V. Shaikenov A Call to Ratify the New York and European Conventions: Silence That Upsets the Investors and the Law // Arbitration.ru. – 2019. – № 6 (10).
Valikhan Shaikenov, LLM, Georgetown University Partner and Head of Dispute Resolution, AEQUITAS Law Firm, Almaty* A Call to Ratify the New York and European Conventions:
Silence That Upsets the Investors and the Law
One might think that this article is dedicated to the 60th anniversary of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards signed in New York on 10 June 1958 (hereinafter, the New York Convention), or is written on the occasion of another significant event in the socio-political life. In fact, however, an in-depth research on the subject in question should have appeared much earlier. Ought to have appeared, because legal certainty cannot be dependent on political considerations. And was delayed, maybe for the fear to show to mala fide market participants the way to evade obligations. If so, the fear is false.
By muting the problem of the status of accession to the New York Convention and the European Convention on International Commercial Arbitration adopted in Geneva on 21 April 1961 (hereinafter, the European Convention) we generate a legal uncertainty that is disastrous for all – both the bona fide market participants under the Damocles' sword of internal contradictions of the Kazakh arbitration legislation, and the state forced to incur transactional costs in protracted negotiations on arbitration agreements with alert investors. This is not to mention the indirect costs of economy stemming from the general negative background created by the ever-changing legislation on arbitration, consistently limiting the autonomy of the parties' will and bringing turmoil not only by internal contradictions between the laws on arbitration and civil procedural codes, but also by controversies between the said laws and the New York and European Conventions. Perhaps, what the Kazakh regulation over arbitration is constant in is its inconstancy and exoticism. Neither the former, nor the latter adds investment attractiveness to the Republic of Kazakhstan.
With different degree of obviousness, the reasons why Kazakhstan needs to eventually ratify the Conventions in question are topped up with the misconception widely spread in the professional circles that the form in which the Republic has acceded to the Conventions can be deemed ratification. While the well-intentioned Kazakhstani lawyers are seeking ways out of the stalemate, the court practice and authorities are in every possible way avoiding the clear-cut qualification of the status of Kazakhstan's accession to the New York and European Conventions.
We find a substantiated legal position neither in the regulatory resolutions of the Supreme Court, nor in the acts of other law enforcement agencies. Although in his recent commentary on the Civil Procedure Code of the Republic of Kazakhstan (RK CPC) B. A. Zhulamanov mentioned in relation to Article 255 of the CPC that "the said grounds for denial fully comply with Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of the year 1958 ratified (both emphases added – V. Sh.) by Kazakhstan via Decree No. 2485 of the President of the Republic of Kazakhstan of 4 October 1995," we have found no confirmation of the commenter's first or second statements: the grounds for denying recognition and enforcement of arbitral awards mentioned in the CPC at the time of the commentary preparation do not fully coincide with the grounds set forth in Article V of the New York Convention; and the author does not substantiate the fact of ratification.
Also causing mixed feelings is the statement made by the Supreme Court of the Republic of Kazakhstan in its Summary of the Court Practice on the Recognition, Enforcement and Setting Aside of Arbitral Awards for the years 2016 and 2017 and the 1st quarter of the year 2018. In particular, the Summary says: "... given the prevalence of international treaties, courts may be recommended, when reviewing applications for the recognition and enforcement of foreign arbitral awards, to be guided first and foremost by the rules of the New York Convention and to apply the rules of Chapter 20 of the CPC only insofar as they do not contradict the Convention."
Acknowledging the liberal aspirations of the authors of the Summary, one should not forget the road to where is paved with good intentions. The judge, when administering justice, is independent and subordinate only to the Constitution and the law. Violation of the rules of interpretation and strict hierarchy of regulatory legal acts can undermine the legal system foundations and, in the long run, create a fertile ground for a constitutional crisis. The rule of law cannot be sacrificed to accommodate for a changed political environment. The court ought not to call a subordinate act (in this case, Decree No. 2485 of the RK President dated 4 October 1995) the law just because the legislator has created a situation undesirable from the investment expectations perspective. Because out of two evils, the worst evil for investors is always the trampling of law.
Historical Background and Legal Issues of Accession to the Conventions
The Republic acceded to the New York Convention on the basis of Decree No. 2485 of the RK President dated 4 October 1995. On the same date, Kazakhstan acceded to the European Convention via Decree No. 2484. Kazakhstan deposited the instruments of accession to both Conventions with the UN Secretary-General on 20 November 1995. Accordingly, both Conventions entered into force for Kazakhstan on 18 February 1996 (pursuant to Article 12.2 of the New York Convention and Article 10.8 of the European Convention).
The status of Kazakhstan's accession to both Conventions and their position in the hierarchy of regulatory legal acts remained for a long time a subject of constitutionally-and-legally tough debate among lawyers. The thing is that in the period of accession to these Conventions, the country was lacking its highest representative body: early termination of the constitutional powers of the 12th Supreme Council as a result of its voluntary dissolution and dissolution of the 13th Supreme Council left Kazakhstan without a functioning Parliament for the period from March 1995 to January 1996.
In that period, the RK President was authorized to issue two types of decrees:
- decrees having the force of law – on the basis of the Law No. 2576-XII "On Temporary Delegation of Additional Powers to the RK President and to the Heads of Local Administrations" dated 10 December 1993;
- decrees adopted "on the basis and in furtherance of the Constitution and the laws," i. e., not having the force of law and not deemed equivalent to the acts of the highest representative body – pursuant to Article 79 of the 1993 Constitution and Article 45 of the 1995 Constitution..
The above means that in the period the President was exercising additional powers he was wearing two hats: that of the head of state empowered to issue subordinate acts in the form of ordinary decrees and that of the highest representative body empowered to issue decrees deemed equivalent to laws. In each case, the President was to decide which hat to wear. Hence, the issue under discussion boils down to the question which hat the President was wearing on 4 October 1995, when joining the country to the New York and European Conventions.
Significance of Ratification from the Standpoint of International Law and Domestic Legislation
Before we go to a more detailed analysis of the status of accession to the Conventions, it should be explained what are the implications of Kazakhstan's accession to an international treaty in terms of international law and in terms of the current law to be applied by the Kazakh courts. As will be shown further, mixing the international law implications of accession to a treaty with those important solely from the standpoint of domestic law lies at the heart of the incorrect qualification of the status of Kazakhstan's accession to the Conventions under discussion.
From the standpoint of international law and, in particular, the Vienna Convention on the Law of Treaties of 23 May 1969 (hereinafter, the Vienna Convention), the concepts of "ratification," "acceptance," "approval" and "accession" are synonymous, meaning the way of expressing the international law subject's consent to being bound by an international treaty. In other words, in the international context, it does not matter whether the Republic assumed an obligation via a Presidential decree, Government resolution or a law of the Parliament on ratification.
A party to the Vienna Convention cannot invoke the provisions of its internal law as justification for its failure to perform a treaty (Article 27). This, in turn, does not mean that from the internal law standpoint, international courts are obligated to apply a treaty in case it contradicts the internal laws of the country. As correctly noted by the RK Constitutional Council in its Resolution No. 18/2 dated 11 October 2000, the Vienna Convention "does not define the treaty performance procedure. This relates to the constitutional and legislative prerogatives of the states and stems from the generally recognized principle of international law – sovereign equality of states." The said means that in principle a situation is possible where the courts must give priority to domestic laws, thus forcing Kazakhstan to breach the assumed international law obligations. In that case, an investor, subject to other conditions, may sue the Republic for breaching an international treaty.
Another example of unenforceability of an international treaty – even subject to its ratification by the Parliament – would be its recognition as unconstitutional: in this situation, the treaty, although not subject to performance, does not automatically terminate. It is for this occasion that the mechanisms like conciliation procedures and denunciation of the treaty are required.
In terms of the regulatory legal acts hierarchy, the only thing that matters is the level of the act whereby the Republic of Kazakhstan has acceded to an international treaty. The rank of the act is determined by the will of the issuing authority formally expressed within the authority's competence, but not by the content of the act. The will is expressed by imparting to the act the relevant details, including its name. Therefore, even if the President has issued a "decree on ratification," the word "decree" refers to the act's detail defining its rank in the hierarchy of the current law, and the word "ratification" refers to the content of the decree and is addressed to the subjects of international law in order to inform the world that the country is henceforth bound by an international law obligation.
From the point of view of legal drafting, it is inadvisable to include in the content of an act on accession to a treaty the word "ratification," if the level of the act does not correspond to the level of law. In this case, only an experienced lawyer would be able to discern the real implications of such accession. Others may be confused by the word "ratification" in the contents of the subordinate legislative act, believing that the provisions of the international treaty have situational prevalence in case of conflicts with the provisions of laws.
Dispelling the Myths
The interpretations proposing to consider as ratification acts the RK Presidential decrees on accession to the New York and European Conventions deserve a separate refutation.
The argument that the President could not join the Republic of Kazakhstan to an international treaty otherwise than on the basis of his powers entitling him to act instead of the highest representative body. Some lawyers opined that the Presidential decrees on accession to the Conventions under review should be interpreted as decrees having the force of law, because the President ostensibly could not join the country to an international treaty otherwise than on the basis of his powers to act instead of the highest representative body.
We find this conclusion erroneous, because the President, by virtue of Article 44.11 of the 1995 RK Constitution and Article 7.2(a) of the Vienna Convention, was authorized to represent the state in international relations and enter on behalf of the state into international treaties in his status of the head of state, not only as a person temporarily performing the functions of the highest representative body. Therefore, by adopting a decree that does not have the force of law the President exercised his power of the head of state, the highest official, but not the highest representative body.
This point of view is consistent with the position taken by the Constitutional Council stating in its Regulatory Resolution No. 2 of 18 May 2006 "On the Official Interpretation of Subparagraph 7 of Article 54 of the Constitution" as follows: "2. …international treaties whose binding nature for Kazakhstan is established by the regulatory legal acts on accession to the international treaties adopted by the Republic's highest representative body performing legislative functions (the Supreme Council and the Parliament of the Republic of Kazakhstan) and by the decrees of the President of the Republic of Kazakhstan having the force of law (emphasis added – V. Sh.) are deemed equivalent to the international treaties ratified by the Republic of Kazakhstan. 3. Non-ratified international treaties of the Republic of Kazakhstan have no prevalence over the laws of the Republic and must be performed to the extent they do not conflict with the laws of the Republic. In case of a conflict between them, the parties to the treaties have the possibility, in accordance with the Law No. 54-III of the Republic of Kazakhstan "On International Treaties of the Republic of Kazakhstan" dated 30 May 2005, as well as the rules of international law, to resolve the conflict via conciliation procedures and other measures to overcome the conflict."
Thus, wearing the hat of the head of State – the highest official, but not the highest representative body – on 4 October 1995, President N. A. Nazarbayev exercised his power by issuing the subordinate act in the form of an ordinary Presidential decree, joining Kazakhstan to the two Conventions; thus, on the one hand, binding the country by the international law obligation, and on the other hand, incorporating the provisions of the Conventions in the matter of the current legislation. As can be seen from the Regulatory Resolution of the Constitutional Council of 18 May 2006, the President had an alternative – to issue a decree having the force of law – which he did not use. Therefore, the provisions of the New York and European Conventions "have no prevalence over the laws of the Republic and must be performed to the extent they do not conflict with the laws of the Republic."
The argument that the acts on ratification of international treaties and acts on accession to international treaties are equivalent in their legal force. As we have found out, this thesis has sense and is correct only from the international law perspective, because any form of accession to an international treaty creates for the state the equivalent international law obligation. In this sense, "ratification," "acceptance," "approval" and "accession" mean in each case the international act so named whereby a state establishes on the international plane its consent to be bound by a treaty (Article 2.1(b) of the Vienna Convention). This is exactly what the Constitutional Council had in mind pointing out in its Resolution No. 1 of 10 July 2008 that "the acts of the Republic of Kazakhstan on ratification of international treaties and the acts of the Republic of Kazakhstan on accession to international treaties are equivalent in their legal force and legal implications. In this connection, international treaties whose binding nature for Kazakhstan is established by the regulatory legal acts on accession to the international treaties adopted by the Parliament of the Republic are deemed equivalent to the international treaties ratified by the Republic of Kazakhstan."
At the same time, this argument is flawed, if we talk about the prevalence of an international treaty over national legislation, as such prevalence is established exclusively by way of issuing an act equivalent in its force to a law of Parliament. Such act is obviously not an ordinary Presidential decree that does not contain in its name (details) the words "having the force of law." The content of a regulatory legal act does not define its position in the hierarchy; even if the Presidential decrees of 4 October 1995 mentioned ratification of the New York and European Conventions, these words would not mean ratification of the international treaties within the meaning of Article 4.3 of the RK Constitution and would not impart to their provisions prevalence over the national laws.
Significance of the Conventions for the Investment Climate and Stability of Civil Turnover
There are a number of compelling arguments in favour of the need to ratify the New York and European Conventions. The first set of reasons relates to the approval of international and universally understandable standards of foreign arbitral awards recognition. The second set relates to the Conventions' potential to develop the Kazakh arbitration (the New York Convention could potentially apply to awards rendered not only under foreign arbitration legislation, but also under the Kazakh law on arbitration, thus turning Kazakhstan into a more attractive place for arbitration). The third set deals with expanding the tools to overcome pathologies in arbitration agreements, concerning both their validity and the choice of law applicable to the arbitration and the arbitration agreement. And lastly, no less important, albeit not so obvious is the significance of ratifying the Conventions as a legal basis for assimilation of the international arbitration doctrines well-established in the developed legal systems. As an example, before they managed to deduce from the provisions of the New York and European Conventions (not originally designed to resolve the conflict of law issues) the concept of the "seat of arbitration," the academic thought and judicial practice of the developed law enforcement systems had gone the thorny path of several decades.
Much has been written about controversies between the CPC and the Law of the Republic of Kazakhstan "On Arbitration" on the one hand and the New York Convention on the other. Since this article does not purport to analyse these conflicts, we will not dwell on them. Let us just speak about the problem of correlation between the New York and European Conventions, which also cries for clarification of the status of Kazakhstan's accession to these treaties and which has not been highlighted in literature.
The Arbitration Law and the CPC reproduce in meaning (although not verbatim) the following ground for denying recognition and enforcement of a foreign arbitral award contained in Article 5.1(e) of the New York Convention: "The award has not yet become binding on the parties, or has been set aside or suspended by a court of the country under the law of which that award was made." At the same time, since Kazakhstan acceded to the European Convention, application of the specified subparagraph of the New York Convention should be limited for Kazakhstan to cases provided for in Article 9.1 of the European Convention.
The arising question is: does Article 9.1 of the European Convention limit the application of the relevant provisions of Article 57 of the Arbitration Law and Article 255 of the CPC? The answer to this question will largely depend on how the problem with the status of Kazakhstan's accession to the Conventions under discussion will be resolved.
Reference in the Law to a Non-Ratified International Treaty
There also exists an independent ground unrelated to the hierarchy of regulatory legal acts, enabling resolution of conflicts between a non-ratified international treaty and a higher-level law in favour of the former – a reference to the treaty in the law itself.
This was expressly stated in the Constitutional Council's Resolution No. 18/2 dated 11 October 2000. Some laws of the Republic of Kazakhstan provide for the priority of international treaties over the rules of these laws. For instance, Article 3.8 of the RK Civil Code (General Part) adopted by the RK Supreme Council on 27 December 1994 says: "If an international treaty to which the Republic of Kazakhstan is a party establishes rules other than those stipulated by the civil legislation of the Republic of Kazakhstan, the rules of the said treaty shall apply." This rule did not contradict the 1993 Constitution and remained in force after the adoption of the 1995 Constitution, since this legislative act was not repealed by the Parliament.
A reference to an international treaty with a view to the recognition and enforcement was contained in Article 425.1 of the RK CPC of the year 1999 (losing force in connection with the adoption of the new CPC): "Foreign judgments and arbitral awards shall be recognized and enforced in the Republic of Kazakhstan if so stipulated by law or by an international treaty of the Republic of Kazakhstan on the basis of reciprocity." As can be seen from that rule, application of an international treaty did not require ratification, but required reciprocity.
According to the 1999 CPC, the issue of reciprocity could potentially be resolved by the presumption of reciprocity or based on the fact that the applicant's country is a party to the Convention. However, given the overall state of the law in the period from 1999 to 2004, the cited provision of Article 425 of the 1999 CPC did not help to overcome the conflict between the New York and European Conventions on the one hand, and the domestic procedural law of the other: the term "foreign arbitration" used in that Article was probably borrowed from earlier codes and referred to the state courts of arbitration liquidated in Kazakhstan shortly before the adoption of the 1999 CPC.
By the time of adoption of the current CPC (31 October 2015), the Kazakh legislation had become well aware of the concept of international commercial arbitration, therefore, reference to foreign arbitration was already understood within the meaning adopted in international practice. But there appeared another problem arousing an increased interest to the status of Kazakhstan's accession to the New York and European Conventions. Article 501.1 of the new CPC for the first time conditioned the international treaty's prevalence over the Code on its ratification: "...foreign arbitral awards shall be recognized and enforced by the courts of the Republic of Kazakhstan, if the recognition and enforcement of such acts is prescribed by legislation and/or by an international treaty ratified (emphasis added – V. Sh.) by the Republic of Kazakhstan."
Solution: Retroactive Ratification of the Conventions
For the reasons described above, in the current situation, no interpretation can impart to the Presidential decree that does not have the force of law the effect of an act of ratification in the constitutional-and-legal sense. The Parliament cannot broadly interpret the Presidential decrees under discussion, because the authentic interpretation of laws is not recognized by the Constitutional Council. Equally unable to resolve the issue is the Supreme Court, neither by adoption of a Regulatory Resolution, nor in the form of recommendations to courts, because judges are independent in the administration of justice and are bound by law. An honest judge would have to admit that the Presidential decree not having the force of law cannot impart to international treaty provisions prevalence over national law.
The only legal way to give the New York and European Conventions prevalence over national laws is their ratification by way of the Parliament's adoption of the relevant laws. And the only way to resolve the conflict between the Conventions and the domestic laws out of the previously arising relations is to impart retroactive effect to the ratification laws from the time when the Conventions had been put into effect by the Presidential decrees, i. e., from 18 February 1996.
Please consider this article as an open letter addressed to the professional community and to persons vested with the right of legislative initiative, calling for decisive actions to ratify the New York and European Conventions. Only this way we will be able to somewhat ease the tension frustrating the investors and streamline our law.