Russia turns east: the use of Hong Kong arbitration for Russian disputes (Teresa Cheng GBS SC JP, Joe Liu, журнал "Kutafin University Law Review", N 2 (Volume 4), October 2017)

Russia turns east: the use of Hong Kong arbitration for Russian disputes

Teresa Cheng GBS SC JP,

Honourary Chairperson, Hong Kong International

Arbitration Centre,

Senior Counsel & Arbitrator,

Des Voeux Chambers, Hong Kong

Joe Liu,

Managing Counsel, Hong Kong International Arbitration Centre,

Wuhan University (LLB), Hong Kong,

London School of Economics and Political Science (LLM),

New York University (LLM)

Журнал "Kutafin University Law Review", N 2 (Volume 4), October 2017, р. 458-480.

Faced with the Western sanctions, Russia has launched its "pivot to Asia" policy, which has prompted many Russian companies to look for business opportunities and funding resources in the East. Russian businesses' growing commercial activity in Asia accelerates a potential shift way from their traditional preference for arbitration in Europe. Against this background, Hong Kong has emerged as a viable alternative to host Russian-related disputes. Hong Kong's premier arbitral institution, the Hong Kong International Arbitration Centre, has also taken active steps to develop a system that provides a fair, sophisticated and sanctions- free framework to arbitrate Russian parties' disputes.

Table of contents

A. Introduction

B. Russia's turn to Asia

C. Impact on Arbitration

D. The rise of Hong Kong

1. Neutral Forum

2. First-Class Legal Framework

3. Flexible Procedures

4. Worldwide Enforceability of Hong Kong Awards

5. HKIAC

(a) Organiszational Structure

(b) Arbitration Service

(c) Hearing Facilities

(d) Innovative Practice

(e) Commitment to Russia

E. Conclusion

References

A. Introduction

International sanctions against Russia have driven many Russian businesses to shift away from the West. The sanctions have accelerated Vladimir Putin's proposed "pivot to Asia" and led to the signing of a record number of bilateral agreements between Russia and China. With Sino-Russia ties at their best since the end of the Cold War, Hong Kong, an independently governed region of China, acts as a "super connector" between Russian and Chinese markets for both inbound and outbound investment. With its long-established position as Asia's commercial, financial and legal centre, Hong Kong serves as Russia's premier gateway to the fast growing Asian economies.

Against this background, Russian entities are looking east to resolve their commercial disputes in Asia, where the combination of well- established dispute resolution system and sanctions-free environment is perceived as an attractive alternative to the traditional venues in Europe. The Hong Kong International Arbitration Centre (HKIAC) has taken active steps to respond to this trend and develop a system to accommodate Russian-related disputes.

This article first analyses the geopolitical and economic reasons for Russia's growing commercial activities in Asia. It then discusses why Russia's pivot to Asia and the Western trade sanctions have challenged Russian parties' traditional preference for arbitration in Europe. Finally, the article addresses the emergence of Hong Kong and HKIAC as an alternative venue of arbitration for Russian parties.

B. Russia's turn to Asia

In May 2014, Russian President Vladimir Putin and his Chinese counterpart, President Xi Jingping, signed a historic 30-year, US$ 400 billion deal under which China would import 38 billion cubic metres of natural gas from Russia annually over three decades starting in 2018. Later at the APEC Summit in November 2014, the two leaders signed another blockbuster deal to establish a route to supply Russian gas to Western China. These twin agreements were examples of numerous deals concluded between Russia and China in recent years to secure the two countries' energy ties and to lessen Russia's reliance on Europe.

But Russia and China's economic cooperation does not stop there. In 2014, the Russian-Chinese trade had grown by 6.8 %, reaching US$ 95.28 billion. During President Putin's visit to Shanghai in June 2016,

the two countries issued a joint statement pledging to take actions to grow the level of bilateral trade to US$ 200 billion by 2020. Meanwhile, China has started the construction of a pipeline to deliver Russia's natural gas to Japan, Korea and north-eastern China. In return, Russia has begun to implement several infrastructure projects along the Chinaled Belt & Road Initiative, such as the construction of the Trans-Eurasian railway project.

Russia is also seeking to enhance its cooperation with other Asian economies. Its long-time Southeast Asian partner Vietnam imported US$ 730 million worth of goods from Russia in the first eight months of 2016, increased by 48% over the same period in the previous year. South Korean Hyundai Group has signed a US$ 5.1 billion deal with Russia's National Chemical Group subsidiary - Mineral Fertilizers Factory - to construct a massive fertilizer production factory in Russia's eastern city of Nakhodka.

There are geopolitical and strategic reasons that have led to Russia's turn to Asia. Russia's economy has been badly hit by plunging oil prices and Western sanctions. Oil and gas account for 70 % of Russia's export income. Since June 2015, the price of Brent crude oil has dropped from around US$ 110 a barrel to below US$ 50 a barrel. According to the Economic Expert Group, Russia's lost revenues from oil and gas are estimated to be US$ 400 billion. The Russian Ruble has also dipped, with the dollar gaining nearly 5% against the Russian currency since January 2016. These challenges faced by Russia are further intensified by the imposition of the economic sanctions following civil unrest in Ukraine and the strained relationship with the West. It has been estimated that the combined effect of the sanctions and low oil prices will make Russia lose US$ 600 billion between 2014 and 2017.

Russia needs to find new sources of revenue and funding. The fast growing markets in Asia, particularly China, offer an obvious alternative, and Hong Kong plays a critical role in this respect.

Governed by the "One Country, Two Systems" framework, Hong Kong has been ranked the world's freest economy for over 20 years and is the second largest destination worldwide for foreign direct investment. Given its financial infrastructure and proximity to mainland China, Hong Kong is the ideal platform to facilitate Chinese investment in Russia and could be instrumental in bridging Russia's Eurasian Economic Union and China's Belt & Road Initiative.

Hong Kong's role in this regard has been endorsed by a high-ranking member of the Russian establishment. During a recent visit to Hong Kong, Ms Valentina Matviyenko, the speaker of the Russian Federation Council, referred to the city as "an acclaimed global business centre" and "a place where Chinese traditions meet with the West". She also said:

"The thing is that Hong Kong is regulated by the British legal system, which is practically the same as in London, but the advantage of the Hong Kong system is that it is not politicized ... Hong Kong is absolutely neutral and is interested in developing its own territory, so in this sense is interesting for Russian businesses".

For those reasons, the Russian government has taken measures to motivate Russian companies to list their shares on the Hong Kong Stock Exchange. The immediate effect of these measures is the signing of the IOSCO Multilateral Memorandum of Understanding by the Bank of Russia on 11 February 2015. This arrangement made it possible for Russian companies to perform IPOs on the largest stock exchange in Asia. To date, two major Russian companies, i.e. RUSAL (00486.HK) and IRC Limited (01029.HK), have been listed on the Hong Kong Stock Exchange.

Numerous Russian banks hobbled by sanctions are also exploring funding sources in Hong Kong. VEB, a major Russian state-owned bank, has opened a subsidiary in Hong Kong, from which it runs its investment activities in Asia. Russia's second largest lender VTB Bank raised 1 billion yuan in a three-year debt sale in 2010. Gazprombank and Russian Standard Bank have raised 7.5 billion yuan in Hong Kong's dim sum bond market since 2012.

Russia's eastward shift has been further accelerated by the recent conclusion of the Comprehensive Double Taxation Agreement (CDTA) between Hong Kong and Russia, which came into force on 29 July 2016. For Russian companies, a key benefit of the CDTA is that Hong Kong's withholding tax rate on royalties is reduced to a maximum of 3% from 4.95%, and there are no withholding taxes in Hong Kong on dividends or interest. This arrangement offers incentives for Russian companies to structure their investment in China through Hong Kong.

C. Impact on Arbitration

The combined effect of Russia's economic reorientation to the East and the sanctions imposed by the West has impacted Russian parties' confidence in the traditional arbitral venues with immense shockwaves. According to the "2016 Russian Arbitration Association Survey: The Impact of Sanctions on Commercial Arbitration" (the "RAA Survey"), the sanctions have "impacted the preferences of the users of commercial arbitration, which may reshape the future of the Russia-related arbitration market". 45% of respondents noted that the sanctions affected their choice of dispute resolution mechanism. The impact on such choice is attributable to the following reasons.

First, in Russia, there is a growing perception of prejudice against Russian parties within the sanctioning jurisdictions. Despite assurances of equal treatment and fair process from European arbitral institutions, some Russian companies continue to have feelings of prejudice from the emotional impacts of the sanctions, fearing European arbitrators and judges might possess unconscious bias against Russian parties. Ultimately a key commercial consideration of choice of arbitral venue is trust. Arguably Russian parties' trust on Western seats has been tainted by the sanctions.

Second, there are concerns that arbitrators residing in, or holding the nationality of, the sanctioning states might decline to act in disputes involving sanctioned parties or concerning issues relating to the sanctions. Such arbitrators are known to have resigned from their ongoing cases which involve sanctioned entities, because they are restricted by their own country's sanction regime from providing services to the sanctioned parties. 11% of respondents to the RAA Survey had cases where a potential arbitrator refused to accept an appointment in an arbitration involving a sanctioned party. 6% had cases where an arbitrator resigned due to the participation of a sanctioned entity.

Third, arbitral institutions located in sanctioning jurisdictions may face practical difficulties in administering cases involving sanctioned parties and may need to take additional administrative steps to satisfy certain compliance requirements. For example, an institution in a sanctioning country may require additional information regarding parties' ownership or control structure in order to identify the involvement of any sanctioned entities or individuals. However such information is sometimes commercially sensitive, a request for which may be met with strong resistance. Potential delays may also arise where the institution is required to obtain permission from a state authority. 17% of respondents to the RAA Survey experienced such issue at the commencement of an arbitration due to the participation of a sanctioned party.

Fourth, restrictions imposed on access to funds may also cause practical problems paying arbitrators' fees and institutional costs, particularly where paying banks have sanctions concerns. 23% of respondents to the RAA Survey experienced problems with arbitration-related payments due to bank delays in processing payments or simply refusal to pay. There are also cases in which an arbitrator has refused to accept an appointment from an EU-based institution due to the risk of non-payment highlighted by the institution as a result of the involvement of a sanctioned entity.

Lastly, restrictions on travel of sanctioned parties may present difficulties in securing those parties' attendance at hearings in sanctioning jurisdictions.

The genie is out of the bottle. Russian businesses are seriously considering other options to seat their arbitrations - places where disputes can be determined under a stable and fair legal system, supported by a strong tradition of the rule of law and independent judiciary. Non-sanctioning Asian jurisdictions have been quick to express their enthusiasm to welcome Russian parties to their arbitration- friendly systems.

While arbitration in Asia remains largely unknown or unfamiliar to many Russian parties, Hong Kong stands out.

D. The rise of Hong Kong

Hong Kong is the most preferred seat of arbitration outside of Europe and the third most preferred seat worldwide (only behind London and Paris). Described as a "barren rock" some 150 years ago, the city is today a global arbitration centre that "meets or even exceeds" all standards in the Chartered Institute of Arbitrators' ten principles of an effective, efficient and "safe" seat of international arbitration.

After more than 150 years of colonial rule under the British, Hong Kong reverted to Chinese sovereignty on 1 July 1997 under the "One Country, Two Systems" doctrine. As a Special Administrative Region, Hong Kong enjoys a high degree of autonomy (except in defence and foreign affairs) and retains a separate legal system from that of mainland China. Hong Kong's legal system is based on the English common law and is guaranteed by Hong Kong's constitutional instrument, the Basic Law. Hong Kong has a long tradition of upholding the rule of law and judicial independence, which are two key foundations for the city's success as a global centre for dispute resolution.

Hong Kong has long been at the forefront of international arbitration developments. As the first Asian jurisdiction to adopt the latest version of the UNCITRAL Model Law on International Commercial Arbitration (the "UNCITRAL Model Law"), Hong Kong has taken consistent and measured steps to build a sustainable world-class arbitral framework, which includes modern arbitration legislation and a reputable arbitral institution, HKIAC. As a result, Hong Kong has been recognised as the world's second most improved seat over the last five years.

Today, there are 40-plus arbitral institutions around Asia that are "seeking to emulate Hong Kong's success". Hong Kong's success is underpinned by the following factors:

1. Neutral Forum

Among the non-sanctioning jurisdictions in Asia, Hong Kong is "one of the most neutral arbitration seats" and caters well to Russian parties' traditional preference. In the words of Justice Hamblen of the English Commercial Court, "whilst Hong Kong is no doubt geographically convenient, it is also a well known and respected arbitration forum with a reputation for neutrality, not least because of its supervising courts".

The rule of law and judicial independence in Hong Kong are constitutionally guaranteed by the Basic Law. Article 18 of the Basic Law provides that:

"The courts of the Hong Kong Special Administrative Region shall exercise judicial power independently, free from any interference. Members of the judiciary shall be immune from legal action in the performance of their judicial functions."

The independence of the courts ensures that arbitrations in Hong Kong are free from any government interference. The World Economic Forum's Global Competitiveness Report has repeatedly ranked Hong Kong as Asia's most judicially independent jurisdiction. In the report for 2015-2016, Hong Kong was ranked fourth worldwide for judicial independence. This ranking places Hong Kong ahead of jurisdictions such as the USA, the UK, Australia, Singapore and Japan.

Judicial independence in Hong Kong is also assured by the presence of international judges in the Hong Kong courts. The current specialist arbitration judge, Madam Justice Mimmie Chan, is originally from Brunei. Hong Kong's highest court, the Court of Final Appeal (the "CFA"), consists of four local judges and 13 international judges from the UK, Australia, New Zealand and Canada. Lord Millet, one of the international judges at the CFA, has commented that:

"I have sat on the Court of Final Appeal of Hong Kong for 14 years and have never experienced any political inference from China or anywhere else in all that time. All my colleagues have at all times conducted themselves exactly as English judges would in England. The local Permanent Judges are professionals to their fingertips. At no time in our discussions have I heard any of them express the slightest interest in what Beijing might think of our decisions. If I believed that the Court was susceptible to outside influence I would not be prepared to be a member of it, and nor would any of my overseas colleagues. I am proud to be a member of one of the strongest appellate courts in the common law world.

The presence of such eminent jurists as Sir Anthony Mason, Lord Neuberger, Lord Hoffmann, Lord Walker and Lord Phillips is a guarantee of its total independence of Chinese influence, but the guarantee is unnecessary as I have found the local Permanent Judges as independently minded as are English and Australian judges."

One example of Hong Kong's judicial independence is the Hong Kong Court of Appeal (the "CA")'s 2011 decision to enforce an arbitral award against one of the most powerful Chinese state-owned entities, PetroChina. The underlying dispute arose out of a sale and purchase agreement for sulphur between PetroChina and Hongri Acron, a Chinese subsidiary of Russia's Acron Group. Hongri Acron rejected a substantial portion of the goods delivered and claimed for the return of the balance of the purchase price. The arbitral tribunal issued an award ordering Hongri Acron to return the remaining sulphur and for PetroChina to return the balance of the price. The CA eventually enforced the award and ordered PetroChina to pay US$ 5 million legal costs to Hongri Acron.

Another feature of Hong Kong arbitration that guarantees the city's neutrality is the ability of parties to select arbitrators from anywhere in the world without restriction. While HKIAC has a Panel and List of Arbitrators, parties are not required to designate an arbitrator from the Panel or List. This de-localises arbitration in Hong Kong and allows the appointment of world-class arbitrators of neutral nationality to decide parties' disputes. If a party is concerned about influence of a particular state authority, it can appoint an arbitrator from another state.

2. First-Class Legal Framework

Hong Kong has a well-established and respected legal system. It is modelled on the English common law system, which is familiar to many Russian parties. Pursuant to the World Economic Forum's Global Competitiveness Report 2015-2016, the efficiency of Hong Kong's legal framework in settling disputes is ranked second worldwide.

The Arbitration Ordinance (Cap 609) (the "Arbitration Ordinance" or "Ordinance") is the arbitration legislation in Hong Kong and governs all types of arbitrations seated in the territory.

The Ordinance is substantially modelled, in both form and substance, on the 2006 version of the UNCITRAL Model Law, which provides an internationally recognised procedural framework for arbitral proceedings, familiar to parties from both civil law and common law jurisdictions. The adoption of the 2006 version of the UNCITRAL Model Law sets Hong Kong apart from many other Asian jurisdictions that have adopted the 1985 version. The key difference between the 1985 and 2006 versions of the UNCITRAL Model Law is that the latter incorporates extensive provisions on the issue of interim relief by an arbitral tribunal and a court, and the recognition and enforcement of such relief.

Under the Arbitration Ordinance, a party can seek a broad range of interim measures, including injunctive relief, orders to preserve evidence or assets, from the arbitral tribunal or the Hong Kong courts. An arbitral tribunal in Hong Kong can also issue a preliminary order, on an ex parte basis, preventing a party from taking steps to frustrate the purpose of an interim measure application. Further, the Ordinance recognises the enforceability of interim relief issued by an arbitral tribunal or emergency arbitrator relief issued in or outside of Hong Kong.

Hong Kong is also one of a comparatively small number of jurisdictions to have incorporated express provisions on confidentiality in its arbitration legislation. Section 18 of the Arbitration Ordinance defines the scope of the duty of confidentiality and codifies a number of exceptions to such duty. Notably, Sections 16 and 17 of the Ordinance extend the scope of confidentiality to cover related court proceedings and judgments. As a result of these provisions, Hong Kong offers the most comprehensive and robust protection of confidentiality in the Asia-Pacific region - a feature that is particularly useful for disputes that involve commercially sensitive information or trade secrets.

The Arbitration Ordinance never stops evolving and innovating. Introduced in June 2011, the legislation has already been updated three times and is expected to be amended again next year.

On 12 October 2016, the Hong Kong Law Reform Commission released a report recommending that the law be amended to state that third party funding of arbitration and associated proceedings under the Arbitration Ordinance is permitted, and that appropriate financial and ethical safeguards be complied with. This amendment is expected to be incorporated into the Ordinance by July 2017.

On 2 December 2016, the Hong Kong government published a bill proposing to amend the Ordinance to clarify that disputes over intellectual property ("IP") rights can be resolved by arbitration in Hong Kong and that it is not contrary to Hong Kong's public policy to enforce awards involving IP rights.

With these amendments, the Arbitration Ordinance will arguably provide the most advanced and sophisticated arbitration framework in Asia to parties (including Russian companies), who wish to arbitrate under best international standards with a complete protection of confidential information, access to a wide range of interim relief from arbitrators or courts, third party funding available to support arbitration claims, and awards enforceable worldwide.

3. Flexible Procedures

Hong Kong's liberal arbitration market provides a high degree of procedural flexibility to users. Parties can freely choose between ad hoc arbitration and institutional arbitration under the auspices of any arbitral institution.

Hong Kong has deep roots in ad hoc arbitration and HKIAC has immense experience in handling disputes under ad hoc rules such as the UNCITRAL Arbitration Rules (the "UNCITRAL Rules"), having begun to handle such cases since 1986. In September 2008, HKIAC established its first institutional rules and has been maintaining a "light touch" approach to case administration - meaning, primarily, that arbitral awards are not scrutinised and can be released to parties without delay or institutional inference.

Parties are also free to choose any legal representatives in Hong Kong arbitration. This is enshrined in Section 63 of the Arbitration Ordinance that lifts restrictions on foreign counsel to represent parties in arbitral proceedings in Hong Kong. Under the Ordinance, parties also enjoy free choice of governing law, language and hearing venue. That means, a Russian party can engage Russian lawyers to arbitrate a dispute in Hong Kong under Russian law with Russian as the language of the arbitration and a Russian city as the venue of a hearing.

Hong Kong is also an open market that hosts some of the world's major arbitral institutions. The flagship institution is HKIAC. In 2008, the ICC International Court of Arbitration opened its first overseas Secretariat office in Hong Kong to administer ICC cases in the Asia-Pacific region. In 2012, the China International Economic and Trade Arbitration Commission ("CIETAC") opened its first offshore sub- commission in Hong Kong. Following in the footsteps of CIETAC, the China Maritime Arbitration Commission opened an office in Hong Kong in 2014. In 2015, the Hong Kong government announced a plan to establish a legal hub in the Central District of Hong Kong, designating the West Wing of the former Central Government offices and the entire former French Mission Building to house arbitration centres and other legal organisations. The legal hub will become a one-stop shop that provides a full range of dispute resolution services to parties who intend to resolve their disputes in Hong Kong.

4. Worldwide Enforceability of Hong Kong Awards

In 1997, China extended its membership of the New York Convention to Hong Kong. As a result, arbitral awards made in Hong Kong are enforceable in all 156 New York Convention contracting states. Under the 1999 Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong SAR (the "Arrangement"), awards made in Hong Kong are enforceable in mainland China and vice versa on terms that largely mirror those in the New York Convention. A similar arrangement was concluded between Hong Kong and Macao in 2013.

Hong Kong awards are treated as foreign awards in mainland China. The Chinese courts have established a reporting system under which only the Chinese Supreme Court has the authority to refuse enforcement of a foreign award. Under the Arrangement, recognition by the Chinese courts is not required for the enforcement of a Hong Kong award, whereas recognition is a precondition to the enforcement of other foreign awards in mainland China.

Hong Kong awards maintain a strong track record of enforcement in mainland China. Over the last six years, the Chinese courts have refused to enforce only one Hong Kong award. The excellent enforcement record is a key reason why Hong Kong has long been a top choice among foreign parties when selecting a venue to arbitrate with Chinese parties.

5. HKIAC

HKIAC is among the world's top three arbitral institutions and the most preferred institution outside of Europe. It was established in 1985 and is one of the longest-standing arbitral institutions in the Asia-Pacific region. The growing popularity of HKIAC is reflected by the large number of cases HKIAC has handled since its establishment. In total, HKIAC has managed over 9,000 cases since 1985. Last year, the Centre registered 520 new cases, representing a 9% growth from 2014. HKIAC has a solid track record of handling international disputes. 95% of the new arbitrations administered by HKIAC in 2015 were international cases.

(a) Organiszational Structure

HKIAC provides one-stop shop services administering arbitration, mediation, adjudication and domain name cases. These services are overseen by several governing bodies and provided by a multilingual and multicultural secretariat.

HKIAC is governed by the HKIAC Council ("Council"), comprised of 24 lawyers, industry experts, and corporate executives from around the world. Currently led by one of the authors Teresa Cheng SC, HKIAC takes pride in the Council members being responsible for the independence, corporate governance and overall management of the institution.

The Council is supported by the International Advisory Board, an entity composed of 23 leading figures in the international arbitration and business community. The Board is consulted from time to time on matters relating to HKIAC's policies and its future developments.

There are three standing committees to perform specific functions on behalf of the Council, i.e. the Finance and Administration Committee, the Proceedings Committee and the Appointments Committee. Unlike certain institutions, the procedural functions of HKIAC in an arbitration are allocated to different committees and HKIAC's procedural decisions are made by a group of experts rather than one individual (such as the head of the institution).

The daily administration of dispute resolution services is carried out by the HKIAC secretariat, led by the Secretary-General. The secretariat currently comprises 23 members from eight countries, with lawyers from civil law and common law jurisdictions. With offices in Hong Kong, Seoul and Shanghai, the secretariat is able to administer cases in ten languages.

(b) Arbitration Service

The primary services provided by HKIAC are (i) to administer arbitral proceedings under the 2013 HKIAC Administered Arbitration Rules (the "HKIAC Rules" or "Rules") or the UNCITRAL Rules; and (ii) to act as the default appointing authority under the Arbitration Ordinance.

Recognised by Global Arbitration Review ("GAR") as one of the best developments of 2013, the HKIAC Rules reflect HKIAC's efforts to ensure a flexible and an efficient arbitral process, with quality administrative support by the secretariat. The Rules are the second edition of HKIAC's administered arbitration rules, with the first edition introduced in September 2008. In general, HKIAC updates its rules every five years, and like other leading arbitral institutions such as ICC and LCIA, tends to avoid frequent publication of new rules.

The HKIAC Rules include a number of market-leading and trend- setting provisions. These provisions apply only to arbitration agreements entered into after the effective date of the Rules (i.e. 1 November 2013). As parties are able to properly review and consider these new provisions only after the Rules came into force, the prospective appli cation of the HKIAC Rules makes sure that users know what they have signed up for in their contracts. The retrospective application of new rules might surprise parties with provisions that did not exist at the time of their agreements.

There are a number of features of the HKIAC Rules which were introduced to facilitate an efficient and cost-effective arbitral process.

Choice of method to remunerate arbitral tribunal

HKIAC is the first institution to offer parties a choice to pay the arbitral tribunal based on the amount in dispute or hourly rates. If parties choose the latter, the arbitrator's rate must not exceed a fee cap, unless the parties agree or HKIAC determines otherwise. This choice allows the parties to select the most economical way to pay the tribunal. For example, if a party claims a significant amount in a straightforward dispute, the parties can opt for an hourly arrangement to save costs. Equally, if the amount in dispute is small but the dispute involves complex factual and legal issues which would take the tribunal a substantial amount of time to decide, it would make sense for the parties to choose to pay the tribunal based on the sum in dispute. The uniqueness of this mechanism has earned HKIAC a GAR nomination for best innovation of 2013.

Multi-party and multi-contract provisions

The Rules include three mechanisms to maximise the ability of HKIAC and arbitral tribunals to deal with complex disputes involving multiple parties or contracts.

(1) Joinder of additional parties. The joinder provisions enhance the ability of a tribunal to join an additional party to an arbitration and allow an additional party to request joinder on a prima facie basis. HKIAC also has prima facie power to join an additional party if a request for joinder is submitted prior to the tribunal's constitution. The provisions set out an express test for joining additional parties and clarify the consequences of the granting of a joinder application.

(2) Consolidation. The Rules allow HKIAC to consolidate two or more arbitrations where the parties so agree or where all of the claims are made under the same arbitration agreement or compatible arbitration agreements in respect of the same transaction, or a series of transactions. A notable feature is that HKIAC may consolidate several related arbitrations even where the parties to each of the relevant arbitrations are different. This approach properly accommodates the need for consolidation of disputes arising under a chain or network of contracts that are concluded between different parties. Such need typically arises in banking, insurance/reinsurance, construction and M&A transactions.

(3) Single arbitration under multiple contracts. Under the Rules, claims arising out of multiple contracts can be brought in one single proceeding from the outset, if certain criteria are satisfied. For example, a partner of a joint venture for two gas fields can commence a single arbitration against another JV partner under two production sharing contracts for both fields, provided that the arbitration clauses in both contracts are compatible, the parties are bound by each arbitration clause, a common question of law or fact arises under each contract, and the claims relate to the same transaction or series of transactions.

Emergency arbitrator and expedited procedure

HKIAC arbitration is generally an efficient process. But the speed of the process can be further enhanced by use of the emergency arbitrator procedure or the expedited procedure.

The HKIAC Rules allow a party to apply for emergency arbitrator relief concurrent with, or following, the filing of a Notice of Arbitration. Given the urgent nature of emergency arbitrator proceedings, the Rules provide a highly efficient process for an emergency arbitrator's appointment and his or her decision on the application for emergency relief. Under the Rules, HKIAC will seek to appoint an emergency arbitrator within two days after receipt of the application. In practice, the average time taken by HKIAC to appoint an emergency arbitrator is 5 hours. After an emergency arbitrator is appointed, the parties can expect a decision within 15 days from the date on which the emergency arbitrator receives the case file. Furthermore, a decision issued by an emergency arbitrator is enforceable under the Arbitration Ordinance in the same manner as a Hong Kong court order or direction.

Prior to the constitution of the arbitral tribunal, a party may also apply to HKIAC to conduct the arbitration on an expedited basis, if the amount in dispute does not exceed HK$ 25,000,000 (approximately US$ 3 million), the parties agree, or in case of exceptional urgency. If applicable, the expedited procedure will result in a presumption that a sole arbitrator will hear the proceedings and the award will be rendered within six months from transmission of the file to the tribunal.

As a result of the provisions outlined above, the mean duration of an arbitration under the HKIAC Rules is 12.25 months and the median duration is 11.60 months. The mean costs of arbitration are US$ 65,721.26 and the median costs of arbitration are US$ 31,704.04.

(c) Hearing Facilities

HKIAC provides first-class hearing experience to its users. The centre occupies the entire 38th floor of Two Exchange Square and maintains 18 hearing and meeting rooms, equipped with global video conferencing equipment and wireless internet access. The rooms are located in the heart of Hong Kong's central business district, above the airport express link, with breathtaking views over Victoria Harbour. With Hong Kong's liberal visa policy, Russian parties can visit HKIAC's hearing facilities in Hong Kong without a visa.

HKIAC has been repeatedly ranked by the GAR Hearing Centres Survey as the best hearing centre in the world. According GAR's latest survey, HKIAC's hearing facilities were ranked first worldwide for location, value for money, IT services and helpfulness of staff.

With such world-class hearing facilities, HKIAC has hosted numerous high-profile hearings for commercial and investment arbitrations, such as Michael M'cKenzie v. Vietnam, Cambodia Power Company v. Cambodia, BG & Reliance v. India, and Tethyan Copper Company Pty Ltd v. Pakistan.

To promote the further use of HKIAC's hearing facilities for disputes involving states, HKIAC now offers its hearing rooms to parties free-of-charge in any dispute resolution proceedings involving a state listed on the OECD list to which the parties have agreed to HKIAC administration.

d) Innovative Practice

HKIAC plays a leading role in developing innovative practices to address the evolving needs of its users. Over the last few years, HKIAC has introduced a number of innovative services that have received worldwide recognition and made a positive impact on global arbitration practice.

In August 2014, HKIAC released a series of new model arbitration clauses which included an express governing law provision to avoid any uncertainty as to which law would govern the arbitration clause. In June 2014, HKIAC introduced a tribunal secretary service allowing arbitral tribunals to appoint an HKIAC secretariat member as tribunal secretary under a set of detailed guidelines. An extension of this service was the launch of the HKIAC Tribunal Secretary Accreditation Programme in December 2015. HKIAC has assembled a word-class faculty to train the next generation of qualified tribunal secretaries to assist arbitrators in proceedings under any arbitration rules and seated in any jurisdictions in the world.

In July 2015, HKIAC decided to launch a system that allows users to evaluate the conduct of their arbitral proceedings and the performance of their arbitrators. This system is part of HKIAC's continuing efforts to draw on users' feedback to appoint fair and competent arbitrators and to perfect HKIAC's case administration services. This system was recognisedrecognized by GAR as one of the best innovations of 2014.

HKIAC is also a forerunner in promoting diversity in international arbitration. In October 2016, HKIAC signed the Equal Representation in Arbitration Pledge and has taken active steps to increase, on an equal opportunity basis, the number of women and younger practitioners appointed as arbitrators. For example, the secretariat will always include at least one woman when proposing candidates to the Appointments Committee for the appointment of an arbitrator.

e) Commitment to Russia

Hong Kong has imposed no sanctions against Russia. As a result, the ability of HKIAC to administer Russian-related disputes is not affected by the Western sanctions in any way.

In recent years, HKIAC has taken a number of measures to strengthen the Centre's position to handle disputes involving Russian parties. The HKIAC Panel and List of Arbitrators now include 26 Russian- speaking arbitrators. The Rules have been published in Russian. The Centre can also arrange Russian-speaking tribunal secretaries, transcribers and translators for HKIAC arbitrations. In May 2016, HKIAC entered into a Memorandum of Understanding with RAA to further strengthen cooperation and ties between the arbitration community in Hong Kong and Russia.

With a firm commitment to the Russian market, HKIAC has been closely monitoring arbitration-related developments in Russia, including the new Russian arbitration laws that came into force on 1 September 2016. The new laws require arbitral institutions (including foreign institutions) to obtain a license from the Russian government if they wish to administer cases seated in Russia or corporate disputes concerning Russian companies. HKIAC is seriously considering applying for the license.

E. Conclusion

Russia's current strained relationship with Western countries and its "pivot to Asia" policy, triggered by the sanctions arising from its annexation of Ukraine, present opportunities for arbitral seats and institutions in Asia. There have been increased interest in Hong Kong and HKIAC from the legal and business community in Russia, and several Russian companies have already started to include HKIAC clauses in their contracts. This is reflected in the RAA Survey, where 22% of respondents consider Hong Kong as their preferred seat of arbitration, and several respondents prefer HKIAC and Hong Kong governing law for their contracts.

It is conceivable that there will soon be a marked increase in the number of Russian disputes being submitted to HKIAC in Hong Kong, turning the city into the preferred destination for Russia to turn east.

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