KAZAKHSTAN: An Introduction to Dispute Resolution
The following In-Depth Overview featured in Chambers Asia-Pacific 2024 and is awaiting update from the firm.
Kazakhstan as a Regional Hub for Settling Disputes Between "East" and "West"
Overview
Legal landscape in Kazakhstan has been formed by several factors including its geographical location, close historical and cultural relations with neighbouring countries, including Russia, China, Central Asia and Caucasus states, and efforts of the Kazakhstani Government to attract foreign investments for the development of the Kazakhstani economy which is still mostly natural resources oriented.
Therefore, the Kazakhstani Government is taking a neutral position and keeping good relations with both Western and Eastern countries. It allows Kazakhstan to become a regional neutral hub for the settlement of disputes between "East" and "West".
Economic trends
Kazakhstan stands out as one of the most dynamic markets among the former Soviet Union countries, boasting a level of foreign direct investment that ranks among the highest in the region. In an effort to enhance liquidity in the local stock market and foster local participation, the government has prepared a series of initial public offerings (IPOs) for several state-run companies.
The economy of Kazakhstan is heavily reliant on raw mineral extraction, which constitutes the largest sector. This dependence makes the economy vulnerable to fluctuations in world market prices for mineral resources. To diversify the economy beyond raw materials, Kazakhstan has established several investment support institutions, including the Development Bank of Kazakhstan and the Investment Fund.
In light of recent anti-Russian sanctions, many international companies have relocated their business and production facilities from Russia to Kazakhstan. They have leveraged the benefits of the common market of the Eurasian Economic Union, which encompasses five countries: Russia, Kazakhstan, Kyrgyzstan, Belarus, and Armenia. Furthermore, a significant number of companies have redomiciled from offshore jurisdictions to the Astana International Financial Center (“AIFC”). Established in 2015, the AIFC is an English law-based free economic zone modelled after other international financial centres such as DIFC, QFC, ADGM, etc.
Legal trends – litigation
Kazakhstan recently introduced an administrative court system that includes special courts to handle disputes between private parties and state authorities, including tax, customs, environmental, and antimonopoly authorities. Under local law, these administrative courts are expected to play an active role in protecting private parties, assisting them in gathering evidence to support their positions, and enforcing relevant judgments against state authorities. This innovation has led to a significant increase in the number of cases where claims against state authorities have been granted.
In addition to the aforementioned changes, the Kazakhstani Government adopted further amendments to the local court procedure rules in July 2024. These amendments led to the establishment of separate cassation courts tasked with handling cassation appeals on civil, administrative, and criminal cases. The purpose of this amendment was to ensure that all parties have the right to apply to the cassation court and have their cases reviewed on the merits.
The Kazakhstani Government and the General Prosecutor’s Office have initiated several legal actions as part of a campaign to reclaim so-called “illegally obtained assets”. These are former state assets that have become privately owned due to corruption arrangements or other violations of Kazakhstani laws. As a result of these legal actions, the Kazakhstani Government has reclaimed significant assets previously owned by relatives of former President of the Republic of Kazakhstan Nursultan Nazarbayev and local oligarchs.
Furthermore, the dispute resolution institutions established under AIFC, namely the AIFC Court and the International Arbitration Center (IAC), are becoming increasingly popular for settling disputes between both Kazakhstani and foreign companies. The AIFC Court, which is composed of active or former English high court judges and KCs, considers disputes based on English law principles and applies precedents from English courts and other common law jurisdictions.
Consequently, the AIFC Court and IAC have become popular choices for settling disputes between Western companies and Russian/Chinese companies, who also prefer to settle their disputes in Kazakhstan due to the political neutrality of the Kazakhstani Government and the convenient location of the AIFC.
Given these factors, Kazakhstan can be viewed as a neutral hub for the settlement of disputes between the “East” and “West”. It provides an English law-based court procedure within a country that maintains close political and cultural relations with Russia, China, Turkey, and other Asian countries.
Legal trends – arbitration and ADR
Since the adoption of the UNCITRAL-based law on arbitration in 2016, the number of arbitration institutions in Kazakhstan has significantly increased. Kazakhstani courts generally adopt a pro-arbitration approach, with more than 90% of arbitral awards being recognized and enforced.
However, the adoption of the new law led to the establishment of so-called “pocket” arbitration institutions. These are often used by banks and micro-finance companies to collect debts arising from loans provided to individuals. Such institutions frequently fail to follow the proper procedure for notifying about the commencement of arbitration proceedings and do not provide defendants with the appropriate right to present their cases.
As a result, Kazakhstani courts have been compelled to refuse to enforce the relevant arbitral awards. This practice was confirmed in the November 2023 Normative Resolution of the Supreme Court.
In this resolution, the Supreme Court also stated that arbitration agreements which do not clearly refer to a specific arbitration institution should be viewed as incapable of being performed. Therefore, state courts should accept jurisdiction over disputes covered by such types of arbitration agreements. The only exception is disputes which fall under the scope of the European Convention on International Commercial Arbitration 1961. This convention allows for the rectification of relevant gaps in the arbitration agreement by application to the competent body (in Kazakhstan – the Arbitration Center “Atameken” at the National Chamber of Entrepreneurs).
The Kazakhstani Government and the Supreme Court are also highly focused on the development of other out-of-court options for dispute resolution. In particular, local courts actively promote the amicable settlement of disputes via mediation or negotiations. Additionally, local notaries can issue executive orders which allow for the commencement of compulsory enforcement proceedings via local court bailiffs for the collection of debts accepted by debtors. All these measures aim to decrease the number of cases considered by the courts.
Conclusion
While the Kazakhstani Government has made significant strides in improving the local judicial system and alternative dispute resolution (ADR) mechanisms, the local court practice is still evolving. Kazakhstan is a regional leader in terms of the number of investment protection claims submitted by foreign investors, with most of these claims citing breaches of access to justice principles.
Recently, Kazakhstan has taken steps towards the amicable settlement of the most significant claims by foreign investors. This includes the well-known Stati’s claim (Anatolie Stati, Gabriel Stati, Ascom Group SA, and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC Case No. V 116/2010).
Also local top officials have expressed their intention to further improve the local court system to make it competitive and attractive for both national and foreign companies seeking to settle their disputes.