Court System Reform in Kazakhstan

Issues Paper
International Tax and Investment Center March 2015
Court System Reform in Kazakhstan:
What is there for investors?
Aigoul Kenjebayeva
One of the most important recent developments in
Kazakhstan’s legal system is its clear aim to improve the
attractiveness of the investment climate. Those active in
the country for a long time might remember that something
similar took place a little more than 20 years ago. However,
at that time the government and local businesses did not
have any experience in this field -- they relied heavily on the
experience of other countries and on foreign consultants to
show the way. Since that time, as the economy was growing
and with gaining its own experience Kazakhstan had been
tightening its laws to reflect new realities. The effect of
this policy was that many investors left the country, and
its reputation as an investor-friendly country significantly
diminished. The return to the policy of attracting investors
shows new approaches and a much better understanding of
the ways in which business works.
To this end, significant changes have already been made
to the Civil Procedure Code, and now a large-scale public
discussion is underway regarding further improvements of
the legislation on civil procedure. Some of these proposals
are quite progressive, while others are less so.
The Government and other state bodies adopted an approach
of listening to well-established business organizations
that have a proven record of assisting and promoting
investment such as ITIC, the American Chamber of
Commerce, European Business Association, Kazakhstan
Bar Association, and the like. A significant number of
various conferences and roundtable discussions are being
held regularly for this purpose.
By nature the Supreme Court is a somewhat closed
organization. However, the recent discussion shows that it
is now more open to cooperation and is ready to discuss
legal reform issues of legal reform. KazBar is already
discussing specific issues in legal reform, with officials
from the Supreme Court.
All such discussions show that one of the most important
requirements for the attractiveness of the investment
climate is adhering to the principles of the rule of law,
including, inter alia, a fair and unbiased judicial system. It
is no secret that large investors, especially those working on
contracts with the government, usually insist that disputes
are resolved in international arbitration; and Kazakhstan, of
course, wants to resolve them at home. As confidence in the
courts is one of the main indicators of investor confidence,
the President, the Government and the Supreme Court are
determined to reform the law so to enhance credibility of
the justice system.
Novelty: Investment Court
The draft Civil Procedure Code was recently discussed at
a roundtable meeting organized by the Supreme Court and
the Kazakhstan Bar Association (KazBar). The discussion
was led by the Chairman of the Supreme Court, and it
was attended by the leading judges, government officials,
representatives of the Parliament, ministries, diplomats,
and lawyers from large investment companies working in
Kazakhstan. In short, the attendance was very solid, and
the discussion was constructive.
In addition to general discussion, the Supreme Court is
ready to take concrete steps to improve the quality of justice.
In particular, the draft Civil Procedure Code proposes to
establish an Investment Court, which would specialize in
disputes with investors.
It is expected that investment disputes will be considered
in the Astana City Court as the first instance court, and the
appellate review will be at the Supreme Court. However,
consideration of the disputes involving major investors will
be directly heard in the Supreme Court as the first instance
court. This would be a dramatic innovation, but the problem
is that under the law the definition of “investor” and
“investment” is very narrow, and under such definitions
only a very small percentage of disputes would fall under
this court’s jurisdiction. Therefore, in order for this novelty
to work, the definition of “investment” must be expanded
in the law “On Investments,” or the law will need to be
changed in its entirety.
Under the current system we have the economic courts,
and these should be enough for consideration of disputes
involving investors. Why, then, has it been decided to create
investment courts? Because investors, especially large
ones, are unhappy with the quality of the administration
of justice in Kazakhstan. They believe that the level of
professionalism in the courts is low and that the courts are
often biased. It is widely perceived that courts prefer to
decide disputes with state authorities in favor of the state,
that they are afraid to take decisions against the state, and
that they consider the interests of the state as very narrow
-- suggesting that supporting the interests of the state
means simply getting some amount of money into the state
budget. But the interests of the state should be understood
more widely, i.e., as making sure that the participants in the
economy are confident that, when they strictly adhering to
the law, the courts will protect them.
Taking into account the concerns of investors, the
Supreme Court suggests creating investment courts on
the basis of the higher courts. The idea is that judges in
the higher courts do not have to fear that their decisions
will be overturned tomorrow, and also that judges in the
higher courts are usually more experienced. Normally, all
courts must be professional, competent and independent.
Normally the system should ensure that all judges are not
afraid to make decisions on their inner conviction based
on the principles of legality, fairness and reasonableness. I
am not sure that creation of the investment court is the right
way to address the problem, but the problem really exists,
and such a compromise probably suits all parties.
Investors Need Certainty, Stability and
Uniformity of Law Enforcement Practice
One of the ways to improve certainty in the Kazakh
legal system and practice is to streamline organizational
issues. Kazakhstan undergoes frequent reorganization of
the government structures, and the transfer of authority
over various sectors of the economy (especially involving
redistribution of competencies of all ministries), leads to
a great deal of confusion for businesses. As a result, after
such government reshuffling, for several months no one
decides any issues, state agencies do not know who is
responsible for what, the whole country is paralyzed, and
this strongly influences the development of business.
Let’s say an investor enters into a transaction involving
multiple jurisdictions, and this transaction requires
getting an antitrust approval in Kazakhstan among other
jurisdictions. In the case of a government reshuffling,
getting the approval promptly would not be possible
because the investor would have to wait for several months
for redistribution of competence, for approval of the
regulations for various state bodies, and for certain tasks
and functions to be re-assigned between state officials.
Usually, similar approvals could be obtained in other
jurisdictions much easier and faster, and in such case lack of
a Kazakhstan approval significantly influences the viability
of the transaction. This is a very serious problem affecting
the investment climate. There were cases in our practice
where investors took decisions to avoid having anything to
do with Kazakhstan in order not to be subjected to this sort
of complexity.
Kazakhstan also needs to ensure stability in the legislative
framework for investment. Stability must be understood
so that, on the one hand, the fundamental, core principles
of basic laws remain unchanged (the main rules of the
game), but, on the other hand, details of law within the
main parameters should be constantly improved. Investors
need certainty; they do not like uncertainty. They want to
know exactly the prospects of a project, be able to calculate
the economics of the project for its life, and know exactly
what benefits will be received from the project if they work
according to the law. In most cases, investors need certainty
and stability even more than some tax or other benefits.
It is also necessary to ensure uniformity of law-enforcement
practice, to oblige government agencies to make more use
of the power to adopt regulations, letters of instruction, and
clarification of the laws. In view of the law on corruption,
our state agencies are afraid of everything, and often do
not provide any meaningful answers to our questions.
For example, we write a letter to a state body to clarify
its position regarding the application of a rule. In response
we often get a simple citation of a provision of the law.
However, we know this provision ourselves. What we
need is an explanation of how to use it. Thus, uncertainties
still remain, and entrepreneurs are left with a dilemma -either take the risk or do nothing. This obviously hinders
business activity. The only possibility of getting some
certainty in such circumstances would be applying to
courts. As a result, courts are overwhelmed and are not
capable of proper justice due to the heavy workload. It is
therefore necessary to establish a system where state bodies
would be obliged to issue binding rulings in response to
questions related to their position on application of laws.
Such a system successfully functions in many countries.
For example, in the Netherlands one can apply to the tax
authority with respect to a transaction and obtain a so-
called Tax Ruling, which is binding for all, including the
tax authority itself. This approach significantly increases
the level of certainty for investors and the state.
Professionalism of Party Representatives
in Courts
Under the current system, any person with a legal
education can be admitted to court. This raised serious
complaints and criticism from judges and the general
public. There is a mechanism for ensuring the required
level of professionalism of representatives in civil
disputes in courts. The Kazakhstan Bar Association
(KazBar) proposes to introduce a rule that non-advocate
representatives of the parties in courts must be members
of professional self-regulated organizations of lawyers
where such organizations would have to ensure that their
members comply with regulatory and ethical requirements.
One of these requirements is continuing legal education
and specialization of lawyers. Without special training, a
person should not be allowed in court as a representative,
even if this person holds a legal diploma -- this person
must undergo special training in civil and administrative
procedure, and only after this training would lawyers be
admitted to courts as representatives of the parties.
Speedy Trial
The legislation is also moving to a system where court
cases will be considered in a very quick fashion. On the one
hand, this is good, especially for simple cases. However,
one size cannot fit all. There are complex cases with many
participants, especially foreign ones, which means they
need interpreters, time to arrive to the hearings from abroad,
time to get a visa, time to apostille a power of attorney and
other documents, and so on.
Obviously a one month time frame for such complex cases
is not sufficient. In the end, the most important thing is to
get an informed decision based on thorough examination
of the case, rather than a quick but incorrect decision. In
addition, we have serious doubts about another innovation
of the draft Civil Procedure Code, a simplified procedure.
The desire to solve a case quickly can lead to serious errors.
Aigoul Kenjebayeva is the managing partner of Dentons’ Almaty and Astana offices, a global law firm
created by the combination in 2013 of international law firm Salans, Canadian law firm Fraser Milner
Casgrain (FMC) and international law firm SNR Denton.
Aigoul’s particular areas of specialization have been acquired from over 35 years as a practicing lawyer
and include dispute resolution, energy/natural resources, corporate, M&A, PPP/infrastructure projects,
IP and competition law.