Kazakhstan: What Is The Correct Way To Determine Jurisdiction Of Disputes With Participation Of Investors In The Subsoil Use Sphere?

Resolution of disputes with participation of investors

Under provisions of the new Civil Procedure Code1 effective from 1 January 2016, there is a special procedure for the consideration of certain "investment disputes" by the Supreme Court of the Republic of Kazakhstan (Supreme Court) and the Astana City Court as first instance courts (collectively - Investment Courts).

The new Civil Procedure Code envisages different procedures for consideration of investment disputes depending on the investor's category. According to Article 28 of the Civil Procedure Code the competence of the Supreme Court includes only two categories of disputes, one of which is the "investment disputes with the participation of a large investor," whereas "investment disputes" not included in the competence of the Supreme Court will be considered by the Astana City Court as the court of first instance.

The term "investment dispute" defined in Article 296 of the Entrepreneurial Code2 as "disputes arising from contractual relations between investor, including large investor, and the state authorities in connection with the investment activities of the investor". The term "investor" refers to legal entities and individuals performing investments in the Republic of Kazakhstan, whereas the term "large investor" means a legal entity or individual that invested in the Republic of Kazakhstan not less thantwo million times monthly calculation indexes3 (MCIs).

Article 274 of the Entrepreneurial Code provides that the term "investments" refers to all kinds of property (except of the goods intended for the personal use) including assets purchased under financial lease arrangements from the dated of the lease agreement as well as rights on such items contributed by an investor into a charter capital of a legal entity or increase of fixed assets used for the entrepreneurial activity, as well as for the implementation of public-private projects and concession projects.

Disputes that fall under the category of "investment disputes" are considered in Astana City Court acting in the capacity of a first instance court following the generally established procedure, except for the cases under the jurisdiction of the Supreme Court. In addition to "investment disputes" the Astana City Court also considers "other disputes between investors and the state authorities associated with investment activity of investors".

According to Article 402 of the Civil Procedure Code an appellate claim on the decision of the Astana City Court should be considered by the specialized judicial tribunal of the Supreme Court consisting of at least three judges. Therefore, it is implied that the Supreme Court will be acting as an appellate court in respect of cases on investment disputes considered in the Astana City Court. Pursuant to Article 434.1 of the Civil Procedure Code decisions of the specialized panel of the Supreme Court could be appealed under the cassation procedure in the Supreme Court.

Disputes with the participation of a "large investor" pursuant to Article 35.3 of the Civil Procedure Code should be considered by a single judge of the Supreme Court at the rules of a first instance court. According to Article 240.4 of the Civil Procedure Code decision of the Supreme Court made under the rules of a first instance court becomes effective at the day of its announcement and, therefore, could not be considered in the appellate court instance. However, the Civil Procedure Code provides that decisions of the specialized judicial tribunal of the Supreme Court could be appealed under a cassation procedure.

Since the procedures for the consideration of investment disputes are not clearly described in the legislation and at the current stage there is no court practice in respect of such cases the Supreme Court has published on the official web site an explanatory note5 addressing certain questions associated with the procedure applicable in respect of such disputes. In this explanatory note the Supreme Court expresses the official position and suggests interpretation of the provision of the legislation applicable in respect of the investment disputes.

Summarizing the position of the Supreme Court we conclude that the jurisdiction of the Investment Courts should be understood in the broad sense and, therefore, should not be limited merely to the disputes arising from the investment contracts. The Supreme Court confirms that the term investment dispute should be understood as a dispute between an investor and a Kazakhstan state authority relevant to investment activity under a contract with the state authority (including the cases where the state authority signs a contract on behalf of the Republic of Kazakhstan, e.g. the subsoil use contracts).

What is the correct way to determine jurisdiction of disputes with participation of investors in the subsoil use sphere?

1. First it is necessary to determine whether a party to the dispute constitutes an investor, namely (a) whether the party holds shares in a JSC or participating interest in an LLP; or (b) whether the party isengaged in formation or enlargement of fixed assets used for the business purposes.

2. If the party satisfies the definition of "investor" it is necessary to determine whether there is an agreement with the state authority, including the Republic of Kazakhstan. Such agreements include the following types:

  • Investment contracts
  • Subsoil use agreements
  • Concession agreements
  • PPP agreements
  • Other unnamed agreements containing the main features: subject matter (investment object), amounts of investments, other essential conditions.

The subsoil users may prove compliance with the definition of "investor" or "large investor" by providing the subsoil use contract and working program indicating financial obligations of the subsoil user for the life of the contract.

3. Further it is necessary to determine whether the subject of the dispute relates to appealing of actions of the state authorities breaching the rights and interests of the investors envisaged by legislation of the Republic of Kazakhstan. If yes, it should be determined whether the dispute falls under the category "investment dispute" or "other dispute relevant to investment activity".

Cases included in the category "investment dispute" shall be considered by the Astana City Court or the Supreme Court depending on the investor's category (investor / large investor). This category of disputes includes disputes arising under various agreements on realization of investments (hereinafter – investment agreements), including:

  • Disputes relevant to conclusion, amendment, and termination of investment agreements;
  • Disputes associated with fulfilment by an investor of tax, customs, social, special environmental, and other obligations under investment agreements, including additionally assessed amounts under investment agreements;
  • Disputes on appealing of actions (failure to act) of a state authority in the course of an audit of the fulfilment of obligations under investment agreements;
  • Disputes associated with returning of property provided to an investor in the form of a state in-kind grant, or recovery by the state authority of the value of such property in case of early termination of an investment agreement;
  • Other disputes based on the investors' claims as well as claims of the state authorities associated with the fulfilment of mutual obligations under investment agreements.

Disputes included in the category "other disputes relevant to investment activity" should be considered by the Astana City Court, including for instance the following types of disputes:

  • Disputes on invalidation of actions (failure to act) of the state authorities' officials breaching investors' rights (in the sphere of licensing, assessment of tax, customs, and other payments to the state budget not relevant to an investment agreement);
  • Disputes associated with collection by the state authority from an investor of the amounts of taxes and other obligatory payments to the state budget, customs duties, not relevant to an investment agreement;
  • Disputes on forced seizure if an investor's property (nationalization, requisition) for the state purposes and compensation of damages;
  • Disputes associated with claims for investor's damages resulted from issuance by the state authorities of acts that does not correspond to legislation of Kazakhstan;
  • Disputes on ability of an investor to engage in an investment activity;
  • Other disputes between the state authorities and investors not relevant to fulfilment of obligations under investment agreements.

Based on the aforesaid clarifications of the Supreme Court it appears that the significant amount of disputes with the participation of foreign investors in Kazakhstan may fall under the jurisdiction of the Astana City Court or the Supreme Court, including, inter alia, the disputes arising under the subsoil use contracts, such as disputes relevant to fulfilment of tax, customs, social, environmental and other contractual obligations. At the same time, the Supreme Court expressly provides that the disputes not associated with investment activity (e.g. employment disputes, corporate disputes, disputes subject to simplified procedure) should be considered by the courts of general jurisdiction.

In current practice there are certain cases when claims of subsoil users submitted to the specialized economic courts in respect of actions of the tax authorities or other state authorities were rejected due to absence of the jurisdiction. In such cases it is necessary to re-submit the claim to the Astana City Court of the Supreme Court and to ask the court for the reinstatement of the period for the appealing period.

According to our knowledge the Astana City Court and the Supreme Court have not yet formed any practice in respect of investment disputes. Taking into account the willingness of the Republic of Kazakhstan to improve the access to justice and to increase the quality of the court decisions certain categories of investors have the right to take advantage of new opportunities for the consideration of investment disputes.

Footnotes

1 Civil Procedure Code of the Republic of Kazakhstan dated 31 October 2015, No.377-V ("Civil Procedure Code")

2 Code of the Republic of Kazakhstan dated 29 October 2015 No.375-V "Entrepreneurial Code" ("Entrepreneurial Code")

3 MCI is a Kazakhstan financial benchmarking instrument approved annually in accordance with the Law on State Budget; for the year 2016 the MCI is set at the level of KZT 2,121, or circa USD 6 or EUR 5

4 Supreme Court of the Republic of Kazakhstan, 22 February 2016, "Investment disputes: the jurisdiction of the Supreme Court and the answers to other important questions" http://sud.gov.kz/eng/content/investment-disputes-jurisdiction-supreme-court-and-answers-other-important-questions

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions