Applicable laws in the settlement of international investment disputes: theoretical and practical issues
Table of contents: The Kazakh-American Free University Academic Journal №2 - 2011
Author: Dautbayeva Dinara, Kazakh-American Free University, Kazakhstan
The development of legal order in international investment
disputes is a process, to which legal science should pay great attention under
the conditions of the integration of Kazakhstan into the world economy.
Under investment dispute we understand a complex of legal
relationships, occurring in connection with solving disagreement or seeking a
rational solution to settlement of a disputable situation, which take place
within the frames of investment activity.
Investment dispute considered in the context of legislation
of a certain country (internal investment dispute) is a variety of civil law
disputes. Analysis of Kazakhstan legislation shows that investment activity in
Kazakhstan is a component and integral part of civil legal relationships,
within the frame of which dispute settlements connected with investment
activity are performed as civil proceedings. It would be fair to mention that
“the array of legal directions, which constitute foreign investment
legislation, is heterogeneous and includes norms of civil, administrative,
financial, currency, customs and other laws”.
Nevertheless, specific character of investment disputes
brings up the idea of a necessity to delimitate investment and civil law
disputes, at least for the research purposes. The criterion of delimitation of
investment disputes from civil law disputes is the fact that investment
disputes arise only in the process of investment activity. Investment disputes
differ from civil law disputes in the fact that such disputes can be both
national and international.
Under national investment dispute we understand the
situation when there is a conflict between a domestic investor and its country
in a certain investment activity issue, which is settled in accordance with the
law chosen by the parties.
International investment dispute differs from national
investment dispute in the structure of its subjects, since one of the parties
of the dispute is a foreign one (foreign investor). Peculiarities of
relationship between foreign investor, recipient of foreign investments, the
country – recipient of foreign investment and the country of investor often
lead to a complicated legal regulation of both the relations between the
subjects mentioned and approaches to dispute settlement [1, p. 9]. The problem
of choosing the law, applicable to material and procedural aspects of
investment relationships with foreign interest indicates the autonomy of the
parties in selection of applicable material and dispute settlement law. Foreign
investor interest in the investment process influences the peculiarities of
Evidently the meaning of the international legal investment
regime is in determining an acceptable combination of laws and duties for both
investors and governments.
The notion of public policy started to form as early as the
Middle Ages in the works of Roman Law researchers – glossators. Public order
clause is contained in different forms in the legislation of almost all
countries that have international private law codifications. It was also a part
of Civil Legislation of the USSR and its republics, which was active in
Kazakhstan prior to adoption of the Civil Code of the Republic of Kazakhstan.
First of all we need to clarify that we speak about public
order clause or «order public», which is vested in Article 1090 of the Civil
Code of the Republic of Kazakhstan  (hereinafter referred to as CC RK) in
connection with foreign law norms application. Thus, foreign law is not
applicable in cases when its application contradicts the law and order of the
republic of Kazakhstan (public policy of the Republic of Kazakhstan). In such
cases the Law of the republic of Kazakhstan is applied. But Clause 2 Article
1090 of CC RK specifies that rejection to use foreign law cannot be used based
only on difference of political and economic systems. At the same time legal
literature indicates that non-usage of foreign law based on public policy
violation is possible only in “exceptional cases”. Each of such cases should
have a solid basis and cannot just come to formal violation of national law
On the whole the notion of public order (order public) has
not yet been defined, which causes certain difficulties with its application.
In some countries it has not been decided yet which law
should be applied in case foreign law is excluded due to public order motives.
Hungarian legislation stipulates applying the law of the country where the
trial takes place, Austrian legislation stipulates applying Austrian law.
Additionally, we should consider the issue of public order
clause in a civil proceeding, in connection with the Laws of Kazakhstan adopted
on December 28, 2004: “On arbitration tribunals”, “On international commercial
arbitration”, and “On making amendments to certain legislative acts of the
Republic of Kazakhstan in arbitration tribunals and arbitration activity
Thus, state authoritative court can overturn the decision
(or reject arbitration decision execution), if the court ascertains that
arbitration decision or its acknowledgement and execution contradict public
policy of the Republic of Kazakhstan (subclause 2) Article 425-3 of Civil
Procedure Code of the republic of Kazakhstan (hereinafter referred to as CPC
RK); subclause 5 clause 2 article 44, subclause 2 clause 2 article 31,
subclause 2 clause 1 article 33 of the International Commercial Arbitration
The notion of public policy is fixed in subclause 10 clause
2 of the International Commercial Arbitration Law, in accordance to which under
public policy of the republic of Kazakhstan we understand the fundamentals of
state and public system ascertained by the legislation of the Republic of
It can be noticed that the definition is different from one
given in article 1090 of CC RK – fundamentals of law and order . This
notion is wider than fundamentals of state and social structure, and in case of
disagreement CC RK norms will be applied. But, in principle, these two notions
do not contradict each other: in any case – fundamentals (of law and order or
system) and it does not automatically follows that a usual controversy to
imperative legislation norms of the Republic of Kazakhstan can be admitted as
contradicting the public law.
On December 23, 2005 the Supreme Court of the Republic of
Kazakhstan adopted normative resolution #10 “On court application of
legislation norms concerning arbitration tribunals decision enforcement”, in
which it emphasized the importance of public order clause and the necessity to
limit this clause application. In accordance with clause 10 of the normative
resolution, in particular, it is understood that application of the institution
of public order is possible in exclusive cases when the enforcement of
arbitration tribunal decision infringes the basics of law and order of the
Republic of Kazakhstan.
Thus, public order (order public in French) can be
determined as fundamental and social community integrity productive rules,
requirements, norms, characterized by presence of moral and ethical platform
and considered as a criterion of balance between private and public interests
of social community actors. At the present moment we can witness the
establishment of international public order (real international public), which
concentrates common for the states standards of public-private relations on the
one hand and certain state public order establishment of the other. This is the
reason why using public order clause it is necessary to be guided by
international public order.
Applying public order clause in court practice it is
possible to proceed from the following principles:
- that of partial deviation of foreign law and order and
application of the law of the country of the court, content of which is the
most similar to that of the rejected;
- that of decision divisibility, which presupposes partial
rejection to enforce foreign decision, or recognition but rejection to enforce.
This public order clause is applied to prevent the
following: violation of international public order, application of foreign law
of criminal character, attribution of responsibility on an innocent person,
violation of weak party rights, violation of fair and commensurate
reimbursement principles (both upwards and downwards), immoral deals execution,
Recovery against debtor’s property is executed in accordance
with the legislation of the country of debtor location by the claimant request
to the competent court of Contracting party, which the claimant must provide
with: a properly certified copy of competent court decision with a
confirmation of its entry into force, or solicitation of its enforcement; a
competent court document certifying debtor’s participation in a court trial,
and in case of absence from court – a document certifying the debtor was
properly notified of the court trial; a court order. In accordance with clause
3 article 59 of the Convention on legal assistance and legal relations on
civil, family and criminal matters (hereinafter referred to as Convention) as
of October 7, 2002 foreign court decision acknowledgement and execution can be
rejected in case acknowledgement and execution contradict public order of the
inquired Contracting party. Clause 3 article 57 of the Convention states that
decision acknowledgement and execution order is defined in accordance with the
legislation of the Contracting Party, on whose territory the execution must
take place .
In accordance with clause 9 part 3 article 77 of the
Constitution of the republic of Kazakhstan while applying the law the judge
should be guided by the jurisdiction principle according to which evidence
received illegally is of no legal effect .
In accordance with the norms of article 8 of CC RK citizens
and legal entities must act honestly, reasonable and fairly while exercising
their rights . This obligation cannot be excluded or limited by a contract.
Actions of citizens and legal entities aimed at doing harm to another person,
abuse of rights in any other form, and at exercising of right at variance with its
purpose are inadmissible. In case of failure to follow specified requirements
the court has the right to reject a person in applicable law protection.
Solving an issue of public order clause application the
court inevitably faces the problem of balancing two interests. Thus, on the one
hand, state court should not execute arbitration decision, acknowledgement and
execution of which contradict principles that form public order of the country
of decision execution. On the other hand, state court should not tolerate such
standard of public order application which would violate the principle of
conclusiveness of foreign arbitration decision. Considering the possibility of
broad interpretation of this judicial review, one of the conditions of legal
distinctness achievement in law enforcement practice is the awareness of both
public order clause notion and content and appropriateness of its use by
We should note that in both Kazakhstan and foreign science
public order clause is a universally recognized principle of international
private law. Besides, not a single country, where application of public order
clause is stipulated by the legislation, gives a detailed description of public
order. Thus, they either use the term “public order” providing no explanation
or use some general guidelines referring to basic law principles, basics of law
and order (references to certain national laws). All mentioned above leads us
to a conclusion that public order clause meaning has not yet been clearly
defined. In connection with that the basic elements of public order are
described in literature with consideration to national court practice.
Examining the issue of features and application of
applicable imperative norms to foreign elements in court practice, it is
necessary to mention that Constitution norms, its corresponding laws, other
legal acts, international contractual and other obligations of the Republic,
and legal resolutions of Constitutional Court and Supreme Courts of the
Republic of Kazakhstan are the active laws of the Republic of Kazakhstan.
Constitution has the highest legal effect and direct impact
on the entire territory of the republic. International agreements ratified by
the Republic have a priority over its laws and are applied directly, except for
the cases when an international agreement specifies that its application
requires adoption of a law.
Article 1091 of CC states that rules of section 7 of CC
“International private law” does not involve imperative norms of the
legislation of the Republic of Kazakhstan, which due to reference to them in
the law or due to their great importance for ensuring rights and protected by
the law interests of the subjects of civil circulation, regulate certain
relationships regardless of applicable law.
This means that even if conflict of CC laws requires foreign
law application, but this law contradicts imperative norms of CC, foreign law
will not be applied. Priority of imperative norms over foreign law norms, which
are to be applied by the virtue of conflict of laws, is vested in the
legislation of a number of European countries (art. 7 of Rome Convention on the
law applicable to contractual obligations of 1980, art. 18 of the Private
International Law of Switzerland, art. 34 of the Private International Law of
FRG of 1986). Such imperative norms include, in particular, consumer
protection norms, currency law rules, see carrier responsibility limits norms,
antitrust law norms, export and import restrictions, norms, limiting freedom of
contracts for the behalf of its weaker party protection, some equity rules,
norms, ensuring implementation of the state policy in the sphere of insurance
and banking activity.
In accordance with clause 1 article 1091 of CC and due to
its special relevance for the interests of citizens and legal entities of the
Republic of Kazakhstan or due to a reference made by the court, such imperative
norms as basics of civil law (art. 2 of CC), exercise of civil rights (art. 8
of CC), invalidity of a bargain which is deliberately offensive to basics of
norms and rules or moral (cl.1 art. 158 of CC), freedom of contracts (art. 380
of CC) can be applied.
Thus, such imperative norms are applied in special exclusive
cases, which can take place during a certain court trial. This is a kind of a
safety valve, which is activated when application of some foreign norms
application would affect the basics of the legislation of the Republic of
Kazakhstan. Conduct of cases with foreign interest is regulated by section 5
chapter 45 articles 413-426 of CPC RK.
The problem of defining the notion of “imperative norms
characteristics” is studied in the theory of civil law and procedure, the
notion of “imperativeness” implies exact determination of rights and
obligations of the subjects of law, i.e. imperativeness, in the first place,
depends on the subject of disputable legal relationships, which means one of
the parties should be a foreigner, if we speak about citizens, or a foreign
enterprise, in we speak about legal entities.
Constitutional Council of the Republic of Kazakhstan
explained that foreign citizens also cannot exercise other rights and freedoms,
which they cannot use in accordance with the requirements of the Constitution,
laws and other normative and regulatory acts, and also in cases, stipulated by
international agreements of the Republic of Kazakhstan.
In accordance with art. 3 of the Law “On legal position of
foreign citizens in the Republic of Kazakhstan” foreign citizens have all the
rights and freedoms, and perform the duties, fixed in the Constitution, Law,
and international agreements of the Republic of Kazakhstan, except for the
cases stipulated by laws and international agreements of the Republic of
Kazakhstan. In accordance with art. 6 of the Law, foreign citizens can be
involved in labor activity in the Republic of Kazakhstan on the basis and in
order stated in the legislation and international agreements of the Republic of
Foreign citizens cannot be appointed at certain positions
and be involved in certain labor activities if in accordance with the
legislation of the Republic of Kazakhstan appointment at these positions and
involvement in such activity are connected with citizenship of the Republic of
In accordance with the reciprocity principle the state
applies foreign right or determines the amount of rights of foreign subjects
depending on whether the other country has established the same principle. This
point of view, called public, gives a general description of a notion of
reciprocity, but concerning arbitration decisions recognition it requires
In Kazakhstan, reciprocity means that arbitration decision,
taken by a certain country, will be recognized and executed only in case if
arbitration decision, which is taken in Kazakhstan and is considered as
Kazakhstani, will be recognized and executed in this certain country. In other
words, execution of Kazakhstan arbitration decisions in other countries is a
necessary condition and basis for execution of decisions of this certain
country in Kazakhstan.
We can say that reciprocity is a certain type of “consent”
of the executing country for recognition and execution. Such consent can be
realized through three channels: bilateral international agreement;
multilateral international agreement; on the basis of national legislation.
Article 425 of CPC RK and part 2 clause 1 article 32 of the
Law of the Republic of Kazakhstan “On international commercial arbitration” as
of December 28, 2004 presupposes that “arbitration decision taken by a foreign
country is recognize by a competent court and is executed by execution agencies
on a reciprocity basis”. The list of motives for rejection to recognize and
execute arbitration decision, stipulated for by the Law of the Republic of
Kazakhstan, coincides with the list accepted by New York Convention.
Thus, Kazakhstan recognizes the arbitration decisions taken
by the countries – members of the Convention. However, execution of these
decisions causes certain problems. International agreements ratified by the
Republic of Kazakhstan, have a priority over Criminal Procedure Code of the
Republic of Kazakhstan and are applied directly. (cl. 3 art. 3 of CPC RK) .
Having joined international conventions and agreements, having signed bilateral
intergovernmental agreements, our state got obliged to recognize the effect of
arbitration agreements and clauses in dispute settlement order contracts, and
also recognize and execute decisions of foreign, international and national
Enforcement of the arbitration decisions requires
appropriate instruction of a competent body of the country, where execution is
solicited, that is the instruction of the court.
In Kazakhstan as the variety of arbitration decision
execution there exist exequatur – appealing to court with a request of
recognition and execution of the decision. Herein after consideration of
arbitration decision regularity (absence of rejection motives) the court issues
a court order – an execution order by the request of the interested party.
Moreover, in accordance with the regulation of article III
of New York Convention exequatur is realized in accordance with the procedural
norms of the territory, where recognition and execution of these decisions are
requested . Herein, the regulation of article 425-1 of CPC RK states that
the claimant has a right to appeal to the court with the request of local
action concerning arbitration decision enforcement .
That means in case of enforcement of the decision taken,
say, in the USA as respects to the Kazakhstan resident respondent, in
accordance with article 425-1 of CPC RK, it is necessary to go to the court
located in the USA.
However, in accordance with article I of New York Convention
this decision will be considered by the USA courts as local, not foreign. Besides,
the USA court can reject the enforcement of such decision since it should be
executed on the territory of the Republic of Kazakhstan. In accordance with
this rule, stipulated for by article 425-1 of CPC RK, we can conclude that in
occurs only as respects to arbitrations located on the territory of the
Republic of Kazakhstan .
Thus, we believe that the regulation of article 425-1 of CPC
RK amounts to nothing the declared principle of recognition and execution of
foreign arbitration decisions in the Republic of Kazakhstan.
Kazakhstan recognizes arbitration decisions, taken by the
other Convention member state. Consequently in accordance with the Law on
Arbitration Tribunals only procedural violations and contradiction to the
public order can become motives for rejection of enforcement.
Regulations of article 32 of the Law of the Republic of
Kazakhstan “On international commercial arbitration” states that arbitration
decision is acknowledged obligatory when a written request is sent to the
competent court in accordance with Civil Procedural legislation of the Republic
of Kazakhstan .
All this arise certain difficulties in determining the
competent court which should be addressed to have the local arbitration
decision executed. In connection with this we can ask a question: which court
can be considered competent when there are several state courts on the
territory of a dispute consideration?
These issues have not been yet solved completely by
Kazakhstan legislation. We believe that the issues are of considerable
importance for the claimant and should be solved by the arbitration that has
taken a decision, and not by the local action court, since, if not, the
arbitration decision will be changes, which is inadmissible. These and other
issues should be solved by making amendments and additions to the legislation,
which would regulate the processes of arbitration decisions recognition and
We think that diversifying international relations, revival
of industrial, cultural and social relationships, purposeful policy aimed at
integration of Kazakhstan into the world economic system, huge preparatory work
to join the World Trade Organization in particular will cause increase in
foreign arbitration and court decisions requiring execution on the territory of
Such decisions execution is regulated not only by the
national legislation norms, but also by regulations of international agreements
signed by Kazakhstan [9, с.47]. Appropriate and exact execution involves
considering requirements of not only norms of our legislation, but also norms
of international agreements – both multilateral (conventions in the first
place) and bilateral, stipulating reciprocal civil, family and criminal
assistance by member countries.
Legislation of any country reflects shaped
traditions and peculiarities of economic and political life of the society. Unfortunately,
voluntary execution of court decisions has not become an integral part of legal
culture. Collaboration in solving the issues mentioned should become a basis
for overcoming of existing problems in relationships between the states and
contribute to improvement of international court decision execution norms.
1. Калдияров Д. А. Инвестиционная политика и механизм
регулирования инвестиционного процесса. // КазУУ хабаршысы. - Алматы, 2010. -
№2. - С. 8-13.
2. Гражданский кодекс Республики Казахстан (Особенная часть)
от 1 июля 1999 г. // Информационная система «Параграф».
3. Закон Республики Казахстан «О международном коммерческом
арбитраже» от 28 декабря 2004г. // Информационная система «Параграф».
4. Конвенция о правовой помощи и правовых отношениях по
гражданским, семейным и уголовным делам от 7 октября 2002 г. // Информационная система «Параграф».
5. Конституция Республики Казахстан от 30 августа 1995 г. // Информационная система «Параграф».
6. Гражданский кодекс Республики Казахстан (Общая часть) от
1 июля 1999 г. // Информационная система «Параграф».
7. Гражданский процессуальный кодекс Республики Казахстан от
13 июля 1997г. №411-I. // Информационная система «Параграф».
8. Нью-Йоркская конвенция «О признании и приведении в
исполнение иностранных арбитражных решений» 1958 г. // Информационная система «Параграф».
9. Мороз С.П. Инвестиционные споры: проблемы правового
регулирования. // Юрист, 2006. - №11. – С. 47-48.
Table of contents: The Kazakh-American Free University Academic Journal №2 - 2011