A. LEGISLATION AND RULES
A.1 Legislation
In April 2016, as a result of the reform of the judicial system, the Law on Arbitration (“Arbitration Law“) was adopted. This law is based on UNCITRAL Model Law and governs both international and domestic arbitration proceedings.
In addition to unifying procedural rules for international and domestic arbitration proceedings, the New Arbitration Law, last amended in January 2019, implemented the following changes to the previous rules:
- State-owned companies may only execute arbitration agreements with Kazakhstani companies after obtaining consent from the superior state authority. Starting from 2019, this consent is irrevocable.
- Reduced a number of requirements for the content of the arbitration agreement. The parties are free to establish aspects of the arbitration agreement themselves, for example, choosing ad hoc arbitration.
- An arbitration agreement to resolve a dispute under an agreement, the terms of which are determined by one of the parties in forms or other standard forms and could be accepted by the other party only by joining the proposed agreement as a whole (agreement of accession), as well as arbitration agreement relating to disputes arising out of consumer loans, is valid if such an agreement is concluded after the appearance of the grounds for filing a lawsuit.
- Starting from 2019, the legislation of the Republic of Kazakhstan is only mandatory for application when considering a dispute between individuals and legal entities of the Republic of Kazakhstan.
- In the absence of an agreement by the parties on the applicable law, the arbitration shall determine the applicable law in accordance with the conflict of laws rules, which it considers applicable in this case. This provision was brought into line with paragraph 1 of article 7 of the European Convention on Foreign Trade Arbitration, which provides for a similar rule, and no longer binds the issue of determining the applicable law to the legislation of the Republic of Kazakhstan.
- Parties have the right to seek the reconsideration of arbitral awards based on so-called “newly opened circumstances” (i.e., facts that are material to the case but were not previously known to an applicant). This provision has been copied from the Civil Procedure Code, and it is not entirely clear how arbitrators will apply it.
- In addition to the existing grounds for challenging an arbitral award, the New Arbitration Law will allow parties to challenge the award if there is a judgment or an award that has a res judicata effect on the subject matter of the challenged award.
The unification of procedural rules for domestic and international arbitration proceedings is a positive change.
However, the Law on Arbitration and the Civil Procedural Code of the Republic of Kazakhstan expands the list of grounds for cancellation and denial of recognition and (or) enforcement of an arbitral award.
In particular, the enforcement of an arbitral award may now be rejected if there is a judgment or an arbitral award issued on the same dispute between the same parties and based on the same grounds (i.e., a judgment or award that has a res judicata effect).
Such an extension of the grounds is contrary to the provisions of the UNCITRAL Model Law, Art. IX European Convention, as well as the New York Convention.
However, some of the ground for refusal that was inconsistent with the New York Convention was excluded, such as the fact that the issuance of an arbitral award became possible as a result of the commission of a criminal offense established by a court judgment that entered into legal force.
Kazakhstan is a party to a number of bilateral and multilateral agreements that grant investors the right to arbitrate disputes over their investments in Kazakhstan. These treaties include the ICSID Convention, the Treaty on Partnership and Co-operation Agreement between the European Union and the Republic of Kazakhstan dated 23 January 1995, and the ECT dated 17 December 1994.
A.2 Institutions, rules and infrastructure
At present, there are around 20 arbitration institutions in Kazakhstan. The most famous of these are the Kazakhstani International Arbitrage (KIA), the International Arbitration Court IUS (IUS), the Center of Arbitration of the National Chamber of Entrepreneurs of the Republic of Kazakhstan (“CA of NCE”), and the International Arbitration Center of Astana International Financial Center (“IAC of AIFC”).
A.2.1 The CA of NCE
The CA of NCE was established in 2014 as a result of the reorganization of the International and Domestic Arbitration Courts at the Chamber of Commerce and Industry of the Republic of Kazakhstan. This reorganization took place as a result of amendments to Kazakhstani law relating to the liquidation of the Chamber of Commerce and Industry and the establishment of the National Chamber of Entrepreneurs (NCE). While the CA of NCE signed assignment agreements with the International and Domestic Arbitration Courts at the Chamber of Commerce and Industry of the Republic of Kazakhstan, technically, it is not a successor of these arbitration institutions. However, as membership in the NCE is mandatory for most local companies, and given that the CA of NCE has opened branches in all Kazakhstani regions, this institution will be the biggest in Kazakhstan.
The CA of NCE handles all types of commercial disputes between local and foreign companies, except disputes that are non-arbitrable under Kazakh law (such as disputes relating to the registration of rights over immovable property and challenges to decisions of state authorities).
The CA of NCE has been appointed by the Kazakhstani government to exercise the functions referred to in article IV of the Geneva Convention.
A.2.2 The IUS
The IUS was the first arbitration institution in Kazakhstan, established in 1993 shortly after the declaration of independence of the Republic of Kazakhstan. The famous local scholar Professor Petr Greshnikov established this institution. In 2002, the IUS opened a branch in St. Petersburg for avoiding the application of Kazakhstani law, which was unfavorable toward arbitration proceedings.
The IUS also handles all types of commercial disputes between local and foreign companies, except disputes that are non-arbitrable under Kazakh law.
Under the Rules of Arbitration of the IUS, in exceptional cases, the Council of the IUS may dismiss an award issued under the Rules of Arbitration of the IUS.
A.2.3 The KIA
The KIA was the first arbitration institution established after the adoption of the International Arbitration Law. The famous local scholar Professor Maidan Suleimenov established this institution.
Similar to the other two institutions, the KIA handles all types of commercial disputes between local and foreign companies. However, it considers disputes not only in accordance with the laws of the Republic of Kazakhstan but also in accordance with the rules of law chosen by the parties participating in the proceedings.
A.2.4 IAC of AIFC
In addition to the above arbitration institutions, a new international arbitration institution was launched on 1 January 2017.
The IAC is acting in line with the AIFC Constitutional Statute No. 438-V ZRK of 7 December 2015, the AIFC Arbitration Regulations approved on 5 December 2017, and the IAC Arbitration and Mediation Rules approved in 2018.
The above rules provide that the New Arbitration Law does not apply to the arbitration proceedings in AIFC. The 2017 AIFC Arbitration Regulations is based on the UNCITRAL Model Law and is more liberal than the Kazakhstani domestic rules.
The IAC of AIFC handles all types of commercial disputes between local and foreign companies. In addition, the IAC of AIFC provides services related to the administration of ad hoc arbitration proceedings.
Arbitral awards issued under the 2018 IAC Arbitration and Mediation Rules may be enforced via the AIFC Court.
In February 2019, the AIFC Court and the IAC officially launched the new e-justice system, which is the first for the Central Asian region and allows parties to file claims with the AIFC and the IAC in electronic form from anywhere in the world.
In June 2019, the AIFC Court and the IAC imposed a moratorium on fees and charges. All parties to a contract signed before 31 December 2021 with the reservation of the IAC to resolve disputes, will be entitled to receive services for the administration of the dispute resolution process in the IAC arising under this contract, free of charge before and after 31 December 2021. Coming soon this year, the AIFC Court and the IAC plan to introduce fees that will apply to those who have not signed a contract by the date of introduction.
Finally, as a result of recent amendments to the Civil Procedure Code, parties are allowed to transfer to the IAC of AIFC any case which is being considered by the Kazakhstani state courts. This amendment was made to attract parties to settle their disputes in the IAC.
With the beginning of quarantine, most of the business processes went online. Including courts and some arbitration institutions, such as the IAC, the CA of NCE, which, following the advice and guidance of the government continue to provide online dispute resolution services.
B. CASES
B.1 In January 2022, the AIFC Court clarified the application of arbitration agreement requirements set forth by the Arbitration Law to arbitration proceedings in the IAC of AIFC
Under article 8.10 of the Arbitration Law of Kazakhstan, on which the claimant (state body) relied before the arbitration tribunal, expressly precludes state bodies from engaging in arbitration without the consent of the State Property and Privatization Committee of the Ministry of Finance of the Republic of Kazakhstan (CSPP) and article 9.4 requires such consent to be recorded in the arbitration agreement.
Based on that provisions, the Kazakhstani state authorities argued that even if the arbitration proceedings and the arbitration clause are governed by the AIFC Arbitration Regulations the arbitration agreements executed without the relevant approval are null and void.
However, as a result of the review of applications to enforce and set aside the IAC arbitral award submitted by both parties (one of them was the Ministry of Health), the AIFC Court ruled that article 8.10 of the Arbitration Law did not apply to the arbitration clauses governed by the AIFC law.
Because the AIFC Court is acting based on English procedural law, the above judgment may be used as the precedent for further court proceedings in the AIFC Court.
B.2 Kazakhstani Supreme Court dismissed the claim of the subsoil use company stating that the Arbitration Law provisions contradicted the New York Convention
In January 2022 the Supreme Court upheld the lower court’s decision to dismiss the claim of the subsoil use company against several state authorities challenging its omission and results of state audits due to the existence of the arbitration clause in the subsoil use contract.
Among other things, the court stated that article II (3) of the New York Convention does not set forth any time bar for the parties’ application to transfer the case to arbitration. Therefore, the relevant provisions of the Arbitration Law and the Civil Procedure Code, which state that the party can submit such application only before the submission of its objections on the merits, should not be applied.
This decision evidences that the local court practice in connection with the interpretation of the provisions of the international treaties and local laws relating to arbitration is still being developed and may not be in line with international standards, especially, if one of the parties is a state authority or state-owned company.
