Alexander Korobeinikov and Yana Levkut
A. LEGISLATION AND RULES
In April 2016, as a result of the reform of the judicial system, the Law on Arbitration (“New Arbitration Law”) was adopted. This law is based on the UNCITRAL Model Law and governs both international and domestic arbitration proceedings.
In addition to unifying procedural rules for international and domestic arbitration proceedings, the New Arbitration Law, (last amended in 2019) implemented the following changes to the previous rules:
- State-owned companies may only execute arbitration agreements with Kazakhstani companies after obtaining consent from the superior state authority.
- An arbitration agreement must set out the name of the arbitration institution to be used. Due to this provision, it is not entirely clear whether arbitration agreements that refer to ad hoc arbitration rules will be valid or not.
- A new association of arbitration institutions and arbitrators ― the Arbitration Chamber — should be established. This chamber is responsible for maintaining a Register of Arbitrators, represents local arbitration institutions to local state authorities and foreign organizations and presents expert opinions on certain issues of the legislation of the Republic of Kazakhstan on arbitration and the practice of its application, which are advisory in nature.
- An arbitration agreement relating to disputes arising out of consumer loans is valid if such an agreement is concluded after the appearance of the grounds for filing a lawsuit.
- In the absence of an agreement by the parties on the applicable law, the arbitration shall determine the applicable law in accordance with the conflict of laws rules which it considers applicable in the case.
- Parties have the right to seek the reconsideration of arbitral awards based on so-called “newly opened circumstances” (i.e. facts that are material to the case but were not previously known to an applicant). This provision has been copied from the Civil Procedure Code, and it is not entirely clear how it will be applied by arbitrators.
- In addition to the existing grounds for challenging an arbitral award, the New Arbitration Law will allow parties to challenge the award if there is a judgment or an award that has a res judicata effect on the subject matter of the challenged award.
Generally, while the unification of procedural rules for international and domestic arbitration proceedings is a positive change, other provisions of the proposed New Arbitration Law will make the regulation of arbitration proceedings in Kazakhstan more restrictive. Additionally, it is not entirely clear how these new provisions will correspond with the provisions of international treaties ratified by Kazakhstan.
In addition, The Law on Arbitration and the Civil Procedural Code of the Republic of Kazakhstan expand the list of grounds for cancellation and denial of recognition and/or enforcement of an arbitral award.
In particular, the enforcement of an arbitral award may now be rejected if: there is a judgment or an arbitral award issued on the same dispute between the same parties and based on the same grounds (i.e., a judgment or award that has a res judicata effect).
However, such an extension of the grounds is contrary to the provisions of the UNCITRAL Model Law, article IX European Convention, as well as the New York Convention.
Kazakhstan is a party to a number of bilateral and multilateral agreements that grant investors the right to arbitrate disputes over their investments in Kazakhstan. These treaties include the ICSID Convention, the Treaty on Partnership and Co-operation Agreement between the European Union and the Republic of Kazakhstan dated 23 January 1995, and the ECT dated 17 December 1994.
A.2 Institutions, rules and infrastructure
At present, there are around 20 arbitration institutions in Kazakhstan. The most famous of these are the Kazakhstani International Arbitrage (KIA), the International Arbitration Court IUS (IUS), the Center of Arbitration of the National Chamber of Entrepreneurs of the Republic of Kazakhstan (CA of NCE), and the International Arbitration Center of Astana International Financial Center (IAC of AIFC).
A.2.1 The CA of NCE
The CA of NCE was established in 2014 as a result of the reorganization of the International and Domestic Arbitration Courts at the Chamber of Commerce and Industry of the Republic of Kazakhstan. This reorganization took place as a result of amendments to Kazakhstani law relating to the liquidation of the Chamber of Commerce and Industry and the establishment of the National Chamber of Entrepreneurs (NCE). While the CA of NCE signed assignment agreements with the International and Domestic Arbitration Courts at the Chamber of Commerce and Industry of the Republic of Kazakhstan. Technically, it is not a successor of these arbitration institutions. However, because for most local companies membership in the NCE is mandatory, and given that the CA of NCE has opened branches in all Kazakhstani regions, this institution will be the biggest in Kazakhstan.
The CA of NCE handles all types of commercial disputes between local and foreign companies, except disputes that are non-arbitrable under Kazakh law (such as disputes relating to the registration of rights over immovable property and challenges to decisions of state authorities).
The CA of NCE has been appointed by the Kazakhstani government to exercise the functions referred to in article IV of the Geneva Convention.
A.2.2 The IUS
The IUS was the first arbitration institution in Kazakhstan, established in 1993 shortly after the declaration of independence of the Republic of Kazakhstan. This institution was established by the famous local scholar Professor Petr Greshnikov. In 2002, the IUS opened a branch in St. Petersburg in order to avoid the application of Kazakhstani law, which was unfavorable toward arbitration proceedings.
The IUS also handles all types of commercial disputes between local and foreign companies, except disputes that are non-arbitrable under Kazakh law.
Under the Rules of Arbitration of the IUS, in exceptional cases, the Council of the IUS may dismiss an award issued under the Rules of Arbitration of the IUS.
A.2.3 The KIA
The KIA was the first arbitration institution established after the adoption of the International Arbitration Law. The famous local scholar Professor Maidan Suleimenov established this institution.
Similar to the other two institutions, the KIA handles all types of commercial disputes between local and foreign companies. However, it considers disputes not only in accordance with the laws of the Republic of Kazakhstan but also in accordance with the rules of law chosen by the parties participating in the proceedings.
A.2.4 IAC of AIFC
In addition to the above arbitration institutions, a new international arbitration institution was launched on 1 January 2017.
The IAC is acting in line with the AIFC Constitutional Statute No. 438-V ZRK of 7 December 2015, the AIFC Arbitration Regulations approved on 5 December 2017, and the IAC Arbitration and Mediation Rules approved in 2018.
The above rules provide that the New Arbitration Law does not apply to the arbitration proceedings in AIFC. The 2017 AIFC Arbitration Regulations is based on the UNCITRAL Model Law and is more liberal than the Kazakhstani domestic rules.
The IAC of AIFC handles all types of commercial disputes between local and foreign companies. In addition, the IAC of AIFC provides services related to the administration of ad hoc arbitration proceedings.
Arbitral awards issued under the 2018 IAC Arbitration and Mediation Rules may be enforced via the AIFC Court.
In February 2019, the AIFC Court and the IAC officially launched the new e-justice system, which is the first for the Central Asian region and allows parties to file claims with the AIFC and the IAC in electronic form from anywhere in the world.
In June 2019, the AIFC Court and the IAC imposed a moratorium on fees and charges. All parties to a contract signed before 31 December 2021 with the reservation of the IAC to resolve disputes, will be entitled to receive services for the administration of the dispute resolution process in the IAC arising under this contract, free of charge before and after 31 December 2021.
B.1 The Kazakhstani court confirms the validity of arbitration agreements
In a recent case, the Almaty City Court of Appeal overturned a decision of the first instance court invalidating arbitration agreements.
The lower court based its decision on the fact that the content of the contested arbitration clauses did not meet the formal requirements of article 9.4 of the New Arbitration Law, namely it did not contain the exact name of the arbitration institution and the subject of the arbitration proceedings.
The appellate court overruled the very formalistic approach above and confirmed that arbitration clauses constitute valid and enforceable arbitration agreements.
This decision is another example of the pro-arbitration approach of local courts.
B.2 The Supreme Court of the Republic of Kazakhstan reconsidered lower court decisions on non-enforceability of arbitration clauses upon the appeal submitted by the chair of the Supreme Court.
In 2019 the Supreme Court of the Republic of Kazakhstan for the first time overruled decisions of lower courts on non-enforceability of arbitration clauses due to the fact that lower court decisions contradicted established court practice on this issue.
In this case, lower courts concluded that the arbitration clauses in contracts between parties are non-enforceable because: (i) the arbitration clause does not contain the intentions of the parties to refer the dispute to arbitration and the name of the particular arbitration institution and (ii) of the absence of the arbitration clause in the main contract between parties, regardless of the fact that arbitration clauses were included in the subordinated agreements.
The chair of the Supreme Court considered that the above position of lower courts contradicted the well-established court practice and asked the Cassation Panel of the Supreme Court to reconsider the case.
During the new consideration of the case, the Cassation Panel took into account, among other things, the parties’ negotiations and correspondence preceding the execution of contracts, business practice and subsequent behavior of the parties. Based on the above circumstances, the court concluded that parties agreed to settle disputes arising out of both main and subordinated agreements in arbitration and that relevant arbitration clauses are valid and enforceable.
The above decision of the Supreme Court is very important for establishing the pro-arbitration court practice of local courts and may be used as a precedent.