The Singapore International Arbitration Centre (SIAC) and the International Court of Arbitration of the International Chamber of Commerce (ICC) received permits from the Russian Ministry of Justice to administer arbitrations, as required under the Russian arbitration legislation. Together with the Hong Kong International Arbitration Centre (HKIAC) and the Vienna International Arbitral Centre (VIAC) there are now four foreign arbitration institutions licensed in the Russian Federation.¹  

Freshfields is proud to have represented SIAC in its application.

The permit’s significance

Russia does not impose a general requirement on foreign arbitral institutions to obtain a Russian permit, and does not make the recognition of foreign awards conditional on such permits. With regard to most common commercial disputes, the permit is of no relevance. However, Russian law provides that so-called corporate disputes in respect of Russian companies (which covers many categories of post-M&A disputes in respect of Russian companies and their shares, including some types of disputes arising out of SPAs, option and pledge agreements and arguably, any and all disputes arising out of shareholder or joint venture agreements) can only be submitted to arbitral institutions holding a permit.² Thus the permit gives licensed institutions a material advantage in the market for resolving Russian post-M&A disputes.

Since the Russian arbitration reform of 2016, the M&A market has developed a specific form of arbitration agreement to deal with post-M&A disputes, so-called waterfall clauses whereby the parties rank a number of arbitral institutions in order of preference, and agree that should the parties’ dispute qualify as corporate under Russian law, it will be submitted to the highest-ranking institution that holds a permit at the time. ICC, SIAC and HKIAC have been ranked in many such waterfall clauses, along with a number of other international arbitral institutions that do not have permits. The issuance of the permits to these institutions will trigger many existing waterfall clauses and could result in an uptick in Russian post-M&A disputes referred to them.

Limitations on the permits

The permits issued to SIAC and ICC are subject to limitations identical to those of HKIAC and VIAC.

First, SIAC and ICC are not eligible to administer purely domestic Russian disputes, because the Russian arbitration legislation requires foreign arbitral institutions to establish local Russian branches in order to administer domestic arbitrations, and neither institution has done so.

Second, depending on the type of corporate dispute, additional requirements may apply. Most importantly, Article 225.1 of the Arbitrazh Procedural Code of the Russian Federation (APC) provides that disputes arising under shareholder agreements in respect of Russian companies may only be arbitrated under the aegis of eligible arbitral institutions using specialized corporate arbitration rules developed for corporate disputes in line with the Federal Law on Arbitration (Arbitration Law).³ No foreign institution has yet adopted such rules. While a December 2018 amendment to the Arbitration Law appears to have eliminated this onerous requirement (a view supported by May 2020 guidance from the Council for Enhancement of Arbitration), uncertainly remains pending further changes to the APC or guidance from the Russian Supreme Court.

The broader picture: potential for the increased use of SIAC and HKIAC for Russian disputes

Russian businesses have long referred their most sensitive commercial disputes to international arbitration. LCIA, SCC and ICC are traditionally among their top preferences, along with Russian institutions. Those preferences are likely to persist, although permits issued to VIAC and ICC will no doubt boost their market position. At the same time, HKIAC and SIAC are also increasingly popular with Russian clients. The volume of active Russian cases in these venues is modest for now, and the institutions have not yet unseated European institutions as Russian favorites. However, HKIAC and SIAC arbitration clauses, as well as waterfall clauses featuring SIAC and/or HKIAC are increasingly common, and in time this may translate into a higher Russian caseload in Singapore and Hong Kong. There are several reasons for this. Among them is the perception among some Russian businesses, in the wake of the US and EU sanctions starting from 2014, that Western jurisdictions are ‘hostile’ to Russian interests. This coincides with increasing economic interaction between Russia and Asian countries (most importantly the PRC), including investment projects in Russia involving Asian investors. SIAC and the HKIAC are often natural and neutral choices for such projects, equally acceptable to Russian and Asian parties.

Sanctions are increasingly important for Russian businesses and their foreign partners. Neither Singapore nor Hong Kong introduced any anti-Russian sanctions, and generally SIAC and HKIAC do not need EU or US sanctions licenses to administer disputes involving sanctioned entities. Although this does not insulate SIAC and HKIAC arbitration from the effect of Russia sanctions, they are less exposed to such obstacles than most Western institutions. This also reduces the risk associated with Russia’s 2020 anti-sanctions legislation, which allows Russian parties to litigate their disputes in Russian courts where foreign arbitration is hampered by sanctions.⁴

How Freshfields can help

Our firm’s top-tier international arbitration group combines strong arbitration teams in France, Russia, Singapore and Hong Kong working in close contact. We are perfectly suited to advise on Russia-related international arbitration issues, to help clients negotiate arbitration agreements and to represent them in international arbitration, whether in France, Russia, Singapore, Hong Kong or other jurisdictions. We know the Russian market well and work closely with the firm’s market-leading transactions team to foresee and avoid problems for clients and to manage them most efficiently once they arise. Our international arbitration group represents clients in the largest arbitrations in Europe, Russia and Asia. We also maintain an active practice relating to the Belt and Road Initiative.

1 There are also several Russian commercial arbitration institutions that either hold the permit or are exempted from it by law. The most accomplished of those is the International Commercial Arbitration Court with the Chamber of Commerce and Industry of the Russian Federation (ICAC).
2 Additional requirements and limitations apply, depending on the type of corporate dispute (for example, the seat may have to be in Russia). Also note that corporate disputes are mostly non-arbitrable where the Russian target company qualifies as a “strategic entity” under Russia’s foreign investment legislation. For more detail, see our Delos GAP Russia chapter at: https://pardot.freshfields.com/e/888843/edn-Russia-pdf-pdf-GAP1-Russia/p5kd/68760179?h=q1hLRiAQPvYUGuP0bGFWWClC64ONC-sOM_ILXdvU45E. Also see our practical guidance: Russian M&A Deals in the Context of the Arbitration Reform: Practical Guidance. 
3 To qualify, corporate dispute arbitration rules must provide for sharing information about the dispute among all shareholders of the company, and enable other shareholders to intervene. Such rules have been developed by the ICAC and two other Russian arbitration centers holding governmental permits.
4 For further detail see
https://pardot.freshfields.com/e/888843/luded-with-parties-targeted-by/p5kj/68760179?h=q1hLRiAQPvYUGuP0bGFWWClC64ONC-sOM_ILXdvU45E