Alternative dispute resolution procedures in Kazakhstan
Table of contents: The Kazakh-American Free University Academic Journal №6 - 2014
Dautbayeva Dinara , Kazakh-American Free University, Kazakhstan
Babajanyan Yester, Kazakh Humanities and Law University, Kazakhstan
In the present-day world economic relations
is an integral part in the strengthening of international cooperation, mutual
understand, both between countries and between other subjects of international
At the present stage the development of foreign policy
activity of the courtiers promotes the formation of a complex system of
international relations. Rates to attract foreign investments in Kazakhstan led to an increase in the number of investment disputes. Bilateral investment
agreements provide investors a direct right to submit the dispute to
arbitration against the State, violating the laws and agreements - even if
investors do not have agreements with the State.
Alternative dispute resolution procedures
are becoming more common in international practice. Previously allocated to
three main types of alternative dispute resolution procedures: 1) negotiation
(negotiation) - settlement of the dispute directly to the parties without the
involvement of other persons; 2) Mediation (mediation) - settlement of disputes
by an independent neutral mediator who helps parties reach agreement, and 3)
arbitration (tribunal) - the resolution of the dispute by an independent
neutral person - the arbitrator who makes a binding decision on the parties.
However, in recent years, more and more new
types of alternative dispute resolution procedures are developing. American
lawyers now exclude the arbitration from alternative dispute resolution
procedures, but at the same time there are about twenty dispute settlement procedures.
The most common form of alternative dispute resolution procedures are mediation,
conciliation, mini-trial, non-binding arbitration or expert opinion, and others
As we know, there are several types of
international arbitration - international commercial arbitration, international
investment arbitration, and arbitration between states. Since Kazakhstan gained independence in 1990 the country had laws that allowed developing to courts of arbitration.
In the development of commercial arbitration in Kazakhstan has entered a new stage. On December 28, 2004 the long-awaited laws of the Republic of Kazakhstan "On Arbitration courts" and "On International Commercial
Arbitration” were finally adopted and the Law of the Republic of Kazakhstan and also Law “On making amendments and addenda to some legislative acts of the Republic of Kazakhstan on issues of arbitration courts and tribunals "(hereinafter -
the Law on Amendments). Arbitration courts in Kazakhstan have been in limbo
since the state courts have denied enforcement of their decisions.
Entrepreneurs no longer apply to the arbitral tribunals, their activity was paralyzed.
Therefore, new laws are urgently needed to revive the arbitration courts in Kazakhstan, which were almost destroyed as a result of ill-conceived policy of Republic
Government. There is no doubt that the new laws will play a positive role.
At the same time in the adopted laws there are certain
ambiguities and contradictions, therefore, problems arise in applying those
First of all, you must clearly understand that the
arbitral court and arbitral tribunal - are one and the same. In English
language the word "arbitration court" interpreted as an
"arbitral tribunal". The essence of arbitration court (arbitral
tribunal) that a non-governmental body established by the parties themselves to
resolve the dispute. Accordingly, the terms "commercial arbitration",
"arbitration," and “arbitration court” are equally applicable to arbitration
and to international commercial arbitration. At the same time it must be
considered that in the adopted laws, the term "arbitration" applies
only to international commercial arbitration.
Equally important today takes the issue of
delimitation of competence of the arbitral court and international commercial
arbitration in the Republic of Kazakhstan.
Arbitration (tribunal) courts may be permanent
(institutional) and formed specifically to address a specific dispute (arbitration
«ad hoc») (see item 2) Article 2 of the Law on arbitration courts, paragraph 1
Article 2 of the Law on International Commercial Arbitration).
As rightly pointed by O. Skvortsov,
genetically arbitration occurs in the private and the substantive law on the
basis of the contract (arbitration agreements) and transformed into a system of
procedural rules governing the relationship of the parties to a dispute [2, p. 121].
Distribution of powers between the court of
arbitration and international commercial arbitration shall not be held between
the specific arbitral bodies (only one court of arbitration, the other only to
arbitration), but the nature of disputes. That is, any arbitration court
(tribunal) may consider domestic disputes, and international as well, and any
natural or legal persons (both resident and nonresident) can go to any arbitral
tribunal, no matter how he was called: "arbitral tribunal" or
"international commercial arbitration". In this case, depending on
the nature of the dispute law on arbitration courts or the Law on International
Commercial Arbitration will act. Distribution of powers enshrined in Item 4 of
Article 6 of the Law on International Commercial Arbitration, under which:
"In the arbitration agreement of the parties may
submit disputes arising from civil contracts between individual and legal
persons as well as commercial and other organizations," if at least one of
the parties is a nonresident of the Republic of Kazakhstan".
In accordance with paragraph 9) Article 2 of the Law
on International Commercial Arbitration a Commercial entities refers as a legal
entity of Kazakhstan or a foreign organization whose primary purpose is to
deliver revenue. Explanation why foreign organization is separately allocated
from the entity is that in some countries participation in public circulation
of organizations that are not legal persons is allowed (e.g., a general
partnership in the UK).
In accordance with Item 3 of Article 1101 of the Civil
Code of the Republic of Kazakhstan, a civil legal capacity of foreign
organizations that are not a legal entity under foreign law is determined by
the law of the country where the organization is established.
If applicable is the law of the Republic of Kazakhstan such organizations follow the rules of the Civil Code, which regulate the activity
of individuals who are commercial entities, unless otherwise follows the laws
of the Republic of Kazakhstan or the obligation.
On the basis this, an interpretation of paragraph 4 of
Article 6 of the Law on International Commercial Arbitration: the parties to
the dispute may be individuals or legal entities, as well as the organization
of the number of residents who are not legal entities, but to which the provisions
of the Civil Code of commercial organizations are applicable.
Appeal to arbitration (tribunal) proceedings
as provided by law of the Republic of Kazakhstan dated December, 28 2004 on
“International Commercial Arbitration "(hereinafter - the Law on International
Commercial Arbitration), and "On arbitration courts" (hereinafter -
the Law on Arbitration Courts) is one way of protecting civil rights and is
possible only if properly entered into between the parties to the arbitration
(tribunal) agreements, which is by its legal nature the civil contract.
According to Section 2, Art. 2 of the Civil Code of the Republic of Kazakhstan (hereinafter - CC) individuals and legal entities acquire and exercise their civic
rights of their own free will and in their own interests. They are free to
establish their rights and obligations under the contract and identify any
which do not contradict the law of contract. By virtue of paragraph 1 of Art. 8
of Civil Code citizens and legal entities at its discretion dispose of their
civil rights, including the right to defense, which is in accordance with
paragraph 1 of Art. 9 of Civil Code are administrated by the Court, Arbitral Court or the Arbitral Tribunal. With regard to the matter, this means that above a
properly executed arbitration clause only the parties of this clause can be
initiators of arbitration proceedings.
On this occasion, Basin Y.G. and Suleimenov
M.K. noted that "the members of the plaintiffs and defendants can not
beyond outside of signatories of the arbitration clause, because agreement of
the parties to the dispute to its proceedings in the arbitration court – is an
indispensable condition for making the case for arbitration proceedings.
Forcibly, without consent granted by the signing of an arbitration clause in
any other lawful manner, no one can be brought to the arbitration court as
plaintiffs or defendants. This also applies to those who really seriously involved
in the conflict that occurred, are interested in a favorable arbitration decision
for themselves (the mortgagor, guarantor, guarantors, etc.). Exceptions are allowed
only in cases where an international treaty, member of which is the Republic of
Kazakhstan, directly establishes the right of one party to the dispute, to
apply to the arbitration of the defendant country under certain conditions,
even without obtaining the consent (e.g., Article 3.4 of the Kiev 1992
Agreement on the procedure for resolving disputes related to economic activity).
Thus, the parties to the arbitration
(tribunal) are those persons who have concluded an arbitration (tribunal)
agreement. Meanwhile, in certain cases, the subjects of arbitration (tribunal)
process relationships may also be a third party. In the legal literature on the
possible involvement of third parties in the arbitration (tribunal) proceedings
is a controversial and poorly studied, despite the fact that "the consideration
and resolution of the case to arbitration may be at risk of violation of their
rights and legitimate interests" [3, p. 46].
What is the international investment
arbitration and what are its peculiarities? It is fast growing in popularity
dispute resolution between foreign investors and public authorities. It is
unique in that it gives investors an opportunity to claim compensation for
material damage or breach of obligations by the government itself and to do so
outside the judicial system of any of the state. The arbitrators are usually lawyers
and attorneys with the global name and reputation, which are chosen specifically
for each process by the parties or appointed by one of the international organizations
that provide their services in this area. Thus, the difference in investment
arbitration from commercial arbitration - is that the respondent was usually
the state, and the plaintiff - a private citizen, citizen of another State,
and, as a rule, there are a very big money. It must be stressed that in order
to dispute dealt with in international arbitration, it’s necessary to have
prior approval for both sides. In commercial relationships such consent is
often achieved by including in the contractual relationship of the arbitration
clause, i.e., prior agreement of the parties that all disputes relating to this
contract shall be settled through international arbitration. In the context of
investment arbitration agreement by the Government is usually witnessed in the
investment agreement between the investor's country and the country to attract
investment. Kazakhstan is party to 39 such agreements. These agreements
stipulate the rights which are endowed with investors of different states such
as the right to compensation for expropriation or discriminatory attitudes by
the authorities. What is or is not a discriminatory attitude, which should pay
compensation - the arbitrators decide on the basis of the specific facts of
each case and applicable law.
According to the Law on Investment, an
investment dispute -is a dispute arising out of contractual obligations between
investors and government authorities in connection with investment activities
of the investor. In our point of view, the definition of an investment dispute
in the existing Law on Investments is not entirely successful, and worsens the
position of investors compared to the old Law on Foreign Investment.
Firstly, the category of Investment
Disputes ruled out non-contractual disputes on the relationship between the
competent authority of the State and the investor. Thus, it can be considered
only in state courts, while the old Law on Foreign Investment in Article 27
will transfer it to international arbitration, even without the consent of the
State. Secondly, it is clear that the existence of any dispute can justify the
violation of the law of one of the parties to the dispute, and, thus, the
definition of an investment dispute raises the risk of transmission of disputes
between state and investor in Kazakhstan's courts since the foundation of such
a transfer could serve as a charge state investor in violation of the law.
Important is the definition of an investment
dispute. There are two definitions of "investment dispute". Under the
investment disputes in a broad sense refers to any disputes related to
investments. This may be economic, technical, technological, administrative and
legal nature disputes between the different subjects and the economic,
technical, technological and administrative disputes can have an independent
nature, but also serve an integral part of legal dispute. The Russian legislative
does not explicitly use the term "investment dispute" in practice.
The definition of investment dispute as long as it does not apply to the
current legal acts, has a collective and doctrinal significance. However, due
to the international character of investment relations, as well as the
international character of the mechanisms for resolving investment disputes and
enforcement of the decision must take into account international laws and
jurisprudence. In this connection it should be should mentioned that the
Washington Convention on the Settlement of Investment Disputes between States
and Nationals of Other States on March 18, 1965 year. Article 25 of the
Washington Convention as an investment disputes determines the legal disputes
arising directly from the relations relating to investments between the state
(or any authorized agency of the state) and the person (physical).
Thus, in the narrow sense of investment
disputes necessary to understand the legal disputes between the state and private
foreign investors related to investments in the territory of the latter first.
In legal doctrine disputes in the narrow sense are usually called investment.
This is due to the presence of aggravating circumstances: first, to the special
composition of parties in a dispute (a State on the one hand, and private
foreign investors – in another) and, consequently, the specifics of the subject
and a special procedure for settlement of investment disputes. Investment
disputes can be called the disputes about definitions, because the main difficulties
in solving them are connected with different interpretations of terms, not only
in different order, but also within the same order.
As is known, under Article 9 of the Law of
the Republic of Kazakhstan on Investments No.373-II dtd. January 8, 2003,
provides that investment disputes can be resolved through negotiation, in the
courts of Kazakhstan, or in accordance with previously agreed by the parties’
dispute settlement procedures that include international arbitration,
determined by agreement of the parties. On the one hand, the Law on investments
as though is not specifically regulated, in what arbitration should be referred
to a dispute, as it was in the old Law on Foreign Investment, and leaves it to
the discretion of the parties, but on the other hand, in my opinion, the
arbitration agreement should exclude the jurisdiction of the state court.
However, despite the existing mechanism for
protection of investors, each worried about the enforcement of arbitral awards.
At present in Kazakhstan created a legal
framework for recognition and enforcement of international arbitration. Kazakhstan has joined and ratified almost all major international and regional, conventions
and agreements relating to arbitration. Today they are all positive law of the
Republic. In particular, the adoption of internal regulations - Laws of the Republic of Kazakhstan on International Commercial Arbitration, on Arbitration Courts, on
Amendments to some legislative acts of the Republic of Kazakhstan on issues of
arbitration courts and tribunals, in particular, to the Civil Procedural Code
of the Republic of Kazakhstan.
Kazakhstan has also
joined the New York Convention on Recognition and Enforcement of Foreign
Arbitral Awards of June 10, 1958, the European Convention on International
Commercial Arbitration dtd. April 21 1961, ratified the Washington Convention
on the Settlement of Investment Disputes between States and individual and
legal persons of Other States on March 18, 1965. Kazakhstan is a party to the
Agreement on the procedure for settling disputes related to economic activity
dtd. March 20, 1992, the Agreement on the order of mutual enforcement of
arbitral awards, business and economic courts of the territories of States -
members of the Commonwealth dtd. March 6, 1998. By acceding to these
conventions and agreements, with national legislation, our government is
obliged to recognize the power of arbitration agreements and clauses in
contracts of investment on the order of dispute resolution, as well as to
recognize and execute the decisions of both foreign and international and
Kazakh courts of arbitration. The list of grounds for refusing recognition or
enforcement of an arbitral award, provided by the Law of the Republic of
Kazakhstan On International Commercial Arbitration correspond to the list
established by the New York Convention.
Thus, Kazakhstan has recognized arbitration
awards made in another State party to the Convention.
Consequently, the grounds for refusal of
enforcement of the law on arbitration courts are only procedural violations and
contrary to public policy.
The order of enforcement is established by
the Law on Amendments and separately for arbitration and international
commercial arbitration. Chapter 1.18 "Enforcement of arbitral awards, as
well as Articles.425-1, 425-2, 425-3 for the enforcement of an arbitral award
are included in the Civil Code of RK (Section 5 of the International Process,
Chapter 45 "Proceedings involving foreign persons").
In addition, when addressing the issue of
exclusive jurisdiction of the Kazakhstan courts must take into account
provisions of international treaties. If investment disputes relating to the
definition of real estate rights and other matters referred to Article 417 of
the Civil Code of RK is a subject to international treaties that provide
investment disputes by arbitration, so then the norm of the exclusive
competence of Civil Code should not apply to them.
International conventions are very
important for the protection of foreign investments, such as Washington Convention
dtd. March 18, 1965, entered into force on October 14, 1966 on the Settlement
of Investment Disputes between States and Nationals of Other and the Seoul
Convention of the year 1985, which entered into force on April 12, 1988 on
establishing the Multilateral Investment Guarantee Agency, in which Kazakhstan is one of the members. In addition to the Convention mentioned above, international
legal regulations of investment relations are administrated by a number of regional
treaties and bilateral agreements between states and nations and international
Washington Convention was adopted to
protect investors (individuals and legal entities) from the
"immunity" of the state of the recipient (the State in whose
territory the object of investment). This protection provides for the removal
of investment disputes under the action of national courts and transfers it to
the specially established International Centre for Settlement of Investment
Disputes. As part of this center provides the implementation of two types of
proceedings: conciliation and arbitration procedure.
Seoul Convention was adopted in order to protect
foreign investors against noncommercial risks (political). It was established
by an intergovernmental organization dedicated insurance investment risk - The
Multilateral Investment Guarantee Agency, which deals with insurance for
investors. The aim of all types of insurance is to stimulate investment
activity in less developed countries. Warranty is the economic soundness of
investments. After appropriate compensation for the investor, the Agency
acquires the right to claim these sums from the state of the recipient.
There are not so many arbitration courts in Kazakhstan. The exact number is unknown, since a single center and statistics of
arbitration does not exist. We can assume that the total number over twenty,
mostly are in Almaty city.
The first arbitration courts, which were
established in Kazakhstan in 1992-1993 - is the Arbitration Commission at the
Union of Chambers of Commerce of the Republic of Kazakhstan and the International
Arbitration Court «IUS». Later in the territory of our republic set up Kazakhstan
International Arbitration (KIA), in English Kazakhstani International Arbitrage
(KIA), which is for four years of existence has become a leading arbitration
(tribunal) court in Kazakhstan.
Rules of Arbitration KIA are developed in
accordance with the laws on arbitration and international commercial arbitration,
as well as the regulations of the leading institutional arbitration in the
The quality of arbitration depends not only
on well-developed procedural mechanisms, but also on the qualifications of the
arbitrators. So the list of Arbitrators KIA consists of leading local and international
experts in the field of law, which is a recognized authority not only in academic
circles but also among practitioners.
In recent years, around the world are
increasingly recognized such a mechanism of alternative dispute resolution,
like mediation. At mediation the mediator offers options for the parties
mutually resolve the dispute, but does not make binding on the parties.
Mediation proceedings shall be conducted in accordance with the rules of
According to the developed Rules of Administration
of arbitration (tribunal) proceedings under the UNCITRAL Rules can help the
parties who have chosen as a tool to deal with dispute arbitration ad hoc, as
the competent authority or in providing administrative services to secretarial,
Kazakhstan International Arbitration has
established partnerships with leading arbitration institutions in different countries.
Among them are Chinese Foreign Trade and Arbitration Commission (CIETAC),
Japan Commercial Arbitration Association, International Commercial Arbitration
Court at RF Chamber of Commerce, The Korean Council for Commercial
Arbitration (KCAB), the International Court of Arbitration of the International
Chamber of Commerce and others.
Summarizing mentioned above, it should be
emphasized that the main direction of economic policies on the regulation of
investment activities should be harmonization of legal documents, legislative
approximation of the common economic space. In this experience of international
cooperation shows that the most effective tool for creating an optimal legal
framework is a conclusion of international treaties, conventions and agreements
on the protection and guarantee of mutual investments. An example is the
Washington Convention on the Settlement of Investment Disputes between States
and citizens of other States, operating since the year 1966, the Convention
provides formation of the International Center for Investment Disputes at the
International Bank for Reconstruction and Development.
International rules indirectly regulate the
activities of investors, limiting the possibility of nationalization, to
determine the requirements for environmental protection and preventing the
laundering of illegally obtained funds.
The investment management is much
widespread at the international level, both in the form of bilateral agreements
and within the various integration groupings. International legal protection of
investments is more efficient to attract investment than a consolidation of
similar safeguards in national legislation. But, nevertheless, the other
component, which determines the regulation of foreign investment, is a
International commercial arbitration: Practical handbook, translated from
English and research edited by Smirnova V.A. - Almaty: Ayan-Edet LLP, 1999. –
Skvortsov O., Arbitration of business disputes in Russia: Challenges, Trends
and Prospects. - Moscow: Wolters Kluwer, 2005. – page 121.
3. Kurochkin, S.A. Arbitration of civil cases in the Russian Federation: Theory and
Practice. - Moscow: Wolters Kluwer, 2007. A series of Civil and arbitration process: a modern view." – page 46.
Law of the Republic of Kazakhstan on Investments No. 373-II dtd. January 8,
2003 // Information System "Paragraph".
Table of contents: The Kazakh-American Free University Academic Journal №6 - 2014