Resolving disputes by way of international arbitration is a relatively new development in Kazakhstan. However, the observations suggest that more and more Kazakhstan companies favour international arbitration as the dispute resolution mechanism in their cross-border contracts.
According to various statistics data, the number of claims brought before international arbitration tribunals against Kazakhstan and Kazakhstan companies has doubled for the last 10 years, and this trend is likely to increase.
The main advantage of international arbitration is that it keeps the parties’ disputes out of national courts and refers the parties instead to a neutral forum, in which they have confidence. Apart from that, arbitral awards are recognised and enforceable in many more countries than court judgments under the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.
Other advantages of international arbitration are that it is a private procedure and has the potential for confidentiality, provided that the parties agreed to this in the arbitration agreement. Arbitration also has the potential to be more flexible than litigation. Awards are less likely to be appealed than judgments and certain rights of appeal can be excluded by agreement.
However, arbitration is not ideal in all circumstances. The tribunal cannot generally compel a third party to join an arbitration, nor can it consolidate a number of related arbitrations in order to bring them before one tribunal. This can lead to parallel proceedings, which can have inconsistent outcomes, despite the fact that the arbitrations arose from a similar, or the same, dispute. Delays can occur at the beginning of proceedings as a result of the procedures for appointing the tribunal. Although arbitration is sometimes said to be faster and cheaper than litigation, this is not always the case. Much depends on how the arbitration clause is worded, on the behaviour of the parties and the tribunal. There is no precedent in international arbitration so an award obtained in one arbitration cannot be relied on by the successful party in a subsequent arbitration. The award binds only the parties to that award, and the award typically remains confidential.
If the parties were to choose international arbitration for resolving their disputes, the practical recommendations would be as follows:
At a pre-contract stage it is crucial to consider carefully whether international arbitration does suit the needs of the party when negotiating a dispute resolution clause in a contract or whether entering into an ad hoc arbitration agreement will be sufficient. The parties should also consider whether an institutional mechanism (e.g. ICC/LCIA) or ad hoc (e.g. UNCITRAL) is required, whether the rights to appeal to domestic courts can be excluded, or whether a sole arbitrator must be appointed and perhaps even identify the arbitrator in advance.
When drafting a contract in order to avoid potential problems and unnecessary costs in the future, the parties need to ensure that the dispute resolution clause covers disputes as widely as possible, including the law of the dispute and the law of the arbitration agreement, as well as the seat of the arbitration, as the seat can be critical. The parties may agree whether they need a “multi-step” dispute clause and/or whether they can agree “time-lines” for expedited arbitration, or “documents only” process. The parties may also agree whether the tribunal should have powers to grant interim orders (e.g. freezing injunctions and/or interim mandatory injunctions) or to order provisional relief, such as payment of money. The tribunal may also have powers relating to security for costs and preservation of property and evidence, etc.
At a dispute resolution stage, the first steps would be to identify: (i) any problems with the arbitration clause (e.g. ambiguity); (ii) sources of evidence (documentary/witnesses) as well as potential experts – delays may be critical; and (iii) a potential arbitrator (ascertaining his/her availability and conflict issues). It is advisable to assess the strengths or weaknesses of the claim/defence as early as possible, as arbitration tends to start slowly but soon accelerates dramatically.
If the party is the claimant, being pro-active is key, i.e. the party has to have the tribunal constituted as soon as possible, as delay is a risk here and throughout. It is also important that the terms of reference (TOR) of the tribunal are sufficiently broad as institutional rules might create problems, e.g. if certain new issues are not mentioned in the TOR. It is vital to ensure that the tribunal meets “face to face” with all parties at the TOR hearing, therefore parties are strongly advised to come along and become familiar with the process.
There are always grounds for challenge the tribunal’s conduct or approach; however, it is advisable to think carefully before mounting any challenge. Once decide to do so, it is recommended to act without delay otherwise there is a risk to waive rights.
A party may challenge an award on the grounds of the tribunal’s lack of jurisdiction or because of a serious irregularity in the proceedings that has caused substantial injustice to the aggrieved party and appeal to the court. However, this test is usually onerous. The Kazakh courts, for example, can only review a decision of an arbitration court if the court comes to conclusion that the award is unlawful or does not conform to the Kazakhstan public policy. Thus an award issued by an arbitration tribunal outside Kazakhstan under Kazakh law may not be set aside in Kazakhstan by application of the law regardless of whether it contradicts Kazakhstan’s public order/policy or exceeds arbitral agreement, or whether a party to the arbitration agreement is legally incapable. Whereas, LCIA/ICC awards made by an arbitration tribunal in Kazakhstan would fall within the scope of the law and may be set aside by a Kazakhstan court on the grounds specified in Article 31 of the International Arbitration Act of 28 December 2004 (the Act).
An arbitral award can be refused recognition and enforcement in Kazakhstan on the grounds stipulated by Article 33 of the Act, but defendants would not be protected against enforcement of the award if they have assets in other jurisdictions – member states of the New York Convention.
The dispute resolution process can be daunting, but once decided to submit to international arbitration, parties should not be intimidated by the whole process, as it is intended to be less formal, cheaper and more expeditious than court litigation. Therefore, parties are not required to do things the way they do in the courts.