A Modern Business Climate in Kazakhstan for the Oil & Gas Sector: Dispute Resolution at the AIFC

February 3, 2021

The formation of international financial centres has become a common strategic focus for rapidly emerging and modernising states. This is particularly the case in traditionally high volume oil and gas production states in the Middle East, and now in Kazakhstan, where efforts are being made to diversify economies. The presence of such centres assists with the creation and redistribution of world financial income, attracting capital, generating income from taxes, contributing to the innovative development of economies and increasing the role of states in global governance. By eliminating barriers between domestic and global financial markets, developing ties between them, these centres have been proven to attract foreign investment. The creation of the AIFC in Kazakhstan is a hugely important step to assist Kazakhstan to diversify its economy and become more competitive regionally and globally.

Kazakhstan has approximately 3% of the world's total oil reserves. 62% of the country is occupied by oil and gas areas, and there are more than 170 oil fields. The volume of oil and gas in Kazakhstan is expected to grow significantly. The need in Kazakhstan for there to be an international standard investment centre that is supported by an international standard legal system and dispute resolution facility is greater than ever before.

Since 2018, the AIFC has been officially operating in Nur-Sultan, formerly Astana, the capital city of Kazakhstan. The AIFC Court and the International Arbitration Centre (“the IAC”) are two distinct and important independent Bodies providing international standard commercial dispute resolution at the AIFC.

The Elbasy[1] of the Republic of Kazakhstan, Nursultan Nazarbayev, showed great vision in creating the AIFC. His intention to do so was reflected in The Plan of the Nation “100 Concrete Steps” which was the next step to implement five institutional reforms which was announced at the XVI Congress of The Nur Otan Party on 11 March 2015 to achieve ‘a modern state for all’. There would be an international financial centre in Astana (Nur-Sultan). The international centre was to include a court which would be founded on the principles of English law.

In the Article of the First President of the Republic of Kazakhstan “The Nation’s Plan – The Road to the Kazakhstani Dream”, it was stated: “The central question of the third direction of the Nation’s Plan is the creation of the Astana International Financial Centre with an independent judicial system, a separate jurisdiction based on the principles of English law, with the application of English language and the introduction of the investment residency principle.”

The full significance of this initiative has to be seen against the background of the changes that had already taken place in Kazakhstan’s legal system. This is not a common law system but a civil law system, bearing close relation to the systems to be found in the majority of centres on the mainland of Europe.

The judiciary of the Republic of Kazakhstan had already been the subject of reform. In 2000, a Decree of the First President had been adopted. This separated the Executive from the existing judiciary and transferred the operation of the courts in Kazakhstan from the Ministry of Justice to the Committee of Court Administration under the Kazakhstan Supreme Court. That court was already established in the Supreme Court’s world class building in Nur-Sultan. However, the effect of the announcement of the First President at the opening of the Congress to which I referred meant inevitably there was to be a new system of justice to support the AIFC.

It would mean that there would be two systems of justice in Kazakhstan – its traditional system and a new system supported by the AIFC Court and IAC. Both the AIFC Court and IAC now provide critically important support for the role of the AIFC and oil and gas sector investors and ensure that the AIFC is a flagbearer for the rule of law. This flag is a huge support for the commercial activities of the AIFC.

From February 2017, The Rt. Hon. The Lord Woolf CH, the former Lord Chief Justice of England and Wales, and I, were engaged by the AIFC to advise on the establishment of the AIFC Court and IAC. From 1 January 2018, the AIFC Court and IAC had been established in a record time as separate independent legal entities and became fully operational. The AIFC Court and IAC were established following the approval of the AIFC Court Regulations 2017 and AIFC Arbitration Regulations 2017 by the AIFC Management Council.

Before this could happen, the Parliament of Kazakhstan enacted the AIFC Constitutional Statute 2015 which provided for the establishment of the AIFC. More specifically, the AIFC Constitutional Statute 2015 provided for the establishment of the AIFC Court in Article 13 which provides that the AIFC Court shall be “independent in its activities and is not part of the judicial system of the Republic of Kazakhstan”, and Regulation 11 of the AIFC Court Regulations 2017 provides for the judges of the AIFC Court to have “complete independence” and “act independently and impartially” when performing their judicial functions. Article 14 of the AIFC Constitutional Statute provided for the establishment of the IAC and the AIFC Arbitration Regulations 2017 and IAC Arbitration and Mediation Rules 2018 provide requirements of independence and impartiality for arbitrators.

In March 2017 the Constitution of Kazakhstan was amended to create a legal regime for a financial centre, the AIFC, in Nur-Sultan, in Kazakhstan.

Lord Woolf became the AIFC Court’s first Chief Justice from 1 January 2018. He retired on 31 January 2020 and from 1 February 2020 The Rt. Hon. The Lord Mance, the former Deputy President of the UK Supreme Court, was appointed to be the new Chief Justice of the AIFC Court. From 1 January 2018 Ms. Barbara Dohmann QC has been the IAC Chairman and I have been the Registrar and Chief Executive of the AIFC Court and IAC.

Now, at the heart of the AIFC is a legal system that has been created to apply common law and international best practices to attract investment by enabling effective commercial practices and providing robust protection of investor rights. The AIFC Court and IAC are the ultimate safeguards to protect investor rights at the AIFC and they provide justice that accords with the rule of law.

The rule of law is a concept whose precise meaning is difficult to define. It has been defined in a book by the same name by one of the UK’s most distinguished judges, the late Lord Bingham. He noted that the rule of law takes its identity from its context so it is important to ascertain its meaning from the context in which it is being considered. The rule of law has many requirements. In particular it requires that every individual is entitled to have access to a court or dispute resolution forum for the determination of his or her rights and to be treated equally and fairly in the same way as anyone else subject to the court’s or dispute resolution forum’s jurisdiction. Every party in a dispute deserves to have his or her case determined in accordance with the law of the land. This includes having fair consideration of the dispute by independent and incorruptible judges, arbitrators, or other types of dispute resolution professionals, who conduct the case and give a decision with reasonable expedition. Citizens who live in a country which adheres to the rule of law can be confident that their disputes will be resolved in a just manner and that justice will not only be done but it will also be seen to be done.

The reason why the AIFC Court and IAC were established is relevant to the consideration of what the rule of law requires. The AIFC required a special court and arbitration centre to be created because it appreciated that its prospect of success as a commercial centre would be greatly increased if investors involved with the AIFC, many of whom are expected to come from outside Kazakhstan, are satisfied that the AIFC is a safe environment in which to invest. International investors look to invest in jurisdictions which recognise and apply the rule of law. Any commercial decision outside of an investor’s home jurisdiction involves increased risk. Investors know that from time to time disputes in business will arise and they may well require the assistance of a court or arbitration centre to resolve them. When this happens, they want to have the protection the rule of law provides. Risk is significantly reduced if there exists a court and arbitration centre which complies with the requirements of the rule of law.

In recent times courts and arbitration centres similar to what has been established in the AIFC have been established in other countries where new commercial centres have been created to attract investment, including in Singapore, Hong Kong, Qatar, Dubai and Abu Dhabi. Other countries inherited common law systems including commercial law from the UK, including Australia, Canada, India, Malaysia and New Zealand. Like the AIFC, these jurisdictions have systems of justice which are substantially based on the common law system of justice designed to operate in accord with the rule of law. The models of commercial dispute resolution institutions in these jurisdictions were considered when deciding upon the model which should be adopted at the AIFC.

The AIFC Court and IAC are still in their early years of operation but outstanding results have been achieved ahead of time and more quickly than at any other international financial centre. By 10 December 2020, the AIFC Court had given 9 judgments and orders and additional cases were ongoing. All resolved cases had been enforced in Kazakhstan to one hundred percent satisfaction. 286 arbitration and mediation cases had been successfully resolved at the IAC. The cases at the IAC were predominantly mediation cases, reflecting the appetite for commercial parties in disputes in Kazakhstan to resolve their disputes amicably via mediation without needing to pursue more formal arbitration or litigation. The case parties came from Kazakhstan, the UK, Russia, China, Uzbekistan, Poland, Azerbaijan, Turkey and India. The law applied in the cases was predominantly the law of the AIFC, Kazakhstan, and Russia. The nature of the disputes covered all areas of commercial practice including finance, sales, property, land, and general contract matters. 216 lawyers from twenty-four jurisdictions around the world (23 countries) had registered with the AIFC Court for rights of audience. The AIFC Court and IAC were included in the dispute resolution clauses of thousands of business contracts of businesses in Kazakhstan and elsewhere including in the contracts of oil and gas companies such as Tengizchevroil.

The AIFC and IAC are playing a central role in establishing Kazakhstan as a successful commercial centre with all of the facilities and international standards that investors expect such institutions to have. The establishment of the AIFC Court and IAC and their relevance to the oil and gas sector as the protectors of investment rights will significantly increase the attractiveness and investment in the AIFC, Kazakhstan and the wider Central Asia region where at present there are no comparable commercial dispute resolution institutions.

Judges, arbitrators, mediators and other dispute resolution professionals

The current Chief Justice of the AIFC Court, Lord Mance, is supported by nine judges. The judges are amongst the most experienced and distinguished judges from the common law world. The IAC has in addition to its Chairman, Barbara Dohmann QC, a Panel of outstanding arbitrators and mediators comprising highly experienced and multi-lingual professionals from around the world.

The judges, arbitrators, mediators and other dispute resolution professionals at the AIFC Court and IAC have global reputations for absolute independence, impartiality, integrity and incorruptibility. They are committed to the rule of law and uphold the same judicial standards and legal principles that have been developed and applied over many years by commercial dispute resolution centres in the UK and elsewhere. In particular, they all have considerable experience and interactions over many years with commercial entities and individuals who they represented as lawyers. That background gives them experience and understanding of the commercial world and they understand the need for commercial law to reflect the needs of the business community. They will ensure that the AIFC Court and IAC meet the expectations of the international business community by ensuring provision of predictable legal protection in a timely manner. Parties to disputes at the AIFC Court and IAC can be confident that their disputes will be decided only on their merits without regard to nationality, politics, religion or race.

Services

The AIFC Court provides litigation proceedings with application of the most modern procedural rules modelled on the rules of other common law courts including the courts of England and Wales. It also provides Judicial Mediation, that is mediation of a dispute pre-litigation by a judge of the AIFC Court. That judge would not then consider the case as a judge of the AIFC Court if the case progressed to litigation at the AIFC Court. The judges of the AIFC Court also have considerable experience of commercial arbitration and the AIFC Court provides limited supervision of IAC arbitration cases guided by the principle of non-intervention.

The IAC provides four main dispute resolution services:

1. Arbitration – exclusive administration of arbitrations governed by the IAC Arbitration and Mediation Rules, subject to the agreement of the parties to a case; administered arbitrations governed by UNCITRAL Arbitration Rules and ad hoc arbitration rules subject to the agreement of the parties to a case;

2. Mediation – mediations governed by the IAC Arbitration and Mediation Rules and ad hoc mediation rules subject to the agreement of the parties to a case, as well as other forms of alternative dispute resolution subject to the agreement of the parties to a case;

3. Appointments – an appointment authority, assisting with the appointment of arbitrators and mediators to arbitrations and mediations conducted at the IAC or elsewhere; and

4. Fundholding – fundholding, holding and disbursing advances in relation to costs associated with use of the IAC’s services and facilities.

Jurisdiction, levels, precedent and rights of audience

The AIFC Court has the sole power to determine the proper scope of its jurisdiction within the limits of its competence given by the AIFC law. It does not have jurisdiction to hear administrative[2] or criminal cases but it does have jurisdiction to:

1. Interpret AIFC Regulations; and

2. Adjudicate any disputes:

a) between AIFC registered companies (“AIFC Participants”), AIFC bodies and or their foreign (i.e. non-Kazakh nationals) employees;

b) relating to operations carried out in the AIFC and regulated by the AIFC Acting Law; and

c) transferred to the Court by agreement of the parties (i.e. “opt-in” jurisdiction for parties who do not otherwise have any connection to the AIFC). Parties may file applications to the AIFC Court applying any law, whether it is common law or civil law, AIFC law or otherwise, provided all of the parties to the case agree and the AIFC Court decides that it is appropriate for it to have jurisdiction.

Similar to other international arbitration centres, the IAC considers disputes where the governing law of the dispute is AIFC law or any other law as agreed by the parties to the dispute. The AIFC Arbitration Regulations provide the AIFC as the seat in an arbitration at the IAC where the seat has not been agreed by the parties. But parties can have an alternative jurisdiction as the seat in their arbitration proceedings at the IAC if they agree to do so. We provided this flexibility at the IAC to give case parties maximum choice and flexibility and to enable dispute resolution on legal and procedural terms that most appropriately fits the needs of the parties and justice in each individual case.

The AIFC Court has three different levels:

The Small Claims Court as a division of the AIFC Court of First Instance, with specialist judges and procedures for cost-effective and timely resolution of disputes valued up to USD 150,000;
The AIFC Court of First Instance is the first court where disputes are heard applying the AIFC Court’s Rules. It also considers appeals from the AIFC Small Claims Court; and
The AIFC Court of Appeal will hear appeals from the AIFC Court of First Instance, and its decisions are final and not subject to appeal.

To appeal to the AIFC Court of Appeal requires litigants to have been given permission to appeal by the AIFC Court of First Instance or the AIFC Court of Appeal. The AIFC Court has already successfully resolved numerous small claims and first instance claims and a permission to appeal application.

The AIFC Court may consider final judgments of the AIFC Court in related matters and final judgments of the courts of other jurisdictions when deciding cases. While there is no automatic binding precedent of previous AIFC Court decisions on future AIFC Court decisions, it is expected that the flexibility inherent in the procedures and the approach that is expected to be adopted at the AIFC Court will enable the AIFC common law system to develop principle incrementally and keep up to date without producing uncertainty.

Within the framework of AIFC statute or written AIFC law, the AIFC law will be developed by the judges of the AIFC Court through their decisions in cases at the AIFC Court with application of legal principles to new circumstances in a way that will be sensitive to the particular commercial context of the case in dispute. AIFC Court decisions will also continue to be made accessible and transparent via the AIFC Court website and in law reports, textbooks, and media which will analyse the effect of the decisions with a view to identifying the principles that underlie them. This will assist parties and their lawyers to understand their legal positions under the AIFC law and to be able to make a reasonable prediction of the outcome of any disputes that will be considered by the AIFC Court.

The AIFC Court has extremely wide rights of audience. All lawyers have rights of audience provided the lawyer has a practicing certificate from anywhere in the world, or in the case of Kazakhstan lawyers, qualified by a law degree and some court experience. The rights of audience provision for Kazakhstani lawyers was designed to create a level playing field. In Kazakhstan there is no centrally administered regulatory body to regulate the training and practices of Kazakhstani lawyers and without the AIFC Court’s rights of audience provision Kazakhstani lawyers would not be able to represent parties in cases at the AIFC Court. By comparison, the IAC is accessible to all lawyers and professionals to represent parties in cases at the IAC.

Rules

The procedural rules of the AIFC Court and IAC were drafted by leading dispute resolution professionals including Lord Woolf, Barbara Dohmann QC, Tom Montagu-Smith QC, and myself. When creating a new judicial system, it is all too easy to overcomplicate matters by underestimating the importance of a court and arbitration centre having the appropriate powers and avoiding unnecessary complexities which can delay or restrict justice. With this in mind professionals drafted practical procedural rules for the AIFC Court and IAC that will foster predictability and enable cases to be dealt with in a way that is proportionate to their complexity. The procedural rules include all of the modern innovations of other international dispute resolution institutions and are sensitive to the unique needs of commercial court and dispute resolution institution users but in as short a number of rules as possible to avoid unnecessary complexity.

The procedural rules of the AIFC Court and IAC clearly set out their approach. The AIFC Court Rules 2018 provide at Rule 1 that the AIFC Court has the overriding objective to deal with cases justly. Dealing with cases justly includes, so far as practicable: ensuring that the system of justice is accessible and fair; ensuring the parties are on an equal footing; ensuring that litigation takes place expeditiously and effectively, using no more resources than is necessary; dealing with cases in ways that are proportionate to the amount of money involved, the importance of the case, the complexity of the issues, facts and arguments, and the financial position of each party; and making appropriate use of IT. The IAC Arbitration and Mediation Rules 2018 provide at Rule 2.1 that the overriding objective of the IAC is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.

There are other more specific rules in the AIFC Court and IAC Rules but they do no more than amplify or illustrate the overriding objectives. They give the judges of the AIFC Court and the arbitrators and mediators of the IAC the wide discretion and flexibility they need to do justice in cases.

Enforcement of AIFC Court and IAC decisions and awards

Enforcement of AIFC Court decisions and IAC arbitration awards is critically important. If this cannot happen, the successful party in a dispute resolution will be left with a sense of injustice. It is this fear of injustice that deters investors who could profitably trade with a particular country from doing so, to the economic disadvantage of the country with which they could have otherwise traded.

Enforcement of AIFC Court decisions within Kazakhstan is carried out in the same manner as the enforcement of decisions of other courts in the Kazakhstan legal system. Translations of the AIFC Court’s decisions into the Russian and Kazakh languages are authorised by the AIFC Court in accordance with the AIFC Acting Law and provided to the Kazakhstan authorities for enforcement purposes. In practice, enforcement of AIFC Court decisions in Kazakhstan is ensured by the implementation of step-by-step procedures of the AIFC Court and the enforcement authorities in Kazakhstan. The procedures are implemented with the closest supervision of the AIFC Court Registry and the enforcement agents, and the result by 10 December 2020 was that all AIFC Court decisions had been enforced within Kazakhstan to one hundred percent satisfaction.

Enforcement of AIFC Court decisions in other countries outside of Kazakhstan will happen with the support of the Kazakhstan authorities in accordance with international agreements that provide for mutual recognition and enforcement of court decisions. The AIFC Court is also a member of the Standing International Forum for Commercial Courts and works in close cooperation with the many jurisdictions that are represented by the membership of that organisation including on enforcement of court decisions.

IAC arbitration awards are enforced in Kazakhstan as Orders of the AIFC Court. The procedure to convert an IAC arbitration award into an Order of the AIFC Court for enforcement purposes is simple and expedient. IAC arbitration awards have been recognised by the AIFC Court and judgments and execution orders of the AIFC Court have been given within a matter of hours of such applications being filed at the AIFC Court Registry. Kazakhstan acceded to the New York Convention 1958 and enforcement of IAC arbitration awards in countries outside of Kazakhstan shall happen in accordance with that Convention.

Premises and IT

The AIFC Court and IAC have international standard physical premises at the EXPO-2017 site in Nur-Sultan with advanced meeting and conference rooms, hearing rooms, and office facilities for all lawyers, judges, arbitrators and mediators.

The AIFC Court and IAC also have innovative modern digital technology to assist with timely and cost-effective case management and overall dispute resolution. eJustice was launched at the AIFC Court and IAC in February 2019. It provides immediate electronic access to all documents in a given case to the parties, judges, arbitrators and mediators working on that case from its initiation to its final disposition. Access is 24/7. Video technology is used for oral hearings when a judge, arbitrator or mediator decides that an in-person hearing is not necessary or appropriate.

Education

The judges’, arbitrators’ and mediators’ experience has been shared in Kazakhstan, promoting the education and training of students and lawyers with lectures and mock trials. This has significantly improved the understanding in the Kazakhstan community on the AIFC law and the AIFC Court and IAC procedures and practices to ensure there is access to justice that is as wide as possible.

The successful establishment and operation of the AIFC Court and IAC has ensured that the AIFC has a dispute resolution system that applies the strictest standards of the rule of law. With proven case resolution numbers, enforcement of decisions, inclusion in the dispute resolution clauses of business contracts, and significant outreach, promotions and training programmes, both institutions are quickly becoming the number once choice for commercial dispute resolution for investors engaging in the oil and gas sector and other commercial and financial activities in Central Asia. This will be a powerful signal to the international commercial world that Kazakhstan has a modern business environment that is committed to the strictest adherence to the rule of law.

Mr. Christopher Campbell-Holt,

Registrar & Chief Executive, AIFC Court & IAC

[1] Title for the Head of State in Kazakhstan (editor).

[2] The term “administrative” is used to refer to matters such as road traffic offences or immigration issues which are dealt with by the RK Administrative Court. It is not intended to limit the review by the AIFC Court or an AIFC Body such as AFSA, the AIFC regulator. It differs from its meaning in English law. See AIFC Court Regulations 2017, Article 26(5), which provides that: “The [AIFC] Court of First Instance has jurisdiction to hear and determine an appeal from the decision of an AIFC Body … where the appeal relates to: (a) a question of law; (b) an allegation of a miscarriage of justice; (c) an issue of procedural fairness; or (d) a matter provided for in or under AIFC law.”