Astana International Financial Centre’s (AIFC) Court: what is its position within the judicial system of Kazakhstan?

On 5 July 2018, the President of Kazakhstan, in a festival atmosphere surrounded by representatives of the business community, opened the Astana International Financial Centre’s (AIFC) Court.

From the legal standpoint, one of the most essential goals of the new institution is to offer protection of foreign investors. However, the establishment of the Court and its legal status raised a few problems discussed in this article.

The broad array of the Court’s advantages and interrelation with the national legal system has been widely discussed. This includes an opportunity to consider disputes in a transparent, impartial judicial body with highly professional staff. Furthermore, entities and individuals who are going to provide professional support to AIFC are guaranteed tax holidays and exemptions. The Court priorities the balance of rights and equality of the parties.

General provisions of the Law

The Constitutional Law № 438-V dated 7 December 2015 “On Astana International Financial Centre” (the Law), enacts the position of AIFC within the legal system of Kazakhstan. Pursuant to the Law, AIFC in Astana enjoys a special legal regime and precisely defined borders of jurisdiction which are subject to the determination of the President of Kazakhstan (Article 1 of the Law).

The Law sets out the basic rules and provisions with regard to the Court’s status. Firstly, the Court is independent from the state judicial system of Kazakhstan. The Court has right of exclusive jurisdiction over disputes in civil, financial and employment areas which could arise between AIFC’s disputing parties. As to the applicable law for resolving of disputes, the legislator stipulated that the law of England and Wales will govern relations between parties. An interpretation of applicable legislation is the prerogative of the Court only.

Remarkably, the Court’s decisions enjoy the same regime of enforcement in Kazakhstan as decisions of state courts. As a general rule, the language of the Court proceedings is English, but the Law gives permission for translation of decisions into both Kazakh and Russian languages (Articles 13, 16, 19, 20). At the same time, all paperwork, including data-reporting, financial, technical and other documents, should be performed in English.

The position of AIFC within the legal system of Kazakhstan

One of the first questions asked by the legal community relates to the position of the Court within the legal system of Kazakhstan. According to Article 2 of the Constitution, Kazakhstan is a unitary State and the sovereignty of the Republic extends to its entire territory. The unitarity means that the State does not allow a division of the territory; there is only one jurisdiction within the territory of Kazakhstan and two different legal frameworks cannot exist simultaneously.

In fact, AIFC has full jurisdiction over the above-mentioned disputes and its decisions will have equal legal status to the decisions of state courts. The Court comprises of nine renowned professional judges with an unblemished professional reputation from common law countries and Justice Lord Woolf CH has been appointed the Head of the Court.

Those who believe that the existence of such body is legitimate usually invoke the legal status of the Dubai International Financial Center (DIFC). However, the supporters of this approach overlook the fact that the United Arab Emirates (UAE) has a different form of state structure. Due to the Constitution of the UAE, that State is federative (Article 1 of the Constitution) and every Emirate has a right to establish its own structure of state administration, judicial system and jurisdiction. In other words, each separate emirate has the right to have its own judicial body while Astana, as a separate city of Kazakhstan, is not permitted to have an analogous institution because of the unitary nature of Kazakhstan.

Furthermore, the AIFC Court has its own rules regarding language, structure, currency (Article 5 of the Law), and right of interpretation of the law, and, therefore, constitutes a separate jurisdiction. The existence of two independent jurisdictions in the territory of the Republic of Kazakhstan contradicts the sense of the unitarity of Kazakhstan.

Other legal issues

Firstly, the decisions of the Court, as mentioned above, are subject to the enforcement procedure in accordance with the local legislation. There is only one indicated requirement for further cooperation between the AIFC and the Ministry of Justice of Kazakhstan – the providing of the latter with a translated version of AIFC’s decisions. For the success of the Court activities, the legislator should pass the relevant amendments to current legislation where it will be enacted the procedural arrangements of interaction as well as the distribution of responsibility and authority between AIFC and the Ministry of Justice as well as the rest of the governmental bodies.

Procedural issues

The Law does not establish essential procedural rules, including the total period of considering a case. As a general rule, the established time limit for considering a case in state courts shall be no longer than two months (Article 183 of Civil Procedural Code of Kazakhstan). It seems that for reason of the lack of case law and legal loopholes, the general period for considering a case will be longer than two months. Therefore, the parties may have the reasonable assumption that the arbitration procedure according to the AIFC’s rules will be rapid.

Applicable law

The parties are able to minimise the risks which relate to the gap in judicial practice by virtue of the case law of analogous jurisdiction, as in the US, New Zealand, UK, etc. Notwithstanding that, the attempt to replicate the legal reality of one country and to transfer it to another may cause discrepancies and misunderstandings because an interpretation and practical application of statutes in one jurisdiction might be very different from another. Therefore, any kind of legal “implants” from foreign jurisdictions should be fitted to the law system of Kazakhstan and should not contradict to the common principle of Kazakh law.

The revision mechanism

The revising mechanism constitutes a single appellate instance. The Law unambiguously declares that the decisions of the appellate instance should be regarded as binding and final, while the AIFC Court Rules 2018 (2018 Rules) establishes that a decision of the first instance enters into force immediately (paragraph 24.12).

The 2018 Rules provide that the appeal court has a right to commence revision procedure in two cases: “the lower court was wrong” (such is the wording of the Rules) or a settlement at the first instance was unjust due to grave irregularity. In the light of the nature of the established appellate mechanism and status of appeal decisions, the primary grounds for reconsideration could be formulated as a serious infringement of substantive and procedural law. From a practical side, there is a high probability that the majority of decisions of the first instance will not be subject to appeal.

Conclusion

The vagueness of the Court’s status raises both theoretical and practical questions. The gaps in legislation, deficiency of basic legal procedures, the indefiniteness of juridical status and the lack of case law will cause confusion, especially in the early days of the Court’s activities. Giving the admittedly foot-dragging nature of bureaucracy, all stated above matters will be resolved not as quickly as one would hope. Hence, the governmental authorities and disputing parties have to be ready for a lengthy period of legal uncertainty with all of its consequences.

Nevertheless, the investors from common law countries will likely regard AIFC as a substantial advantage in comparison with other jurisdictions where equivalents of AIFC do not exist. In case the Court’s performance does fit to the proclaimed ideas and established rules, all disputing parties will have a real opportunity of an impartial resolution of their dispute in compliance with the principles of transparency and legitimacy.  For the investors, it would mean that they will have a legal guarantee that investments are protected by legislation. On the other hand, for Kazakhstan, it is a great opportunity to attract investment and improve the country’s economic and financial situation.

Hopefully, the academic community and legal practitioners will find mutual agreement in respect to the Court’s position within the Kazakh legal system because both pursue one general aim – successful development and enhancement of an effective business dispute resolution mechanism in the Republic of Kazakhstan.