Court System Reform in Kazakhstan
Transcription
Court System Reform in Kazakhstan
Issues Paper International Tax and Investment Center March 2015 Court System Reform in Kazakhstan: What is there for investors? by 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 -2- 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. -3-
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