Background
RusChemAlliance and Linde entered into an EPC contract in relation to a gas processing plant and other technological facilities (“Contract”). The Contract provided for disputes to be resolved by arbitration at the HKIAC.RusChemAlliance initially applied to the Court for interim relief in support of future arbitration proceedings against Linde at the HKIAC.
However, as it follows from the Court’s ruling, in the course of preparing the notice of arbitration to the HKIAC, RusChemAlliance found that the dispute at the HKIAC would involve the application of sanctions to the Contract and the consequences of such application. RusChemAlliance decided to initiate proceedings on the merits before the Court (under part 4 of article 248.1 of the Arbitrazh Procedure Code of the Russian Federation).
As a result, RusChemAlliance filed an application for the replacement of interim relief: instead of an order to RusChemAlliance to provide a copy of the Notice of Arbitration once it is filed with the HKIAC, an order to provide a copy of the statement of claim once it is filed with the Russia court. The Court granted the application.
In turn, Linde initiated arbitration at the HKIAC and obtained interim relief from the Hong Kong High Court ordering RusChemAlliance to apply to the Court for a stay of the proceedings.
Arguments of RusChemAlliance in support of the Court’s jurisdiction. The Court’s position
RusChemAlliance made the following arguments in support of its assertion that it will not have a fair trial at the HKIAC:- Hong Kong, although a special administrative region (“SAR”) of the People’s Republic of China (“PRC”), is governed by the political and legal concept of “one country — two systems” and therefore, Hong Kong has its own political, legal and economic systems, largely based on similar systems in the UK;
- Hong Kong’s legal system is based on common law;
- judges from the UK and the European Union (“EU”) sit on Hong Kong’s highest court of appeal, and as the UK and EU nationals they must comply with the UK and EU sanctions; and
- English is one of the official languages of Hong Kong.
The Court agreed with the arguments of RusChemAlliance and found that it had jurisdiction to hear the dispute. The Court also noted that the change of position of RusChemAlliance (which initially planned to initiate the HKIAC arbitration but then changed its decision) was not a ground for applying the principle of estoppel, as such behaviour was not intended to disadvantage Linde and did not infringe its rights.
The Court dismissed the application of RusChemAlliance for a stay of the proceedings (which the company had filed pursuant to an order of the Hong Kong High Court), as well as Linde’s application for leaving the statement of claim without consideration.
Relevance and impact of the case
The HKIAC has recently become one of the most popular choices of dispute resolution forum, in particular, when a dispute is to be administered by an arbitration institution that has the status of a permanent arbitration institution (“PAI”) in Russia (eg disputes from the sale and purchase agreements or shareholders’ agreements in relation to Russian entities).The HKIAC was generally considered as a compromise option in terms of sanctions risks. In particular, other PAIs/their secretariats are located in “unfriendly” jurisdictions (eg the Singapore International Arbitration Centre and the Vienna International Arbitration Centre) or have strict sanctions compliance standards (the ICC International Court of Arbitration, whose offices are located, among other places, in France).
Despite (1) statements by arbitration institutions that they can administer disputes with persons/entities subject to sanctions and (2) the possibility of choosing the seat of arbitration in other (including “friendly”) jurisdictions, Russian parties have often generally not been comfortable enough to submit disputes to such arbitration institutions.
In this case, neither Hong Kong SAR nor PRC were considered by Russia as “unfriendly” jurisdictions. Russian parties looked more positively at the HKIAC, at least insofar as the Russian countermeasures were concerned.
However, the Court’s position creates risks of a “transfer” to Russian courts of disputes not only from the HKIAC, but also from other arbitration institutions or even seats in “friendly” countries. The Court did not follow a formal list of “unfriendly” jurisdictions, but by factual position as presented by RusChemAlliance. In view of the foregoing, it cannot be excluded that Russian parties may raise similar arguments in relation to forums in other “friendly” jurisdictions, primarily which may take Western sanctions into account to a certain extent (eg Kazakhstan or the UAE).
The Court made it findings in the interim ruling. In view of the foregoing, we cannot exclude a different approach, including from courts of higher instances, as well as from courts of other regions of Russia on other cases.
