Phases in the Development of Arbitration in Kazakhstan
Peter Greshnikov, Chairman of the International Arbitration Court of the Juridical Centre “IUS”, Ph.D. in Law
Igor Greshnikov, Ph.D. in Law
Existing Arbitration Legislation in the Republic of Kazakhstan
Kazakhstan has ratified and acceded to virtually all the major international treaties on arbitration, including regional conventions and treaties.1
1. The UN Convention On the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958); the European Convention On International Commercial Arbitration (21st April 1961); the Convention On the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) (Washington, 18th March 1965); the Agreement on the Procedure of the Settlement of Economic Disputes (Kiev, 20th March 1992), the Agreement On the Procedure of the Mutual Enforcement of Awards Made by Arbitration and Economic Courts in the Territories of the CIS Countries (Moscow, 6th March 1998), etc.
Having signed these conventions and treaties, and having its own arbitration legislation, Kazakhstan committed itself to recognizing the force of arbitration agreements and clauses in contracts, which deal with the procedures for settling disputes, and to recognizing and enforcing arbitral awards made by foreign, international, and domestic arbitration courts.
In Kazakhstan, appealing to a court of arbitration or a state court for defending one’s rights is the choice of the parties involved. This right of choice is granted to individuals and legal entities by Kazakhstan’s laws. In this connection, the following should be noted:
Firstly, citizens and legal entities of Kazakhstan have a right to transfer property disputes for settlement both to state courts and arbitration courts (Civil Procedural Code of the Republic of Kazakhstan, Article 25 )2. Moreover, Paragraph 1 of Article 9 of the Civil Code of the Republic of Kazakhstan3 provides a list of bodies authorized to defend the rights of individuals and legal entities. These bodies are courts, arbitration tribunals and arbitration courts. This means that both individuals and legal entities have the opportunity to choose a body to which they can appeal to defend their rights.
2. Civil Procedural Code of the Republic of Kazakhstan of July 13, 1999.
3. Civil Code of the Republic of Kazakhstan.
The Civil Code of Kazakhstan (Article 2) declares the principle of non-interference in private affairs by anybody, including the Government of Kazakhstan. In matters of an exclusively private nature, individuals or legal entities have the right to decide on their own whether they should go to a state court to seek the defence of their rights that were violated, or determine a different body that will examine their disputes, for instance, an arbitration court. Paragraph 1 of Article 8 of the Civil Code of the Republic of Kazakhstan reads that “individuals or legal entities dispose of the civil rights they possess, including the right to defend such rights, at their own discretion.”
A person who voluntarily chooses an arbitration court does not have the right to change the decision unilaterally, and in such a case, a state court does not have a right to accept the case for examination without consent by both parties.
Any private (civil) dispute that does not deal with public interests may be settled both in a state court and in a private (arbitration) court and awards by such courts will be of equally binding force and are subject to obligatory enforcement (compulsory where necessary).
Therefore, when an arbitration agreement is available, a state court does not have judicial priority.
Secondly, if there is an arbitration agreement between the parties to submit disputes to arbitration, then when one of the parties refers to a court of general jurisdiction, the latter should refuse to accept the claim (Civil Procedural Code of the Republic of Kazakhstan, Article 153, Paragraph 1, Subparagraph 1) or stop the proceeding (Civil Procedural Code of the Republic of Kazakhstan, Article 247, Subparagraph 1).
A court of general jurisdiction should also disregard the claim if, pursuant to the law, the parties concluded an agreement to submit disputes to an arbitration court and prior to the commencement of the examination of the case, the defendant submits an objection to the settlement of the dispute in a state court (Civil Procedural Code of the Republic of Kazakhstan, Article 249, Subparagraph 5).
Note that when preparing the case to be examined in court, the state court explains to the parties their right to seek a resolution of the dispute through arbitration (Civil Procedural Code of the Republic of Kazakhstan, Article 170, Section 1, Subparagraph 4). The court provides a similar explanation to the parties when opening the court session (Civil Procedural Code of the Republic of Kazakhstan, Article 185).
Right before the examination of a case commences, the court should once again remind the parties of their right to submit the dispute to a court of arbitration (Civil Procedural Code of the Republic of Kazakhstan, Article 192).
Thirdly, the term arbitration covers arbitration, arbitration courts, and international and foreign commercial arbitrations.
International private law, including treaties and conventions of which Kazakhstan is signatory secures the right of parties to submit their disputes to arbitration and confirm the principle of non-interference in a dispute by a state court when there is an arbitration agreement available.
Arbitration as a Means of Defending Property Rights
Arbitration courts and the system of alternative dispute mediation in Kazakhstan, receive the support of the Chairman and judges of the Supreme Court of Kazakhstan and the overwhelming majority of Kazakhstani lawyers and businessmen.4
4. Mami, Kairat. Arbitration Courts are to Come. Legal Newspaper, Sept. 5, 2001.
The position of the head of the main judicial body of the country was supported on October 19, 2001, at a plenary session of the Supreme Court of Kazakhstan where Standard Resolution # 14 On Court Practice of Examining Claims for the Compulsory Enforcement of Arbitral Awards was enacted. Under this resolution, awards made by Kazakhstan arbitration courts should be enforced equally along with decisions made by the courts of general jurisdiction.
We should note that currently Kazakhstan does not have any special legal act to regulate the activities of domestic arbitration courts in general. The only thing that is stipulated by law is that arbitral awards should be enforced as per the above resolution.
By Resolution # 1592 of December 7, 2001, the Government of Kazakhstan declared null and void Decree of the Cabinet of Ministers of the Republic of Kazakhstan # 356 dated May 4, 1993, On Passing Model Provision on Arbitration Court for the Settlement of Economic Disputes.
Of course, the model provision has grown outdated, but before a special law on arbitration courts is enacted, cancelling the legal act regulating arbitration activities would be premature, and would not be conducive to the development of domestic arbitration.
The need for amending the above provision was repeatedly discussed; the Constitutional Council of Kazakhstan alone issued three resolutions relating to arbitration court activities. Particularly, in the Resolution of February 16, 2000 On the Request of the Kostanai Regional Court to Declare the Model Provision on Arbitration Court for the Settlement of Economic Disputes Unconstitutional, the Constitutional Council of Kazakhstan noted that the existing Civil Procedural Code should be amended and that the Government should issue a legal act regulating arbitration activities. The Constitutional Council clarified that such measures would considerably strengthen the legal framework of examining economic disputes between legal entities and defending their civil rights that had been violated.
In Resolution # 1 of February 15, 2002, the Constitutional Council once again drew the attention of the Government and the Parliament of Kazakhstan to the inconsistency and incompleteness of the legal regulation of the organization and activities of arbitration courts. This decree caused controversial reaction from state authorities and dismay among lawyers, businessmen, foreign investors, and other persons concerned.
In our opinion, the provisions of the February 15, 2002 Resolution need some clarification which, we believe, will be provided by the Constitutional Council itself. Nevertheless, considering the importance of this issue, and based on more than ten years of professional experience in the field of arbitration and mediation, we will try to take a closer look at the situation.
1.The Constitutional Council believes that “an arbitration court is not a part of the judicial system that administers justice in the Republic of Kazakhstan and examines property disputes between the participants of civil legal relationship on the basis of their voluntary will. For legal entities and individuals, appealing to a court of arbitration does not mean execution of their right to defend rights and liberties in court as laid out in Paragraph 2 of Article 13 of the Constitution.”
The system of state courts in Kazakhstan indeed does not include arbitration courts. Nevertheless, defence in court is only one method for individuals and legal entities to defend their rights. The Kazakhstan Constitution (Article 13, Paragraph 1) directly says that “every person has the right to declare his or her legal personality and has a right to defend his rights and freedoms by whatever means not contradictory to law, including necessary defence.”
Arbitration court is itself a means of defending property rights of individuals and legal entities. As such, it is stipulated by the existing legislation of Kazakhstan and recognized by the Constitutional Council of Kazakhstan.
Moreover, the conclusion made by the Constitutional Council that arbitration courts are not a part of the Kazakhstani judicial system points directly at the independence of arbitration proceedings and the irrevocability of arbitral awards, as well as at the impossibility of appealing and protesting against such awards.
2.The thesis of February 15, 2002 resolution, saying that “conclusion by the parties of a civil agreement to submit a dispute to arbitration does not exclude the possibility of the future examination of such dispute by the courts of the judicial system of Kazakhstan in compliance with the existing law” received extensive feedback.
With regard to this thesis as stipulated in Paragraph 2 of the resolutive part of the Resolution, there are completely opposing interpretations and various conjectures.
In our opinion, nothing extraordinary that would violate existing legislation and not fit the regular practice actually happened.
No existing legal provision relating to arbitration courts and enforcement of arbitral awards was declared unconstitutional.
The Constitutional Council of the Republic of Kazakhstan only confirmed the rule that even when there is an arbitral clause or civil agreement on submitting a dispute to arbitration, it is possible for the parties to have their dispute examined by the courts of the judicial system of Kazakhstan in the future in accordance with the existing legislation.
Here, under the Civil Procedural Code of the Republic of Kazakhstan, any individual or legal entity can file a claim with a state court in all cases, including those when the agreement provides for arbitration.
However, when there is an arbitration agreement, if another party does not agree to the case being examined in a state court, this party has the right to object to such an examination and the court of general jurisdiction should disregard the claim (Civil Procedural Code of the Republic of Kazakhstan, Article 249, Section 1, Paragraph 5). In such a case, any fee that was paid should be refunded to the claimant (Civil Procedural Code of the Republic of Kazakhstan, Article 106, Section 1, Paragraph 1) and the case should be submitted to arbitration, as provided for by the agreement between the parties.
Since the Constitutional Council of the Republic of Kazakhstan did not declare the provision of Paragraph 5 of Section 1 of Article 249 unconstitutional, it remains in force and the state courts should be governed exactly by this provision. In addition, the courts should be governed by other provisions of existing conventions and treaties, the Civil Procedural Code of the Republic of Kazakhstan and enforcement legislation.
The Law of the Republic of Kazakhstan, currently in force, On Foreign Investments dated December 27, 1994, provides broad opportunities for investors with regard to the settlement of investment disputes in various arbitration bodies.
Where the written consent of a foreign investor exists, the consent of the state for the settlement of the dispute, including settlement in arbitration courts, is implied by and provided in the text of the Law On Foreign Investments.
In particular, if a foreign investor displays such a wish, the dispute may be submitted to one of the following arbitration bodies:
• The International Centre for the Settlement of Investment Disputes, established in accordance with the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, dated March 18, 1965 (Washington Convention);
• An additional body of the centre, if the investor’s country is not party to the Washington Convention;
• An arbitration body established under the Arbitration Regulations of the United Nations Commission on International Trade Law (UNCITRAL);
• The Arbitration Institute of the Chamber of Commerce, Stockholm, Sweden and others (see Paragraph 2, Article 27).
As laid out in Paragraph 6 of Article 27, the arbitral award made by the above bodies is “final and legally binding on the parties to the investment dispute.” Such awards should be enforced in the Republic of Kazakhstan in the same way as would be the decisions of the courts of the Republic of Kazakhstan.”
However, on October 15, 2001, the draft On Investments was submitted to the Parliament of Kazakhstan, which was intended to replace the Law On Foreign Investments. This draft grants the priority in the settlement of investment disputes to state courts, passing this draft as revised by the Government will substantially limit the rights of investors to choose a body to settle an investment dispute.
Currently, there are two legal regimes in Kazakhstan: one for foreign investors and another for domestic investors. The latter are in a relatively poorer position compared to the former.
The draft On Investments should unify the approaches and make the two categories of investors equal in their rights. Such a unification would be possible in two ways: by raising the status of domestic investors to the level of that of foreign investors, or conversely, by limiting the rights of foreign investors and lowering their status to the level of domestic investors’ rights. Unfortunately, in elaborating the draft On Investments, the second approach - clearly an ineffective one - was used. However, there are still chances to improve the situation and elaborate further the text of the draft law.
In our opinion, the provisions on Article 9 “Settlement of Disputes” of the draft Law of Kazakhstan On Investments should grant priority in settling investment disputes to arbitration bodies, with the possibility for investors to choose the means and methods to defend their rights.
In conclusion we should note that in case an arbitral award is not enforced voluntarily, the claimant has a right to demand compulsory enforcement of such award. Arbitral awards should be enforced equally with the decisions of the courts of general jurisdiction. The Republic of Kazakhstan has a unified legal enforcement system. The ten-year experience of the International Arbitration Court of the IUS Legal Centre shows that its awards in Kazakhstan have been enforced both in a voluntary and in a compulsory manner.
Development of the institute of arbitration in Kazakhstan will be discussed in detail at the International Commercial Arbitration Conference, scheduled for June 11, 2002. The Conference will be organized by the Arbitration Institute of the Stockholm Chamber of Industry and Commerce, the International Arbitration Court of the IUS Legal Centre, Salans Herzfeld & Heilbronn, and other partners.
The above means that arbitration court is a method of settling disputes recognized by law and custom. We strongly believe that for the purposes of developing arbitration in Kazakhstan, it is vital to consider and adopt the laws already developed that deal with international commercial arbitration and the courts of arbitration.
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