The new law regulates issues relating to arbitration as a method for settlement of disputes.

On 20 April, a new arbitration law entered into force in Kazakhstan (Arbitration Law) that contains a number of new provisions and repeals the preexisting laws below (collectively “old laws”):

  • Arbitration Law of 28 December 2004 (used for settlement of disputes between Kazakhstan residents)
  • International Arbitration Law of 28 December 2004 (that had been used in cases where at least one of the parties to the dispute was a non-resident of Kazakhstan)

A summary of the Arbitration Law is outlined below.

Scope of Application

According to its preamble, the Arbitration Law relates to the functioning of arbitration in the territory of Kazakhstan and regulates the procedures and conditions for recognition and enforcement of arbitral awards in the country. Applicability of the new law to foreign arbitrations depends on the specific circumstances of each case and is subject to further analysis.

Quasi-Public Entities

The new law provides that arbitration is not a satisfactory means to consider disputes between quasi-public entities, a restriction that was not included in the old laws. The definition of “quasi-public entities,” however, is very broad. According to the Budget Code, “quasi-public entities” include state enterprises, limited liability partnerships, and joint-stock companies (including national management holdings, national holdings, and national companies) where the state acts as a founder, participant, or shareholder, as well as subsidiaries, dependent, and other affiliated legal entities according to the legislative acts of Kazakhstan.

Disputes with the State

According to the new law, as a general rule, arbitration is not sufficient to consider disputes between (a) Kazakhstan individuals and/or legal entities, on the one hand; and (b) state authorities, state enterprises, and legal entities 50% or more voting shares of which are directly or indirectly owned by the state, on the other hand—unless with the prior written consent of the governing authority in the relevant industry (with regard to republican property) or local executive authority (with regard to municipal property). Note, however, that the State Procurement Law requires that such consent be attached to any contract for the state procurement without specifying that one of the parties must be a Kazakhstan individual or a Kazakhstan legal entity (Article 43.5).

The Arbitration Law requires that state authorities, state enterprises, and legal entities 50% or more voting shares of which are directly or indirectly owned by the state and that intend to enter into an arbitration agreement must send a request to the applicable authority or local executive authority for obtaining consent for an arbitration agreement specifying the projected amount of expenses in connection with such arbitration proceedings. Such consent shall be given or withheld within 15 calendar days. When considering the request, the industry authority or local executive authority shall take into consideration “economic security and interests of the state”.

It should be mentioned that Kazakhstan is a party to a number of international treaties pertaining to arbitration, and the application of restrictions stipulated by the new law in the context of obligations undertaken by Kazakhstan under such international treaties requires further analysis. For instance, Kazakhstan is a party to the European Convention on International Commercial Arbitration that provides for a possibility to apply arbitration by “legal persons of public law” (as far as we understand, Kazakhstan has not made any reservations or statements related to restrictions under this European Convention on International Commercial Arbitration).

In addition, further analysis is required as to the applicability of limitations imposed by the new law on international organizations that have a special status. For instance, Kazakhstan has ratified the Agreement between the Republic of Kazakhstan and the European Bank for Reconstruction and Development (EBRD) regarding Cooperation and Activities of the EBRD in the Republic of Kazakhstan dated 11 May 2013, which provides for various privileges and immunities to the EBRD and its property in Kazakhstan.

Applicable Law

Unless otherwise specified by international treaties ratified by Kazakhstan, the Arbitration Law provides that Kazakhstan law shall apply when considering the following types of disputes:

  • Disputes between Kazakhstan individuals and/or legal entities
  • Disputes where one of the parties is represented by state authorities, state enterprises, and legal entities 50% or more voting shares of which are directly or indirectly owned by the state

Potential consequences of this innovation are subject to further clarification in the context of the preamble to the Arbitration Law and definitions contained therein.

From a practical perspective, it seems unreasonable and unlikely that the new law would mandate the choice of Kazakhstan law as the governing (substantive) law for disputes settled in international arbitrations (e.g., London Court of International Arbitration, International Court of Arbitration, etc.), where one of the parties is an entity 50% or more voting shares of which are directly or indirectly owned by the state (e.g., national companies that are part of Joint Stock Company National Welfare Fund Samruk-Kazyna holding).

Arbitration Clause Severability

The Arbitration Law provides for the principles of arbitration clause severability and autonomous nature (i.e., an arbitration clause being a part of any agreement shall be construed as an agreement independent of any other conditions of the agreement). Invalidity of the agreement shall not result in invalidity of the arbitration clause.

Arbitration Clause Content and Formal Requirements

The new law preserves the “written form” as the key requirement applicable to arbitration agreements. Arbitration agreements shall contain

  • the intention of the parties to refer a dispute to arbitration;
  • an indication of the subject matter to be considered by arbitration;
  • an indication of a specific arbitration forum; and
  • the consent of the governing authority in the relevant industry or local executive authority, in cases specified by the new law.

Arbitration agreements shall also be deemed to be executed in writing, provided that they have been executed by exchange of the statement of claim and statement of defense where any of the parties asserts that there is an agreement, while the other party has no objection in this connection.

Submission of a Dispute to Arbitration

The Arbitration Law regulates the issue of how arbitration agreements apply to accession agreements. Thus, an arbitration agreement on settlement of a contractual dispute—terms and conditions of which are provided by any of the parties in samples or any other standard forms and could be accepted by the other party solely by means of accession to such agreement in the whole (an accession agreement)—is valid provided that such arbitration agreement has been executed after the basis for the claim has arisen.

Unilateral Repudiation of Arbitration Agreements

The Arbitration Law provides that, before a dispute has arisen, that either party is entitled to unilaterally repudiate an arbitration agreement by giving reasonable prior notice to the other party. In this regard, unilateral repudiation is in accordance with Article 404 of the Civil Code, which provides that unilateral repudiation is permitted in cases stipulated by the Civil Code, other regulatory legal acts, or agreement between the parties.

For instance, any party may repudiate an arbitration agreement in the following cases:

  • Inability to perform contractual obligations
  • Other party is declared bankrupt, unless otherwise specified by a Kazakhstan legislative act on rehabilitation and bankruptcy
  • Amendment or cancelation of the act of the governmental authority used as the basis for execution of the agreement

It remains to be seen how this provision is applied in practice, as it is evident that granting the right of unilateral repudiation is a substantially novel right that could have significant practical consequences for the stability of arbitration agreements generally.

New Grounds for Appeal / Annulment of Arbitral Award

The Arbitration Law provides for a unified approach to appeal arbitral awards both on disputes between residents and non-residents of Kazakhstan. Issued awards cannot be verified by state courts on the merits with reference to violation of the principle of legality (as was previously available when appealing local arbitral awards).

Annulment or waiver of any award is only permitted if the party provides evidence that procedures of the arbitral proceedings directly specified in the new law have been infringed.

However, importantly, the new law also provides for the possibility to revise an arbitral award in light of newly discovered circumstances, which was not previously possible for arbitral awards issued in connection with an international arbitration.

Newly discovered circumstances are as follows:

  • As determined by a res judicata court verdict, any intentional misrepresentation of a witness, intentional misrepresentation of an expert's opinion, intentional wrong translation and falsification of documents, or material evidence resulting in the rendering of an illegal or unjustified decision.
  • As determined by a res judicata court verdict, any criminal actions of parties, other persons involved in the case, or their representatives, as well as any criminal actions of the arbitrator committed during the examination of the case.
  • The Constitutional Council of the Republic of Kazakhstan finds the law or any other regulatory legal act used by arbitration at rendering of the award unconstitutional. This circumstance raises some concerns because the state may have an efficient leverage for revision of arbitral awards.

Kazakhstan Arbitration Chamber

The new law provides for establishment of the Kazakhstan Arbitration Chamber as the association of permanent arbitrations and arbitrators. The Arbitration Chamber has, among other things, the following rights:

  • Maintenance of the register of arbitrators of permanent arbitrations, as well as arbitrators who are members of the Arbitration Chamber
  • Decision-making power with regard to termination of the powers of an arbitrator appointed for the resolution of any specific dispute

Prohibition of Arbitration Establishment

The new law prohibits establishment of arbitrations by

  • state authorities;
  • state enterprises;
  • natural monopoly entities;
  • entities having dominating position in the market;
  • (novel) legal entities 50% or more voting shares of which are directly or indirectly owned by the state, their subsidiaries, or dependent companies;
  • (novel) second-tier banks; and
  • (novel) organizations that carry out certain banking operations.