Alexander Korobeinikov and Alissa Inshakova
A. LEGISLATION AND RULES
International arbitration in Kyrgyzstan continues to be governed by the Law on Arbitration Courts (“Law”), as enacted on 30 July 2002, and to which no amendments have been made since 2004. The Law is mostly based on the UNCITRAL Model Law.
Provisions of the Law were challenged several times based on arguments that the Law and the main principles of arbitration proceedings contradicted the constitution. However, the constitutional court and the constitutional chamber of the Supreme Court consistently rejected such claims and showed their pro-arbitration position.
In addition, international commercial arbitration matters are also governed by:
- The Code of Civil Procedure of the Kyrgyz Republic dated 25 January 2017, which, among other things, deals with the recognition and enforcement of arbitral awards; and
- The Law of the Kyrgyz Republic on Investments into the Kyrgyz Republic dated 27 March 2003, which confirms the right of investors to bring their disputes with the Kyrgyz Republic (and its state agencies) to international arbitration.
It should be noted that during the discussion of the new Civil Procedural Code, the government proposed to include special rules in it for challenging arbitral decisions issued in Kyrgyzstan.
This proposal of the government was based on concerns that, even if local arbitral awards contradict public policy, they still cannot be set aside by local courts. The fact that the government raised such concerns shows that arbitration is being used in Kyrgyzstan more frequently, and the government would like to have additional rights to defend public interests. However, this proposal was rejected.
Also, in July 2017, the Kyrgyz Parliament adopted the new Mediation Law. Under the Mediation Law, parties have a right to execute a mediation agreement at any time prior to, or after the initiation of, legal proceedings. If the parties execute a mediation agreement during civil court proceedings, the court shall stay those proceedings until the mediation has been concluded.
Where the parties resolve the dispute through mediation, they may execute a settlement agreement that needs to be approved by the court and court proceedings will be terminated. If one of the parties refuses to comply with the terms of the settlement agreement approved by the court, the other party may seek to enforce the agreement in a state court.
Kyrgyzstan is a party to a number of bilateral and multilateral agreements that grant investors the right to arbitrate disputes over their investments in Kyrgyzstan. These treaties include the ECT dated 17 December 1994, as well as BITs and multilateral treaties executed with CIS countries and members of the Eurasian Economic Union.
It should be noted that while the Kyrgyz Parliament ratified the ICSID Convention in 1997, the Kyrgyz government still has not submitted the relevant documents to the ICSID. Therefore, as of today, the Kyrgyz Republic is not a party to the ICSID Convention.
A.2 Institutions, rules and infrastructure
After the adoption of the Law in 2002 and relevant sub-laws regulating the procedure of establishment and registration of arbitration institutions, the local Chamber of Commerce and Industry decided to establish the International Arbitration Court (IAC) for handling both domestic and international commercial disputes.
The IAC handles all types of commercial disputes between local and foreign companies, except disputes that are non-arbitrable under Kyrgyz law (e.g., disputes relating to the registration of rights over immovable property, challenges to decisions of state authorities, etc.).
Expedited procedures are available under the IAC Rules of Expedited Arbitration if parties agree to use these Rules.
The IAC Rules of Arbitration contain special rules for joinder of third parties. Specifically, under these rules, third parties can join the arbitration proceedings only if: (i) all parties to the arbitration proceedings agree; and (ii) the third party is a party to the arbitration agreement used to commence the arbitration proceedings. An application to involve a third party can be filed only before the statement of defense is filed.
B.1 Recent investment cases
Recently, a number of investors began arbitration proceedings against Kyrgyzstan. Most of them relate to the expropriation of foreign and domestic investments by the Kyrgyz Government that came to power as a result of the April 2010 revolution.
As a result, the Kyrgyz Government decided to establish a special body, the Center of Representing the Government in Court Proceedings. This center is responsible for handling any claims filed against the Kyrgyz Government or state authorities by foreign investors.
As a result of these efforts, the Kyrgyz Government managed to settle a number of disputes with foreign investors.
For example, in August 2019, the global settlement agreement of the dispute between Kyrgyzstan and Centerra Gold Inc., a Canadian gold mining company, with respect to the Kumtor project was reached. The parties have agreed that the strategic agreement aimed at protection of environment and investments (which was signed in 2017 but not entered into force due to the change of the Kyrgyz government) are in force now, and the arbitration and the civil proceedings affecting the Kumtor project should be terminated. In turn, Centerra should make payments under the Strategic Agreement to Kyrgyz’s Nature Development Fund and Cancer Care Support Fund and certain additional contributions not provided in the strategic agreement.
However, there are still several ongoing cases against the Kyrgyz Republic. For example, Kutisay Mining LLC, a Kyrgyz company indirectly owned by Canadian company Stans Energy Corp., held a license for rare earth, bismuth, molybdenum and silver at the Kutisay II deposit. In 2015, the claimants initiated an UNCITRAL arbitration pursuant to the Kyrgyz Law on Investments, under the auspices of the permanent court of arbitration, alleging that their investment had been indirectly expropriated through a series of measures that resulted in the impossibility of carrying out activities on the Kutisay II deposit. The proceedings remain pending.
B.2 Kyrgyz Constitutional Panel of the Supreme Court confirmed that disputes arising from mortgage arrangements are non-arbitrable
In October 2019, the Constitutional Panel of the Kyrgyz Supreme Court considered the validity of the ban for the settlement of several disputes arising from mortgage arrangements in arbitration imposed by the National Bank of the Kyrgyz Republic.
As a result of the review of this case, the Constitutional Panel confirmed that disputes relating to the enforcement of the mortgage arrangements over living apartments are non-arbitrable and shall be settled only in court due to the social significance of such issues.
It should be noted that the above decision of the Constitutional Panel is very disputable and one of the judges who considered this case even issued a dissenting opinion where she stated that the above restriction contradicts the Constitution of the Kyrgyz Republic and the general principle of the freedom of contracts.