A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Kazakhstan continues to be governed by the Law on Arbitration (“Arbitration Law“). This law is based on the UNCITRAL Model Law and governs both international and domestic arbitration proceedings.
Recent amendments adopted in June 2024 introduced the following restrictions relating to the arbitrability of disputes:
- Arbitration institutions in the Republic of Kazakhstan are prohibited from being established by organizations engaged in microfinance activities. These regulations also extend to collection agencies managing assigned rights (claims) under bank loan agreements or microcredit agreements.
- Arbitral tribunals are not authorized to resolve disputes involving second-tier banks, organizations conducting specific banking operations, organizations engaged in microfinance activities, and their individual borrowers under bank loan agreements or microcredit agreements that are unrelated to entrepreneurial activities. This restriction likewise applies to collection agencies managing assigned rights (claims) under such agreements concluded with individual borrowers, not engaged in entrepreneurial activities.
The new restrictions were implemented to safeguard consumers of banks and microfinance institutions, and to prevent their misuse of arbitration by resolving disputes through biased arbitral tribunals.
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 was pursuant to 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 to avoid 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 acts 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 Arbitration Law does not apply to the arbitration proceedings in the AIFC. The 2017 AIFC Arbitration Regulations are based on the UNCITRAL Model Law and are 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 format 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. In 2022 the AIFC Court and the IAC introduced fees that will apply to those who have not signed a contract by the date of introduction.
As a result of recent amendments to the Civil Procedure Code, parties are allowed to transfer any case that is being considered by the Kazakhstani state courts to the IAC of AIFC. This amendment was made to attract parties to settle their disputes in the IAC.
Finally, in December 2022, amendments were introduced to the Subsoil Code, providing for subsoil users’ choice of the venue for the settlement of disputes arising from a contract for the exploration and production, or production, of hydrocarbons for complex projects. The disputes can be settled either by the courts of the Republic of Kazakhstan or by arbitration in accordance with the UNCITRAL Rules Kazakhstan administrated by International Arbitration Center of the Astana International Financial Center, or abroad.
B. CASES
B.1 Enforcement of foreign arbitral awards ordering to pay compound interest
In 2024, Kazakhstani courts reviewed a case regarding the compulsory enforcement of an arbitral award that included compound interest on the principal debts determined by the arbitrators. The relevant award was issued against a state agency. Both the lower court and the court of appeal concluded that the court bailiff could not calculate the debt (including the interest on it) or issue an order to withdraw funds from the state agency’s bank account, due to local state budget regulations. These regulations require that the withdrawal order amount shall be specified directly in the arbitral award as a lump-sum figure.
If such practice is upheld by the Supreme Court, it could significantly complicate the enforcement of arbitral awards or foreign court decisions providing for compound interest against state agencies in Kazakhstan.
B.2 The AIFC Court affirms that the provisions of the Arbitration Law relating to the arbitrability of disputes with state-owned companies do not apply to arbitration proceedings under IAC AIFC Rules
In the 2024 case, the AIFC Court rejected the arguments presented by the defendant in the IAC arbitration proceedings with the state-owned company. The defendant contended that the arbitration agreement was invalid due to the absence of consent from the claimant’s supervisory authority, as outlined in article 8 (10) of the Arbitration Law. Additionally, the defendant argued that non-compliance with article 8 (10) of the Arbitration Law violated the public policy of the Republic of Kazakhstan, as it could undermine the economic security of the country.
The AIFC Court reaffirmed the current court practice that arbitration proceedings in the AIFC are exclusively governed by the AIFC Arbitration Regulations, which do not require consent from supervisory authorities to execute the arbitration agreement with state-owned companies. The AIFC Court also concluded that the absence of such consent does not constitute a violation of local public policy.
This judgment by the AIFC Court may serve as a precedent for the AIFC Court and other common law courts when addressing the validity of arbitration agreements involving Kazakhstani state authorities.
