of International Commercial Arbitration Legislation
of the Republic of Kazakhstan
Chairman of Kazakhstani International Arbitrage, Director of the Private Law Research Institute of the Kazakh Humanitarian and Law University,
Academician of the National Academy of Science of the Republic of Kazakhstan, Doctor of Law, Professor
Executive Director of Kazakhstani International Arbitrage, Researcher of
the Private Law Research Institute of the Kazakh Humanitarian and Law University, Candidate of Jurisprudence
When the long-expected Laws of the Republic of Kazakhstan On Arbitration Courts (hereinafter, the Law on Arbitration Courts) and On International Commercial Arbitration (hereinafter, the Law on International Commercial Arbitration) were adopted on 28 December 2004 the period of revival of arbitration tribunals and international commercial arbitrations has started in Kazakhstan.
The Law On Introduction of Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on Issues of State and State Property Immunity, Improvement of Activity of Arbitration Courts and International Commercial Arbitration (hereinafter, the New Law) was adopted on 5 February 2010.
In this report, we will consider briefly the issues of immunity of the state, problems of improvement of activity of arbitration courts and international commercial arbitration.
1. Issues of State Immunity
The value of the New Law lies primarily in the legislative solution of the issue of immunity of the state and its property.
Three kinds of the foreign state immunity are distinguished:
1) the legal immunity - the immunity of one state from the jurisdiction of courts of another state. It is expressed in one well-known legal formula: par in parem non habet imperium (the equal has no jurisdiction over the equal»;
2) immunity from pre-judgment measures of constraint - no compulsory measures can be applied in respect of the property of a state without its consent;
3) immunity from compulsory execution of an award. All three kinds of immunity make up the jurisdictional immunity of a foreign state.
The theory of the absolute immunity dominated in all countries of the former USSR which was the first historically and in accordance with which the state in any circumstances was not subject to the jurisdiction of courts of another state without its consent. Nevertheless, since the beginning of the ХХ century the courts of different states began to take more determined attempts to limit somehow the state immunity. Finally, the theory of the functional or limited immunity appeared by the 1970s, according to which while exercising the public functions a state shall use the absolute immunity, but while carrying out the private law activity it loses immunity. Besides, the very entry of a state to the private law relations shall be considered as a waiver of immunity.
However, the Soviet Union steadfastly kept the concept of the absolute immunity. Russia is still keeping this concept. This concept was put into the Civil Procedure Code of Kazakhstan (hereinafter, the CPC).
On this basis, we can acknowledge the timeliness of adopting the New Law. The doctrine of the limited immunity for foreign states is stipulated in the CPC (as amended by the New Law). The Article 428 of the CPC provides that a foreign state does not enjoy the immunity in the Republic of Kazakhstan if it has undertaken any activity other than of the state sovereignty, including in the cases specified in Articles 435 - 441 of the CPC. These Articles elaborate on the non-application of the immunity in terms of the disputes connected with the business activity; participation in legal entities; rights to property; indemnity; objects of intellectual property rights; exploitation of sea-crafts and crafts of inland navigation; labor disputes.
This rule is extended to other kinds of the jurisdictional immunity. A foreign state does not enjoy the immunity from pre-judgment measures of constraint and the immunity from the compulsory execution if the property of a foreign state located on the territory of RK is used and (or) supposed to be used by the foreign state for the purposes other than the effectuation exercise of the state sovereignty (Sub-paragraph 3) Article 442 of the CPC).
Thus, the New Law finally liquidated the longstanding gap in the legislation of RK having established the principle of the limited immunity for foreign states. This signifies its historic importance.
The issue of correlation between the immunity and applying to international commercial arbitration is very disputable. We think that the differences between three kinds of the jurisdictional immunity are not taken into account when it is stated that the consent of a state for considering a dispute in the international commercial arbitration is regarded as the waiver of the legal immunity by the state.
Now we are convinced that the consent of a state for considering a dispute in the international arbitration does not mean the waiver of the legal immunity. The legal immunity means the immunity from the jurisdiction imposed by courts of another state but not by the arbitration court, which is a non-state private institute. In general, not only legal but also any other jurisdictional immunity is completely connected with the state courts, whether it is the consideration of a dispute, pre-judgment measures of constraint or compulsory execution.
Then what does the submission of a dispute to the arbitration court mean? There are also different points of view in this respect.
For example, according to the opinion of one well-known Russian scholar M. M. Boguslavsky the conclusion of an arbitration agreement by a state in its own terms means that the state has waived the jurisdictional (legal) immunity. Then he ascertains that the consent of a foreign state to consider a dispute in the arbitration court does not mean automatically the consent to apply the pre-judgment measures of constraint and the consent for compulsory execution of an award.
According to his opinion in the same way the conclusion of an international agreement on investments protection providing that the state gives its consent to consider arising investment dispute in arbitration does not mean in its own terms that thereby it has given its consent to compulsory measures of the awards execution.
In our opinion, everything should be exactly the opposite. The consent to consider a dispute in the arbitration court does not mean the waiver of the legal immunity, the consent to consider a dispute in the arbitration tribunal does mean the consent to the compulsory execution of an award.
The proof of this idea can be found in the legislation of different states. The Legislative Acts of Australia (§ 9 of the Foreign State Immunity Act of 1978), Great Britain (§17 of the Foreign State Immunity Act of 1984), Pakistan (§10 of the Foreign State Immunity Ordinance of 1981), Singapore (paragraph 1 § 11 of the State Immunity Act of 1979) provide that the conclusion of a written agreement on submission of a dispute to arbitration means the waiver of the immunity by the state in the field of the supervisory responsibilities of the courts of this state. There is no such norm in the first version of the USA Foreign Sovereign Immunities Act of 1976.
Nevertheless, the USA courts proceed from the fact that the conclusion of an arbitration agreement involves the waiver of the immunity not only concerning the supervisory responsibilities of the courts, but also the waiver of the enforcement procedures immunity. For example, in case Ipitrade International v Federal Republic of Nigeria (1978) the claimant struggled for an execution of the award passed in Switzerland in accordance with the arbitration agreement concluded by the Parties. The respondent referred to the immunity. In its award, the court noticed that «the history of adopting the Act of 1976 shows clearly that the arbitration agreement or submission to the laws of another state constructs the implied waiver».
The legislation of Kazakhstan holds the similar position. The following rule is included to Article 432 of the CPC (as amended by the New Law):
«If a foreign state expressed in a written form its consent to consider the disputes in the arbitration involving its participation which arose or can arise in the future, it is recognized that in respect to these disputes it gave the voluntary consent to waiver of the legal immunity regarding the execution of the arbitration-related functions by the court of the Republic of Kazakhstan».
2. Issues of Improvement of the Arbitration Courts and International Commercial Arbitration Legislation
The New Law was developed on the basis of the analysis of the arbitration courts and international commercial arbitrations activity in Kazakhstan during the last 5 years and generally it brings significant changes to the Law on International Commercial Arbitration. Let us name the main advantages and disadvantages of the New Law.
1) Advantages of the New Law
The positive changes are obvious: the notion to waiver of the right to take exception against non-compliance with the arbitration agreement requirements was included; regulation on the lack of jurisdiction of arbitral tribunals over the disputes affecting the interests of the juveniles, persons considered legally incapable under the laws; the requirements to the Arbitrators were specified; the conditions of the activity of ongoing arbitration and the power of the arbitration in taking pre-judgment measures of constraint were expressed in details; the Chapter of the Law on International Commercial Arbitration about arbitration was fundamentally extended and revised; the term for amendment and interpretation of the rendered award and also for passing the supplementary award by the arbitration was extended from 30 till 60 calendar days.
Separate provisions introduced into the Law on International Commercial Arbitration resulted from its unification with the Law on Arbitration Court. Thus, for example, because of the New Law the provisions on the powers of arbitration to control the application of pre-judgment measures of constraint (Article 25-1), demand for arbitration (Article 19), participation of the Parties in arbitration proceedings (Article 25-1), provision and examination of evidence (Article 25-2), filing of a claim and offset of the counterclaims (Article 25-5) appeared in the Law on International Commercial Arbitration. All these innovations are similar in their content with the appropriate Articles of the Law on Arbitration Courts.
Among the most important innovations of the Law on International Commercial Arbitration, one should mention Article 6-1 «Arbitration agreement and filing a claim on its substance with a competent court», according to which a competent court with which a claim was filed on a an arbitration matter shall direct the Parties to arbitration, if any of the Parties so requires and not later than the submission of their first statement on the substance of a dispute, unless it finds the arbitration agreement invalid, void or inexecutable. At the same time in accordance with Paragraph 2 of this Article in spite of filing such a claim the arbitration proceeding can be started or continued and the award can be rendered while the competent court deals with the issue of its jurisdiction over the subject of the arbitration proceeding.
A lot of amendments and additions introduced to the Law were included following the practice of disputes consideration by the ongoing arbitration courts. In particular, the Arbitration Rules of the Kazakhstani International Arbitration before adoption of the New Law already contained the provisions on waiver of right to make objections to non-compliance with the requirements of the arbitration agreement (Article 2), reception of written messages by the Parties (Article 11) and many others.
The amendments introduced to the Law on Arbitration Courts are few, only four, among which the most fundamental are: 1) specification of the requirements to an Arbitrator, who cannot be a Government employee, member of the Parliament of the Republic of Kazakhstan, member of the Maslikhat performing his/her work on a permanent or free basis, paid at the expenses of the state budget, and military man; 2) exclusion of the Sub-paragraph 6) of the Paragraph 2 of the Article 44 because of its actual doubling to the Sub-paragraph 2 of the Paragraph 2 of the Article 44 of the Law; 3) new edition of the second part of the Paragraph 2 of the Article 32 of the Law (elimination of contradictions to the norms of the Tax Code of RK).
2) Disadvantages of the New Law
In spite of the above mentioned advantages of the Law it is necessary to notice that unfortunately it is not free from significant disadvantages. Many proposals particularly made by the Research Institute of Private Law upon the project were not reflected in the New Law. First, it concerns the Law on Arbitration Courts. There is a strange thing: instead of improving the Law on Arbitration Courts by eliminating the baseless restrictions of the arbitration courts activity most of the amendments were introduced to the Law on International Commercial Arbitration. At the same time the same amendments were not introduced to the Law on Arbitration Courts.
The Law on Arbitration Courts in terms of the regulation extent is lower than the Law on International Commercial Arbitration. However, it is ignored that arbitration courts and international commercial arbitration do not exist apart in Kazakhstan. It is necessary to understand that arbitration court and arbitration are the same terms.
Distribution of powers is made not on a basis of the type of specific arbitration bodies but on a basis of a dispute nature. Any arbitration court may consider both domestic and international disputes; any individual or legal entity (both resident and non-resident) are entitled to apply to any arbitration court irrespective of its name: «arbitration court» or «international commercial arbitration». Depending on the nature of the dispute, the Law on Arbitration Courts or the Law on International Commercial Arbitration shall apply.
Distribution of powers is envisaged in Paragraph 4 of Article 6 of the Law on International Commercial Arbitration: «Disputes arising from civil-legal agreements, between individuals, commercial and other organizations, if at least one party is a non-resident of the Republic of Kazakhstan, may be submitted to arbitration upon parties’ consent».
Thus it is necessary to understand that one and the same arbitration can act as arbitration court (when both parties of a dispute are residents) and as international commercial arbitration (when one of the parties is non-resident). That is why it is not clear how will a particular arbitration apply the norms of the Law on International Commercial Arbitration when it acts as arbitration court.
Thus, for example, according to Article 9-1 «Conditions of the ongoing arbitration activity» of the Law on International Commercial Arbitration the ongoing arbitration keeps a register of the Arbitrators. Information about ongoing arbitration, register of Arbitrators, about awards when both Parties of a dispute are agree, legal address and rules of work are distributed in public telecommunication networks and media for free review by natural persons and legal bodies.
As mentioned requirements to the conditions of the ongoing arbitration activity were not duplicated in the Law of Arbitration Courts the appropriate question is arising: shall the arbitration permanently considering the disputes between the residents (arbitration court) make a register of the Arbitrators and wit the information about ongoing arbitration court, passed awards when the Parties of a dispute agree, legal address and the Rules of work, distribute such register in public telecommunication networks and media? Based on the New Law it is not obligated, but it is not unlikely fairly because it is important exactly for the arbitration court that the citizens of Kazakhstan would know about such court, its location, about its Arbitrators, rules of work, in other words that they would have free access to the information about ongoing arbitration court. It was necessary to repeat these innovations of the Law on international Commercial Arbitration and the Law on Arbitration Courts.
3) Improvement perspectives
All the specified disadvantages could be forgiven to developers if we could make a revolutionary breakthrough in the elimination of restrictions of arbitration courts activities. However, unfortunately, the New Law has not fulfilled its main objectives: to remove unreasonable restrictions on the activities of arbitration courts, discrimination against them as compared to international commercial arbitration.
In practice, the existence of such restrictions very seriously hampers the development of arbitration courts. It is the exclusion from the article on appeals against decisions of arbitration courts of the contradiction to the principle of rule of law as the base for annulment of the arbitral award (Sub-paragraph 5) Paragraph 2 of Article 44 of the Law on Arbitration Courts). This provision has practically destroyed the arbitration, because the worldwide award of the arbitration court cannot be essentially appealed. In addition, the principle of legality means that the breach of any norms of substantive law by arbitration court may result in cancellation of the award of arbitration court. This provision is contrary to all principles of arbitration, and keeping it threatens the very existence of arbitration courts in Kazakhstan.
In addition, Kazakhstan has significantly limited jurisdiction of arbitration courts and international commercial arbitration, as they may only consider disputes arising from civil-law contracts. But even more stringent restriction applies to arbitration court, which in accordance with Paragraph 4 of Article 7 of the Law on Arbitration Courts are not within the jurisdiction of disputes which affect the interests of the state, public enterprises, as well as disputes over contracts for services, works, products manufacture by subjects of natural monopolies and entities with dominant position on the goods and services market.
In practice, national companies cannot submit the dispute with the Kazakh companies in arbitration courts, as there is a risk that state courts may annul the award of arbitration court on the ground that in the dispute with the national companies the interests of the state were affected. In this case, any non-resident will be able to include reservations into a contract with national companies and pass his dispute according to the contract to independent arbitration.
Problematic question in Kazakhstan is also a question about the subjects of appeal against awards of arbitration courts, namely of third parties. The Article 31 of the Law on International Commercial Arbitration does not say anything about it, as it is clear that such entities may be parties only.
However, in Paragraph 2 of Article 44 of the Law on Arbitration Courts appears another formula: «the award of arbitration court may be appealed only in cases where a party or a person, whose rights have been affected, have filed an application for disaffirmation of the arbitration court award, will present evidence that...». It means that there are other persons (not parties), which may file an application for disaffirmation of the award.
Why should a third party, not involved in the arbitration, suddenly gets the right to appeal the arbitration award and thus interfere in the relations between the two parties? In respect of international commercial arbitration this is not bad, as base for appeal are only procedural, but in respect of arbitration court the situation is much worse, as there are contrary to the principle of legality among the base for appeal.
All of these issues should be solved by law as soon as possible so that arbitration courts and arbitrations could be developed successfully.
 Ref.: Boguslavsky М.М. International Private Law: primer. - 5th edition. - М.; Jurist, 2004. pg. 583.
 Ref.: Khlestova I.О. Jurisdictional State Immunity. - М.: Jurisprudentsiya publishing house, 2007. Pg. 44-45.
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