Realization of impartiality and independence principles under the rules of Kazakhstani arbitral institutions

The most reputable arbitral institutions throughout the world establish rules which serve as the basis for unbiased consideration of cases and disputing parties obtain guarantees that disputes between them will be resolved in strict compliance with the law.

Arbitral institutions of Kazakhstan do not constitute an exception and most of them establish in their arbitration rules (hereinafter – the Rules) that all methods of arbitral procedure rest on those principles. Nonetheless, consideration of local arbitral institutions’ rules reveals the fact that provisions of the Rules seriously undermine the guarantees of arbitrators’ neutrality. Thus, it is doubtfully possible to resolve disputes by arbitration without fear of favor.

Growth of commercial arbitration in Kazakhstan

Choosing arbitration as a method of dispute resolution has become widespread tendency throughout the world because it is no secret that litigation procedure in State courts appears quite protracted, bureaucratic and often counterproductive. The situation becomes more complicated when it comes to post-Soviet Union territory, especially the Central Asia region.

The development of commercial arbitration in Kazakhstan took off in 1992 and has subsequently become widespread. The data unambiguously show that Kazakhstan holds a stable leading position among the countries of Central and West Asia where disputing parties prefer to choose arbitration instead of the state court as a mechanism of dispute resolution.

The criteria for choosing arbitration in lieu of litigation are, apart from anything else, the legal ability to conduct the procedure on equal grounds. The principles of independence and impartiality present itself pillars in commercial arbitration procedure and, for the successful consideration of a case, there is a keen necessity to create an arbitration panel in compliance with these principles.

Is it possible to stay neutral, according to the rules of Kazakhstani arbitral institutions?

The centerpiece of arbitration’s regulation is the Law “On arbitration” (hereinafter – the Law) and related legal acts such as the Civil Procedure Code. Owing to the Law, the arbitration shall be conducted in accordance with the principles of independence, which means that arbitrators shall be independent in resolving disputes submitted to them and shall make decisions in conditions excluding any impact on them (Article 5). Furthermore, any interference in their activities of state bodies and other organizations shall also be excluded (Article 7).

In Kazakhstan, there are a large number of arbitral institutions and the disputing parties have a right to conclude an arbitration clause for subsequent consideration of a case at one of them. In spite of the availability of a multitude of options, the established rules of those arbitral institutions do not reflect on the principles of independence and impartiality.

The unlimited power of the Chairperson

One of the examples of interference with the independence of the arbitral tribunal could serve the rules of international arbitral institutions ”IUS“. Pursuant to the provision of paragraph 3.2.5, in the event of the decision being annulled fully or partly by the competent state court or by the IUS’s superior body (the Council), the quantitative and personal composition of the arbitration tribunal shall be formed by the Chairperson or his Deputy during the new consideration of the case. In a new case, the Chairperson or his Deputy may consider the dispute as a sole arbitrator or form an arbitral tribunal, consisting of three arbitrators under its own chairmanship.

It means that the parties have no choice to select arbitrators because a new panel will consist of arbitrators who are being appointed by the Chairperson.

More to the point, the Chairperson has the authority to resolve the case alone, without forming a panel of arbitrators.

Having revised the rest of the provisions, a quite controversial rule is stated in paragraph 7.1.: the Council has the right to cancel the determination or other act that prevents the decision on the merits of the dispute and/or further consideration of the case.

In other words, the superior body of the arbitral institution has blanket authority and that any kind of rendered decisions by the arbitrators could be subject to reconsideration by the Council. Obviously, this situation demonstrates conspicuous infringement of the arbitrators’ impartiality principle.

Systematic interpretation of the above-mentioned Rules’ paragraphs gives ground to assert that any kind of disputes could be revised and considered by the Chairperson and arbitrators appointed by them. It is easier to say that the Chairperson has unlimited power without a mechanism which might serve as a tool for the restriction of it.

Employment relations between an arbitrator and the Institution

The rules of some arbitral institutions contain a provision totally contradictive to the sense of arbitration and principles of independence. Apart from the general constraints to the arbitrator, which are defined by Article 13 of the Law (age, duration of work experience, a degree in higher education), one more condition has to be fulfilled by the candidate. A potential arbitrator has to agree to perform the duties as the arbitrator by signing the application to fulfil the functions of an arbitrator and an employment agreement.

Through the lens of the legal context, it means that the institution acts as an employer while the potential arbitrator acquires right and obligations of an employee. Due to the specific nature of labour legal relations, employees must follow the instructions and orders of a manager because like every other labour relationship, this is the legal construction of authority and subordination between both parties. This scheme is totally inappropriate for the status of arbitrators because the chief demand to an arbitrator is absolute liberty in their own decisions and nobody has a right to influence on this, including an arbitral institution, which is usually presented by a Chairperson.

Numerical composition of the arbitrators’ panel

The Law does not contain a requirement for an independent arbitral institution to have a strictly defined number of arbitrators or a minimum number of them. As a result, in some institutions, the list of arbitrators comprises three or even two arbitrators. As such, the rules of these arbitral institutions empower parties to constitute a tribunal with three arbitrators. Such discrepancy could lead to some negative consequences for parties when they decide to settle a case with three arbitrators whereas the list of arbitrators contains two arbitrators only.

Membership subscription fees

Pursuant to the rules of the South-Kazakhstani Arbitration Court, the register of arbitrators shall be approved by the Founder of the arbitral institution for a period of five years and comprised of individuals who have reached the age of twenty-five years, have higher education and have knowledge in the field of dispute resolution within the jurisdiction of the arbitral institution and pay an annual membership fee.

Article 13 of the Law stipulates that, besides general requirements, the parties or arbitral institutions are obliged to impose additional requirements for candidates. However, the practice to make contingent the arbitrator’s status upon the obligation to pay membership fees raises many questions as to the arbitral institution. It seems that in indicating category «additional requirements», the legislator meant specific professional skills and knowledge in particular areas of law or science rather than an arbitrator’s compulsory obligation to disburse membership fees to an arbitral institution.

Staff composition of arbitral institutions

In the post-Soviet Union countries, there is a tendency by which former State’s officials (courts, prosecution office, investigative committee, clandestine services), after their discharge from the services, become a lawyer in the private sector including the position of an independent arbitrator.

Their legal background often focuses on criminal law and procedure and usually, they are not familiar with arbitration and commercial law.

Also, the arbitration procedure implies strict compliance with the principle of equality of arms, but the practice demonstrates that, for lawyers with experience in governmental bodies, an upholding of this principle is more than meets the eye.

A professional deformation of a personality impacts on professional lawyers who dealt with areas of law where subjects of legal relations are in an unequal position. Subsequently, the decisions of those arbitrators epitomize this legal thinking paradigm: an arbitrator takes a stand on one of the disputing parties without a comprehensive and thorough approach to the case.

The existence of alternative methods for dispute resolution in countries where the public trust in the state court system remains low is a good development. However, the rules and regulations of local arbitral institutions must be updated in alignment with international standards and guidelines. Otherwise, both arbitrators and disputing parties who have agreed to resolve disputes under their rules do not have full guarantees that they can rely on the principles of independence and impartiality. It makes no sense in falling back upon an alternative method of dispute resolution if it has drawbacks totally identical to state litigation.

About the Author:

Konstantin Voropaev obtained an LLM degree with distinction at Robert Gordon University (Scotland) in 2017 having previously graduated with honours from Omsk State University in 2012. His professional interests include various legal areas, compliance and ethics procedures. He deals with international commercial arbitration in different jurisdictions (Russia, Central Asia, and Europe), legal matters in pharmaceutical production and medical affairs in clinical trials, civil and contract legal issues, compliance.

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