Investment disputes

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.

It is a trustworthy fact that one of the current directions of the state policy in economic development of the country is attracting national and international investment. It’s an overall observation that the Republic of Kazakhstan has created and is consolidating a complex of economic, legal and organizational measures for protection of national and foreign investments, which is formalized as a set of rules and norms and is declaring a favorable regimen for mutual investments.

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, с.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 disputes settlement.

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 «ordre public», which is vested in Article 1090 of the Civil Code of the Republic of Kazakhstan [2] (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 norms.

On the whole the notion of public order (ordre 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 issues”.

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 Law.

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 Kazakhstan [3].

It can be noticed that the definition is different from one given in article 1090 of CC RK – fundamentals of law and order [2]. 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 (ordre 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, corruption, bribery.

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 [4].

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 [5].

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 [6]. 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 national courts.

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 Kazakhstan.

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 Kazakhstan.

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 certain concretization.

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 arbitration tribunals.

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 [7].

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 [3].

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 execution.

Such decisions execution is regulated not only by the national legislation norms, but also by regulations of international agreements signed by Kazakhstan. 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.

REFERENCES

1. Kaldijarov D. A. Investicionnaja politika i mehanizm regulirovanija investicionnogo processa. // KazUU habarshysy. - Almaty, 2010. - №2. - S. 8-13.

2. Grazhdanskij kodeks Respubliki Kazahstan (Osobennaja chast') ot 1 ijulja 1999 g. // Informacionnaja sistema «Paragraf».

3. Zakon Respubliki Kazahstan «O mezhdunarodnom kommercheskom arbitrazhe» ot 28 dekabrja 2004 g. // Informacionnaja sistema «Paragraf».

4. Konvencija o pravovoj pomoshhi i pravovyh otnoshenijah po grazhdanskim, semejnym i ugolovnym delam ot 7 oktjabrja 2002 g. // Informacionnaja sistema «Paragraf».

5. Konstitucija Respubliki Kazahstan ot 30 avgusta 1995 g. // Informacionnaja sistema «Paragraf».

6. Grazhdanskij kodeks Respubliki Kazahstan (Obshhaja chast') ot 1 ijulja 1999 g. // Informacionnaja sistema «Paragraf».

7. N'ju-Jorkskaja konvencija «O priznanii i privedenii v ispolnenie inostrannyh arbitrazhnyh reshenij» 1958 g. // Informacionnaja sistema «Paragraf»