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 KAZAKHSTAN International Business Magazine №1/2, 2001
 Court of Arbitration in Kazakhstan: Opportunities and Prospects
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Court of Arbitration in Kazakhstan: Opportunities and Prospects
 
Pyotr Greshnikov, Master of Law, Chairman of the International Court of Arbitration of the IUS Legal Centre
 
The Court of Arbitration is a court operating with the consent of the parties, and is voluntarily chosen by them to settle property disputes. It has long been known in world jurisprudence as a basic means of settling economic disputes. As a rule, courts of arbitration settle disputes between commercial organizations. In Kazakhstan they have been widespread since the early 1990s, after the country embarked on the path towards a market economy. The court of arbitration in Kazakhstan is a public institution supported by the state as a law enforcement body. Under the civil legislation of Kazakhstan, a court, and an arbitral tribunal or a court of arbitration exercises the protection of civil rights 1. At present, a small number of courts of arbitration, relatively well-known by the public, are operating in the country. Among those is the International Court of Arbitration of the IUS Legal Centre. To generalize its experience, I will review the opportunities and prospects of the court of arbitration in contemporary Kazakhstan.
1 See paragraph 1 of article 9 of the Civil Code of the Republic of Kazakhstan
 
Since the last decade of the 20th century, lawyers and businessmen in the CIS countries have been actively discussing the application of forms of settling economic disputes, to serve as an alternative to the judicial system. Among the topics for consideration are those of conducting conciliation procedures, mediation and arbitration. This interest did not come about by accident. The tough conditions of developing market relations (stoppages and interruptions in the operations of local producers, rising costs of goods and services, inflation, crime and other matters) lead to failure to fulfill agreement obligations and to disputes. A great increase in the number of disputes is making business parties look for efficient ways of settling civil and legal conflicts. An economic dispute does not only require a prompt and precise resolution, but also a comparable enforcement of the decision rendered.
 
Therefore, the parties should strive to settle disputes by negotiations, mutual compromise, and co-ordination of the revised obligations. Practice has shown that it is more efficient to solve problems through negotiations in which a neutral mediator participates. This helps both to eliminate discord and preserve business relationships between the parties. Non-judicial forms of settling disputes, which have emerged as an alternative to US civil legal proceedings, have recently been frequently applied in the CIS. The conflicting parties consider it expedient to appeal to a third party, which can settle their dispute impartially and fairly, with legal standards applied skillfully and soundly.
 
In Kazakhstan, the International Court of Arbitration of the IUS Legal Centre 2 often acts as a third party. Being one of the first of its kind in the country, it has settled over 100 economic disputes, including those with organizations and enterprises from Russia, Ukraine, Belarus, Kyrgyzstan, Uzbekistan, the Republic of Korea, Canada, the British Virgin Islands, Panama, etc. The IUS Court of Arbitration comprises 21 arbitrators and has established partnership relations with arbitral tribunals in Kazakhstan, Russia and the Czech Republic. Dozens of disputes have been settled, mutual payments made between enterprises, and property transferred through the arbitral proceedings. Some major enterprises in a number of regions of Kazakhstan have changed ownership due to awards by the Court.
2 In compliance with the UNCITRAL Model Law, an arbitration is considered international if the commercial enterprises of the parties of an arbitration agreement are located in different states as of the date of its signature.
 
An analysis of the contemporary practice shows that courts of arbitration have a number of definite advantages in settling commercial disputes as compared to state courts. Among them are the impartiality ensured by the fact that the parties have appointed an arbitrator on their own. When a claim is filed in a court of general jurisdiction, the judge cannot be chosen. On the contrary, the procedure of forming the composition of a court of arbitration is such that the parties are entitled to appoint their arbitrators, either from among the members of a permanent court of arbitration or from among other practitioners with adequate qualifications and experience. A permanent court of arbitration comprising qualified lawyers and experts on economics, finance, insurance, production technology and other fields is better suited for settling complicated economic disputes than a state court.
 
One of the advantages of arbitral proceedings is the simplicity of the settlement procedure. No time-consuming, obligatory pre-trial settlement of a dispute is required. This simplified arbitral procedure reduces to a minimum causes of non-suit or of suspending a claim consideration. The absence of appeals and cassations also reduces the time necessary to render a final award.
 
It is essential for the parties, and above of all for the defendant, that the level of the arbitration fee is several times lower than the state fee. For instance, the IUS Court of Arbitration uses a decreasing arbitration fee: the higher the claim price, the lower is the fee. Also, the arbitration fee may be paid by installments, not before the request for arbitration is submitted, but before an arbitral award is rendered. A privilege discount is provided for a second appeal to arbitration.
 
The above advantages of the court of arbitration may be used when settling property disputes in any field of business. The only condition is the availability of a corresponding arbitration clause in an agreement, or of an additional agreement signed by the parties. When signing agreements, many businessmen do not pay enough attention to formulating the arbitration clause, which sometimes complicates the arbitral procedure.
 
For instance, an investment dispute emerged during the fulfillment of the terms of a contract drawn up between a Kazakhstani-Israeli company and a US company. Under the arbitration clause of this agreement, the dispute was to be settled at the Court of Arbitration in Hague. However, it turned out that there is no court of arbitration in Hague which could settle the economic dispute between the companies, which was officially confirmed by the Netherlands’ embassy in Kazakhstan. The counter-claim filed by the company to the court in the South Kazakhstan region, the venue of the defendant, was returned, since the dispute was not subject to the authority of a court of general jurisdiction. As a result, the company found itself in a complicated situation, as the arbitration clause met neither the UNCITRAL Arbitration Rules, nor the requirements of Kazakhstani legislation.
 
In the other case, a contract signed between a South Korean company and a Kazakhstani firm stipulated arbitral proceedings in compliance with the UNCITRAL Arbitration Rules. An alternative clause provided for the dispute to be heard either at the Korean Commercial Chamber of Arbitration or at the Almaty-based Court of Arbitration, at the option of a pledgee. Exercising its right to choose arbitration, the Korean company - the plaintiff and pledgee - filed a claim to the IUS Court of Arbitration. The defendant did not object to it and signed an agreement on the choice of a court of arbitration and the nomination of an arbitrator.
 
Either the written consent of the parties or a corresponding clause in any of the contracts is required in order to apply to a court of arbitration. The clause should contain the following: any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be finally settled by the [such and such] court of arbitration at [such and such] address in accordance with the arbitration rules of the said court as present in force. In the clause, the parties can stipulate the number and choice of arbitrators, the language of the arbitral proceedings and other essential procedures.
 
When choosing a court of arbitration, parties should take its advantages into account. For instance, problems arising from credit relations are most typical of banking practice. They are primarily due to untimely repayment of borrowed funds by a debtor, nonpayment of interest, difficulties in enforcing penalty provisions and claims to mortgaged property. It seems prima facie that the unfulfilled credit obligations and their consequences can be resolved by a non-disputable procedure. However, sometimes attempts of this kind end in bankruptcy.
 
For instance, under a credit agreement signed with the Kaskelen Model Farm National State Enterprise, the Kaskelen-based Agroprom Bank applied a non-judicial procedure of recovering the pledge and implemented it through an auction. Eight months later, at the suit of a public prosecutor, and by a decision of the Almaty regional court, the contract of pledge was considered invalid due to lack of registration. The court acknowledged a lack of the reasons for compulsory non-judicial recovery of property, and made the decision to place the contracting parties in their initial situation, and, specifically, to return state property in kind.
 
Since the pledged property (cattle) has already been sold, the court exacted its cost and expenses, which were five times higher than the cost of the pledge, from the bank. As a result, the latter went bankrupt.
 
Taking account of this and similar unhappy experiences, it can be recommended that all pledgees should apply the judicial procedure of recovering pledge using the advantages provided by a court of arbitration. Our practice shows that this is especially necessary in cases where property is under day-to-day management and has been handed over as a pledge with the approbation of the owner.
 
The effectiveness of legal defence as a whole, and particularly of the law-enforcement activities of courts of arbitration, depends largely on the final stage of the legal proceedings, the enforcement of an award.
 
Today, we can only talk about a few emerging modes of enforcing arbitral awards. Kazakhstan is signatory to a number of international conventions and agreements regulating the recognition and enforcement of awards rendered by international courts of arbitration. Among them is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards3 and the European Convention on International Commercial Arbitration of 19614, which Kazakhstan joined in 1995. In addition, there is a set of agreements among CIS countries on the recognition and enforcement of arbitral awards.
3 The Decree by the President of the Republic of Kazakhstan 2485 of 4th October 1995.
4 The Decree by the President of the Republic of Kazakhstan 2484 of 4th October 1995.
 
The international obligations undertaken by Kazakhstan in this field require development of legal procedures of fulfilling them. Unfortunately, special laws regulating the enforcement of awards are absent in Kazakhstan. There are only some particular acts that contain separate provisions regulating the recognition and enforcement of decisions rendered by foreign courts and arbitral tribunals. For example, the Civil Procedure Code of the Republic of Kazakhstan (article 425) stipulates that the laws or international agreements of Kazakhstan on a mutual basis define the recognition and enforcement of foreign arbitral awards.
 
Only one article (80) is dedicated to the enforcement of awards by international and foreign courts and arbitral tribunals in the Act on the Executive Proceedings and Status of Officers of the Court. It states there that the order of executing them is stipulated by corresponding international agreements ratified by Kazakhstan.
 
The Kazakhstani Act on Investment (article 27) also provides for the possible submission of an investment dispute, with the written approbation of the investor, for settlement at one of the following arbitration institutions: a) the International Centre for Settlement of Investment Disputes, which was set up under the ICSID Treaty (the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States); b) a supplementary body of the Centre, if an investor country is not a party to the ICSID Treaty, c) arbitration bodies established in compliance with the Arbitration Rules of UNCITRAL; d) Arbitration Institute of the Stockholm Chamber of Commerce; e) Arbitration Commission at the Chamber of Commerce and Industry in Kazakhstan.
 
Under paragraph 6 of article 27 of the Act, an arbitral award rendered by the above authorities is final and binding for the parties in an investment dispute. This award is enforced in Kazakhstan in exactly the same way as decisions rendered by the domestic courts.
 
The enforcement of the arbitral awards of CIS countries is regulated by the Agreement on the Procedure of Settlement of Business-related Disputes of 20th March 1992 (the so-called Kiev Agreement, ratified by Kazakhstan on 2nd June 1992) and the Agreement on the Procedure of Mutual Enforcement of the Awards of Arbitral tribunals and Economic Courts in the Territories of the CIS Countries dated 6th March 1998 (the so-called Moscow Agreement, ratified by Kazakhstan on 30th December 1999).
 
Under these agreements, arbitral awards are enforced by a non-disputable order, based on a petition by the interested party. Apart from the petition, it is required to submit:
• an appropriately authenticated copy of the award with confirmation of its legal effect (if it is not clear from the text of the award itself);
• a document confirming that the debtor participated in the court session. In default of this, a document confirming the appropriate notification to the debtor of the court session is required;
• an enforcement document.
 
The priority, procedure, penalties and measures to provide for the enforcement of awards are defined by the legislation of the party on whose territory the claim is filed. The references to the national legislation which are found in international regulations point to the necessity of passing a special Act on International Commercial Arbitration in Kazakhstan.
 
It has to be acknowledged that the existing Kazakhstani legislation is not sufficient, but still provides for the possibility of enforcement of foreign arbitral awards. Enforcement of domestic arbitral awards remains in an even stricter legal vacuum. This situation emerged after 1st July 1999, as the new Civil Procedure Code of the Republic of Kazakhstan was passed. The point is that the act on passing the Civil Procedure Code simultaneously cancelled the Act on the Procedure of Settling Economic Disputes by the Courts of Arbitration in Kazakhstan, which used to regulate the enforcement of arbitral awards.
 
In this regard, the Supreme Court of Kazakhstan explained that the Standard Provision on the Court of Arbitration for Settlement of Economic Disputes, which was passed by government decree 5, should legally be used when solving issues of enforcement of arbitral awards. This provision was not cancelled by the passing of the new procedure law.
5 The Decree by the Government of the Republic of Kazakhstan 356 of 4th May 1993.
 
State courts applied to the Constitution Council of Kazakhstan regarding the issues related to arbitral proceedings. On 24th January 2000, the Kustanai regional court appealed to the Constitutional Council to consider the constitutionality of the Standard Provision on the Court of Arbitration for Settlement of Economic Disputes. The reason for the request was a civil case involving a petition by Kazakhstan International Bank (the plaintiff) on issuing a decree on enforcement of arbitral awards. The decree of the Constitutional Council of 16th February 2000 stopped the constitutional proceedings, due to the fact that the request was outside its jurisdiction. The Council also stated «complicated situations may arise when solving economic disputes between legal entities when one of the parties refuses to carry out an arbitral award.
 
Analysis of existing legislation shows that the existing Civil Procedure Code does not provide for efficient legal mechanisms for enforcement of arbitral awards. The Standard Provisions on the Court of Arbitration for Settlement of Economic Disputes, which was passed by a Cabinet decree of 4th May 1993 and has not lost its validity, was not adjusted to resolve this problem, either. Therefore, it seems crucial to make up for this deficiency in the legislation. The Constitution Council is not vested with the appropriate authority, as it is a prerogative of the legislative and executive branches of government. If Parliament were to make amendments to the existing Civil Procedure Code, and the government passed a bylaw regulating the performance of courts of arbitration, the legal framework for settling economic disputes between legal entities and protection of their violated civil rights would be considerably strengthened». It is hard to add anything to this statement.
 
Taking account of the present situation, and understanding the complexity of the problem, experts at the IUS Legal Centre - an organisation which includes the court of arbitration – are constantly taking measures to revive alternative means of settling disputes and to strengthen the authority of the court of arbitration. The arbitration experience of other countries is being studied for this purpose, appropriate seminars and conferences are being held, and special courses being taught in two leading law schools, and the relevant scientific articles and reports are being published. However, joint efforts by the entire legal community, along with wider use of the opportunities provided by a court of arbitration, are necessary to solve the above problems.


Table of contents
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3





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