International investment arbitration as an alternative to the dispute resolution process in the republic of Kazakhstan
Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010
Author: Dautbayeva Dinara , Kazakh-American Free University, Kazakhstan
Investments is a rope,
which can not be pushed,
it can only be hauled upon.
In the present-day world economic relations
does 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 countries 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 with 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 there were
allocated 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
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 forms of alternative dispute resolution procedures
are mediation, conciliation, mini-trial, non-binding arbitration or expert
opinion, and others [1, p. 78].
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 courts of
In the development of commercial
arbitration 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 as well as the Law of the Republic of Kazakhstan and also the 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 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 laws.
First of all, we must clearly understand
that the arbitral court and arbitral tribunal - are one and the same. In the
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 place today is taken by
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.
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 it might be 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 entity 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 the law of the Republic of Kazakhstan is
applicable 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 this basis an interpretation of
paragraph 4 of Article 6 of the Law on International Commercial Arbitration is
the following: 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 the 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 the 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 the 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 cannot be
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 are really seriously involved in the
conflict that occurred, and 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
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 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, 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, who 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 in the fact
that the respondent was usually the state, and the plaintiff - a private
citizen, citizen of another State, and, as a rule, there is much money
involved. 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 a 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". Investment disputes in a broad sense refer 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
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 it is necessary to understand the legal disputes between the state and
private foreign investors related to investments on 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 of them is worried about the enforcement of
At present in Kazakhstan a legal framework
for recognition and enforcement of international arbitration is created. Kazakhstan
has joined and ratified almost all major international and regional conventions
and agreements related 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 organizations.
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 it 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 is over
twenty; mostly the centers are in Almaty city.
The first arbitration courts, which were
established in Kazakhstan in 1992-1993 are the Arbitration Commission at the
Union of Chambers of Commerce of the Republic of Kazakhstan and the
International Arbitration Court «IUS». Later on the territory of our republic
there is 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 of 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 world.
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, who are a recognized authority not
only in academic circles but also among practitioners.
In recent years, such a mechanism of alternative dispute
resolution, as mediation is increasingly recognized around the world. At
mediation the mediator offers options for the parties to mutually resolve the
dispute, but does not make binding on the parties. Mediation proceedings shall
be conducted in accordance with the rules of mediation KIA.
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 there 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 in the regulation of
investment activities should be harmonization of legal documents, legislative
approximation of the common economic space. 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 national law.
1. International commercial arbitration:
Practical handbook, translated from English and research edited by Smirnova
V.A. Almaty: Ayan-Edet LLP, 1999. – page 187.
2. 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.
4. 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 №1 - 2010