The Constitutional Right to Judicial Protection and the Arbitration Agreement
Aigoul Kenjebayeva, Partner, International Law Firm Salans Hertzfeld & Heilbronn, Director of the firm’s Kazakhstan practice, Juridical Science Doctoral Candidate, LLM (US), Member of Kazakhstan’s (RK) Supreme Court Scientific-Consultant Council
Why not admit it? We practicing lawyers - and ordinary citizens all the more so, rarely take a look at the Constitution. Usually laws and sub-law acts, which are a priori constitutional, are sufficient for us. But when the issue comes up as to whether this or that legal phenomenon conforms to the Constitution, quite often completely unexpected results occur.
Recent RK Constitutional Council Decree #1 of February 15, 2001 On the Official Interpretation of Section 2 of Article 13 and Section 1 of Article 75 of the RK Constitution (hereinafter, the February CC Decree) presents such an issue. Official interpretations were sought pursuant to the petition of the RK Prime Minister himself and this Decree has compelled me to delve deeper into the theory of law in order to fully realize its significance. The analysis adduced in this article of the issues raised by the Decree may perhaps seem to the reader too theoretical in nature; nevertheless, in my view it is only such an analysis that can yield the correct practical conclusions.
Section 2 of Article 13 of the RK Constitution proclaims: “Everyone has the right to judicial protection of his/her rights and liberties.”
Is this right absolute or can it be limited? Can this right be waived?
The answer to these threshold two questions is fundamental to resolving the issue of whether the right to mandatory enforcement of third-party courts is in conformance with the Constitution. In our search for this answer we look to yet another Constitutional Council Decree, one with seminal significance in establishing a court’s power to shape constitutional rights.
The Decree of the Constitutional Council of March 29, 1999, was adopted in response to the RK President’s request to clarify whether constitutional rules give rise to the right of RK judges relieved of their duties to appeal in court RK Presidential Decrees and RK Parliament Senate Decrees that relieve them of their duties. The holding of the Decree stated that “Section 2 of Article 13 of the RK Constitution, as applied to the subject matter of the petition, should be understood such that in view of the special constitutional procedure for the election, appointment and dismissal from their position of RK judges, they do not have the right to appeal in court RK Presidential Decrees and RK Parliament Senate Decrees relieving them of their duties.” In addition, the Decree indicated that, “the court on the basis of the law has been given the right to issue decisions, verdicts and other decrees that allow for the limitation of certain constitutional human and citizens’ rights in cases established by the Constitution and the laws of the Republic.” (emphasis added, - ATK)
Accordingly, the official interpretation of Article 13 Section 2 of the Constitution would subsume the postulate that the constitutional right to judicial protection is not absolute and may be restricted by law.
But can the citizen or the legal entity itself restrict this right? This question in essence means can a waiver by a person or entity of its constitutional right to judicial protection be effective?
The answer to these questions is contained in Article 8 of the RK Civil Procedure Code (CPC), which states in Section 4: “the waiver of the right to go to court is invalid if it contradicts the law or violates someone’s rights or legally protected interests.” Provisions of Kazakh law (CPC Articles 25, 170, and 192 and RK Civil Code (CC) Article 9) expressly provide for the right to protect one’s rights by going to a third-party court. Thus, a person or entity has the right to waive its right to judicial protection and this waiver shall be valid and subject to mandatory enforcement.
Waiver of a right should not be confused with waiver of exercising a right. Not exercising a right means that an entity by its actions or inaction has failed to effectuate its right, that is, the right is still there, but the entity has not made use of it. CC Article 8 Section 2 stipulates that “ the waiver of citizens and juridical entities of the exercise of rights belonging to them does not result in the termination of these rights, except in cases provided for by legislative acts.” From this it follows that if an entity has a right, for example, the right to receive payment for goods delivered, its voluntary failure to leave the country to collect the payment does not mean that the right is lost. At any time it wishes the citizen or entity can take advantage of this right. Waiver of a right is another matter. When entering into an arbitration agreement, one is expressly and unequivocally signaling his/her intention to waive the right to go to court on the merits of a dispute, that is on the underlying contract. Thus, the law expressly provides for the right of citizens and legal entities to waive their rights to judicial protection by way of executing an arbitration agreement (clause).
How is the right to judicial protection exercised if the parties execute an arbitration agreement?
In order to analyze the essence of the legal relationships and the procedure for protecting one’s rights when they have been violated, we shall examine a hypothetical delivery contract.
(?) First we will examine the issue in the absence of an arbitration agreement. A delivery contract gives the parties the following rights and obligations:
• Delivery of the goods;
• Acceptance of the goods;
• Payment for the goods;
• Receiving payment for the goods.
If delivery-contract rights are violated, the parties have the right to judicial protection; that is, they can go to a State court to vindicate their rights.
(b) If a delivery contract contains an arbitration clause, the right to judicial protection does not disappear, but acquires different aspects.
An arbitration agreement is an independent contract in which the parties have the following rights and obligations:
• to submit the dispute to a third-party court for review;
• to recognize the decision of the third-party court as final and binding for the parties;
• to carry out the decision of the third-party court voluntarily.
If rights are violated under a delivery contract with an arbitration agreement, the court is to issue a decision to dismiss the complaint without review (Art. 249 CPC). This is based on the fact that by executing the arbitration agreement, the parties in essence have waived their right to judicial protection under the delivery contract. As shown above, the possibility to so waive is set forth in the laws and international treaties of the RK. However, judicial protection of the rights under the delivery contract is all the same administered, not by directly going to court under the contract, but by the possibility of mandatory enforcement of the third-party court decision pursuant to the arbitration decision.
Since an arbitration agreement is a contract, when rights under an arbitration agreement are violated, a party has the right to judicial protection of its rights under the arbitration agreement. The essence and subject matter of an arbitration agreement consist in that the parties have waived going to court for examination of disputes concerning the underlying contract and have agreed to voluntarily carry out the decision of the arbitration tribunal once it is received. If one of the parties does not carry out the decision, the rights of the other party to this contract are violated and are subject to judicial protection. This judicial protection is administered by way of mandatory enforcement by the courts of the third-party court decision.
A court enforces only decisions pursuant to valid arbitration agreements. As in any transaction, all rules for invalidating transactions extend to arbitration agreements. Thus, when resolving whether to order mandatory enforcement of a third-party court decision, the court must determine whether the arbitration agreement is valid (e.g. was it executed in accordance with the true intentions of the parties). It was indeed this obligation of the court that was meant in Section 3 of the October 19, 2001 RK Supreme Court Plenum Decree when the high court stated that a court is obliged to verify whether there was a written agreement to have disputes examined by a third-party court.
In addition, the court must determine whether the procedure for forming the third-party court and examining the dispute was observed and whether or not the respondent was duly informed of the venne and time of the review of the case, etc.
Thus, the right to judicial protection in this case is exercised when in case of breach of an arbitration agreement by one of the parties (for example, by not carrying out the decision of the third-party court) the arbitration-agreement parties have the right to go to court for judicial protection. Since an arbitration agreement is not grounds for a dispute on the merits, but grounds for a dispute on the procedure for its review and for the performance of the third-party court decision, it is logical that when going to court, the decision of the third-party court is not examined on the merits and can be denied mandatory performance only if the court declares the arbitration agreement invalid or if it is shown that the procedure for the arbitration review of the case was substantially flawed.
Thus, the mandatory enforcement of arbitration awards is indeed a form of judicial protection of the rights of the parties to the dispute. The constitutional provision that everyone has a right to judicial protection is not violated, but vindicated if the courts enforce arbitration tribunal decisions.
What are the basic conclusions of the February CC Decree in relation to enforcement of third-party court decisions?
The February 15, 2002 Constitutional Council Decree contains three main conclusions:
• A third-party court is not part of the judicial system that administers justice in Kazakhstan; it reviews material disputes among participants in civil-law legal relations in accordance with their voluntary will. Resorting to a third-party court is not the exercise by citizens and legal entities of their right to judicial protection of rights and liberties established by Article 13 section 2 of the Constitution.
• The constitutional principle “justice in Kazakhstan is administered only by the courts,” enshrined in Article 75 section 1 of the Constitution, extends only to courts within the judicial system of the country. Review of disputes by third-party courts does not mean the administration of justice.
• The execution by the parties of a civil-law contract to submit a dispute to a third-party court for review does not rule out the subsequent possibility of reviewing the particular dispute by the courts of the judicial system of the country in accordance with the procedure established by current legislation.
Conclusions # 1 and #2 do not raise any questions; they are precise and clear. However, serious doubts arise when interpreting Conclusion #3. Insofar as this clause of the Decree speaks of “submitting a dispute to a third-party court for review,” and further sets forth the “possibility of reviewing the particular dispute by the courts,” it must follow that the dispute can be again reviewed in court on the merits, that is, the dispute on the underlying contract. In the face of such an interpretation of this clause in the Decree the very existence of an arbitration agreement loses all significance. At the same time, as it is correctly noted in the Decree, parties have the right to enjoy freedom of contract and execute an arbitration agreement in accordance with which resort to the courts to review a dispute on the merits is ruled out.
This provision can be interpreted in another way as well. The Constitutional Council did not declare unconstitutional the rule in subsection 5 of Article 249 of the CPC concerning a court’s declining to review a complaint if the parties have executed an arbitration agreement. In addition, as shown above, a demand for the mandatory enforcement of an arbitration award is a form of judicial protection of the parties to an arbitration agreement, and in this sense the conclusion that a party has the possibility to resort to a court when an arbitration award has not been carried out is fully in accordance with the law and the Constitution.
Therefore, there is an urgent necessity for the Constitutional Council to explain the significance of the clause discussed above in such a way that the clause would allow resort to the courts when there is an arbitration agreement only on the grounds stipulated in the arbitration agreement itself, that is, not for review of the dispute on the merits and not for review of the arbitration award, but only if there are grounds for declaring an arbitration agreement invalid or if during the arbitration process there has been a violation of procedural rules as set forth in the New York Convention.
Does Kazakhstan legislation regulate the procedure for enforcing arbitration tribunal decisions?
Article 425 of the CPC expressly provides for the mandatory enforcement of foreign arbitration awards. In addition, RK Law On Enforcement Process and the Status of Court Enforcement Officers sets forth a procedure for mandatory enforcement of international and foreign arbitration decisions. Article 5 of the Law expressly states that one of the types of enforcement documents is a writ of execution, which is issued on the basis of international and foreign arbitration decisions.
In addition, in relation to this issue there are a number of international treaties to which Kazakhstan is party. The most important of them and the one having direct relevance to the problem of enforcing third-party (arbitration) decisions is the 1958 New York Convention On The Recognition and Enforcement of Foreign Arbitre Awards (the New York Convention). The New York Convention sets forth the obligation of the courts of Kazakhstan when faced with a complaint on an issue in relation to which the parties have executed an arbitration agreement, to direct the parties to the arbitration court (Art. 2.3) and to enforce the arbitration decision in accordance with the procedure established by the Convention (Article 3). Another important international treaty signed by Kazakhstan is the Convention on the Setlement of Investment Disputes Between States and Nationals of Other States (ICSID), Washington, March 18, 1965 (the Washington Convention). The Washington Convention also obligates Kazakhstan to recognize the decisions of this arbitration body and to provide for the mandatory enforcement of its decisions by the courts of Kazakhstan (Section 6).
Mandatory enforcement of arbitration awards is also expressly provided for in the RK Law On Foreign Investments of December 27, 1994. Article 27 of this Law sets forth a list of a number of arbitration bodies, including the RK Chamber of Commerce Arbitration Commission, where investment disputes may be resolved. An important rule in the Law is that when an investor selects one of these arbitration bodies for dispute resolution, the consent of Kazakhstan to arbitration shall be considered given. In addition, the Law expressly rules out the possibility of a court reviewing the dispute if that court establishes that the foreign investor has expressed in writing its choice of arbitration procedure in order to resolve the dispute. In this case, the court is to cease all proceedings in relation to the matter. Section 6 of the Law says that “any arbitration decision rendered in accordance with this article shall be final and binding on the parties of the investment dispute. Such a decision shall be enforced in the Republic of Kazakhstan just as the decisions of the judicial bodies of Kazakhstan.” (emphasis added – ATK) Thus, the Law On Foreign Investments not only sets forth the possibility of arbitration review of a dispute, but also stipulates the procedure for enforcing an arbitration decision.
The rules of the Law On Foreign Investments in relation to the arbitration option for resolution of investment disputes and the enforcement procedure for arbitre awards likewise apply to disputes arising under Contracts to Conduct Petroleum Operations, which is expressly stated in Article 58 of the RK Presidential Decree Having Force of Law of June 28, 1995, On Petroleum.
In light of the above it follows that mandatory enforcement of international and foreign arbitre awards is regulated in sufficient detail in the laws and international treaties of Kazakhstan.
How is the procedure for enforcing awards of Kazakhstan arbitration tribunals regulated?
The October 19, 2001 RK Supreme Court Plenum Decree does not delineate the procedure for enforcing third-party court (arbitration) awards depending on whether they originate from foreign, international or Kazakhstan tribunals. The Supreme Court had sound legal bases for so doing; below we discuss some of them.
Since Kazakh law and international treaties, as shown above, expressly set forth the obligation of mandatory enforcement of foreign and international arbitration awards as well as the procedure for such enforcement, the issue of mandatory enforcement of awards rendered by Kazakhstan arbitration bodies needs more elaboration. The significance of this issue and the occurrence of this problem in the first place is related to the fact that both Article 425 of the CPC and Article 5 of the RK Law On Enforcement Process and the Status of Court Enforcement Officers provide for mandatory enforcement of international and foreign arbitre awards, but are silent as to the procedure for enforcing other (Kazakhstan) arbitre awards.
Here we will enunciate a number of arguments in favor of the legal appropriateness of extending the procedure for enforcing arbitration awards to all arbitration bodies, including such bodies established in Kazakhstan.
(i) First of all, the Kazakh legislation does not contain the concept of “international arbitration.” An international arbitration body could very well be a tribunal created in Kazakhstan, but a founded by foreign individual or legal entities. In addition, as is well known, a third-party (arbitration) court can be appointed by the parties specially for the particular case (ad hoc arbitration), and the arbitration panel can consist of one or more persons who can be Kazakhstan or foreign citizens; the arbitration hearings can be conducted in either Kazakhstan or abroad. This being the case, it would be very difficult, if not impossible, to determine whether such arbitration proceedings can be considered international or Kazakh.
The New York Convention provides some clarification in Section 1, stating that the Convention “applies in relation to the recognition and enforcement of arbitration awards rendered in the territory of a state other than the one where recognition and enforcement is sought of such awards in connection with disputes, the parties in which may be physical as well as legal entities. It applies likewise to arbitre awards which are not considered domestic awards in the State where their recognition and enforcement is sought.” (emphasis added –ATK)
Kazakhstan law does not contain any rules which would denote the decisions of any sort of arbitration body as “domestic.” When interpreting this Convention rule, one should not rely on the everyday meaning of the words. In the legal sense and in keeping with the New York Convention, in order to preclude application of the Convention to Kazakhstan arbitration proceedings, it is necessary to adopt legal rules that would expressly rule out applying the Convention to Kazakhstan arbitration proceedings that are given the specific status of “domestic.” Accordingly, in the absence of such express rules, in accordance with the New York Convention, the awards of any arbitration bodies (including those rendered in Kazakhstan) should be enforced in accordance with the same procedure as for foreign awards.
Thus, the Supreme Court in its Plenary Decree was quite correct in its application of the New York Convention, citing it as one of the bases for adopting the Decree, and provided clarification for the courts on the procedure for enforcing arbitre awards as envisioned by the Convention. At the same time, the Supreme Court did not introduce any novel procedural rules, but only reiterated the rules contained in that international treaty.
Yet another argument establishing that the enforcement of Kazakhstan arbitre awards and the procedure therefor is provided for in Kazakhstan legislation is the fact that, as shown above, the Law On Foreign Investments and (therein cited) the Decree On Petroleum expressly stipulate that the parties can seek to have their disputes resolved at the RK Chamber of Commerce Arbitration Commission. At the same time it must be noted that in keeping with the spirit of the above-cited laws, RK Chamber of Commerce Arbitration Commission awards are enforced in accordance with the same procedure as the judgments of RK courts.
Consequently, the legislation of Kazakhstan provides sufficient legal bases for enforcing awards of international and foreign arbitration bodies as well as those established in Kazakhstan.
Conclusion: the solution to the problem of the constitutionality under Article 13 of the RK Constitution of the right of parties to conclude arbitration agreements and by the same token waive their right to judicial protection under the underlying contract, and of the possibility of exercising one’s right to judicial protection by going to court to seek mandatory enforcement of an arbitral award rests with the fundamental right of those who participate in civil-law legal relationships to freedom of contract and with their fundamental right to judicial protection of such contractual rights.
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