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A. LEGISLATION AND RULES

A.1       Legislation

International arbitration in Kyrgyzstan continues to be governed by the Law on Arbitration Courts (“Law“), as enacted on 30 July 2002. 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 Kyrgyzstan’s 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.
  • 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.

In January 2022, the Law was amended to introduce for the first time possibility for taxpayers (both individuals and legal entities) to choose between referring their tax cases to state courts or to arbitration. However, the relevant amendments suggest that the national tax authorities’ consent is required to bring tax disputes to arbitration and this requirement may make it difficult for taxpayers to use the new option.

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 Energy Charter Treaty 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 both the following criteria apply:

  • All parties to the arbitration proceedings agree.
  • 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. CASES

B.1       Recent investment cases

In October 2021, the Permanent Court of Arbitration issued its final award in the case of Penwell Business Limited v. Kyrgyzstan. 

Penwell Business Ltd, a BVI registered company initiated international arbitration proceedings against Kyrgyzstan in July 2017. It claimed USD 298 million in compensation for the alleged expropriation by the country’s authorities of its investments in BiMoCom Ltd (under the “MegaCom” brand).

The compensation was rejected by the arbitral tribunal in full. Interestingly, the arbitral tribunal dismissed claims as “as being inadmissible” based on the convincing evidence that the claimant was engaged in corruption during the court proceedings in local courts to recover its investment in BiMoCom.

Author

Alexander Korobeinikov is a partner at the Kazakhstan office of Baker McKenzie. He specializes in dispute resolution, energy and natural resources, and antitrust and competition issues. Alexander has wide experience participating in litigation in Russia, Belarus, Kazakhstan and Central Asia, as well as in international arbitration cases in accordance with the arbitration rules of the ICAC, UNCITRAL, ICC, SCC, LCIA and other arbitration institutions, as both a party counsel and arbitrator.

Author

Alissa Inshakova is an associate in Baker McKenzie's Almaty office.