, including a nine-figure claim that Teh argued for on behalf of a Russian client.
Despite this, moving arbitration to more sanction-neutral venues like Hong Kong still appears attractive at first glance. The Special Administrative Region has historically been Asia’s arbitration hub and boasts world-class legal infrastructure and a track record of delivering timely and commercially sound arbitral awards.
Matsushima believes that Russian commercial arbitration is moving from London to Hong Kong as a result of Western sanctions. “In view of the UK’s strong support for the sanctions regime imposed on Russian entities since the invasion of Ukraine, we understand that increasingly Russian entities look to Hong Kong as an alternative, as it provides a similar common law framework but under a sanctions-neutral regime,” Matsushima says. Teh also says that the firm’s Hong Kong office has seen growing number of arbitrations with Russian parties being seated there.
Other international arbitration lawyers also observe that sanctions-neutral Hong Kong, a mature arbitration market, will continue to see Russian arbitrations. Whether it will be at the cost of Singapore depends on the level of investment of the Russian business in Singapore and the view taken of the time that the Ukrainian hostilities will take to resolve. Singapore’s geographical centrality may lead Russian businesses to consider whether they should move their arbitrations elsewhere or remain in Singapore and live with the relative inconvenience of sanctions.
“I put myself in the CEO ‘s chair. If the investment in Singapore, whether it’s in terms of infrastructure or assets, is extensive. And you believe the Ukrainian question will be resolved in the relative short term. Then you won’t want to pull everything out and start again in Hong Kong because once these questions get resolved, the sanctions will go away,” a Singapore-based international arbitration lawyer says on condition of anonymity.
The lawyer also suggests that there are a lot more advantages to Singapore than Hong Kong economically, not least because Singapore is geographically more central: “The Russians do business with the Chinese, Indians and Central Asians. So, Singapore is quite geographically convenient. If you’re in Hong Kong, you’re kind of on the edge of North Asia and further away from the Indian subcontinent.”
Matsushima, who represents Japanese clients in arbitration with Russian counterparties, also says that Japanese companies seem to show increased interest in SIAC arbitration except in mainland China disputes, for which HKIAC may be more attractive.
A decision is often made based on the nature of the contract, Matsushima says. “In the current circumstances, some clients seem to be concerned that Singapore is formally recognised as an unfriendly country by Russia for the time being (though Russia does not seem so hostile to Singapore), while on the other hand, Hong Kong is perceived to be exposed to political uncertainty as part of China (infringement to independence of the judiciary) in the long term. So, the choice of arbitration may depend on the content of commercial contracts,” she adds.
SEARCHING FOR FRIENDS
So how does a Russian business or counterparty decide where to take its arbitration proceeding, in order to ensure least resistance to their ability to act and enforcement?
The Singapore-based anonymous lawyer says that most companies are looking for applicable law that does not get in the way of enforcement. He offers an example: “Take an arbitration proceeding where the contract is governed by English law. The claimant is a Russian company, and the respondent can be from anywhere. The respondent can raise the argument that this contract is governed by English law, which will not come to the aid of a party that’s sanctioned under it. In fact, this contract may have no legal effect under English law. The Russian company will then find it hard to express its rights in the arbitration.”
Teh, however, believes that Russian parties should not face issues with most governing laws in Asia. Despite sanctions, he says Singapore law continues to remain a potential choice as governing law among his Russian clients. Russia has also changed laws
to allow its courts to prevent Russian companies from resolving disputes in “unfriendly” countries, making enforcement of awards from those countries tougher in Russia.
Russian courts have been using a 2020 law to issue anti-suit injunctions to prevent sanctioned Russian companies from arbitrating their disputes outside Russia, even where there is an agreement in place, explains Matsushima. “Enforcement of such court orders outside of Russia may face obstacles, but that will be little comfort to foreign parties with assets in Russia that can be enforced against domestically,” he says. Matsushima adds that Russian courts have been selective about enforcing awards involving parties from countries with an unfriendly political relationship with Russia since the spring of 2022. She offers the example of two cases: An HKIAC award with a British Virgin Islands-based company and an ICC award in favour of a Japanese company, both sought to be enforced in Russia. “From these two cases, it is understood that Russian courts look at whether those parties enforcing awards are a company of an unfriendly country or a friendly country, and do not pay attention to whether seats are in an unfriendly country, or whether arbitration institutions are based in an unfriendly country,” Matsushima says.
OTHER JURISDICTIONS
Other Asian countries, including India, Turkey, UAE, Thailand and possibly China, may also be the beneficiaries of Russian movement to sanctions-light countries, experts say.
Countries that have not imposed sanctions could see Russians move relevant disputes there, O’Melveny’s Brock notes. This includes India, China, and Thailand, Brock says.
While arbitration in India might be attractive to Russian counterparties due to the perceived neutrality of India in relation to the Ukraine invasion, Matsushima believes India would be less attractive to Japanese companies than the traditional jurisdictions of Hong Kong and Singapore. “We note that Russian companies started looking at arbitration in Turkey or Dubai as well, but these options might not be preferable for Japanese companies, either,” Matsushima says.
