INTERNATIONAL COMMERCIAL ARBITRATION VS. STATE COURT
The issue of dispute resolution in international commercial arbitration in general, and the problem of mutual recognition and enforcement of foreign arbitral awards in particular, receives considerable attention both in doctrine and in practice. This is explained by the fact that in 1958 a universal instrument was developed which establishes a uniform approach to the recognition and enforcement of awards rendered in international commercial arbitration - the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as the New York Convention) . Thus, the decision rendered can be recognised and enforced in the territory of 172 states - parties to the New York Convention, which is practically 90% of the member states of the United Nations.
Unfortunately, the same cannot be said about the recognition and enforcement of foreign state court decisions, since existing international treaties in this area are predominantly regional in nature, and outside of integration or regional associations, these issues are addressed based on bilateral international treaties or on the basis of reciprocity, which is enshrined in the procedural legislation of many states, including paragraph 1 Article 501 of the Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as Civil Procedure Code) .
LACK OF A UNIFIED APPROACH TO DETERMINING THE CONDITIONS FOR ENFORCING FOREIGN COURT DECISIONS.
Due to differences between legal systems, as well as the non-identity of concepts even within the framework of one legal family, there is no unified approach to determining the conditions for the enforcement of foreign court decisions. For example, within the European Union, in countries such as Sweden, Norway, and Cyprus, direct international jurisdiction is wider than indirect, while in Italy and Germany, these types of international jurisdiction coincide.
When discussing the differences between the mentioned types of jurisdiction, it is necessary to note that if international indirect jurisdiction implies the competence of a foreign court during the execution of a court order, then direct jurisdiction grants the court "immediate" competence to consider the dispute on its merits, i.e. the rules of such jurisdiction serve as a prerequisite for the national court to be vested with the competence to decide legal disputes. Indirect jurisdiction rules, on the other hand, are directed at the requested court, as this court only indirectly (through the procedure of enforcement) controls whether jurisdiction has been properly observed or not.
When direct and indirect international jurisdiction coincide, which is typical for the procedural legislation of the Republic of Kazakhstan, the national court mirrors the procedure for determining its jurisdiction to the foreign court, acting on the principle: "we recognise court decisions based on the same jurisdiction criteria on which our courts are competent to consider cases with a foreign element". In countries where the rules of direct jurisdiction cover but are not limited to the rules of indirect international jurisdiction, the limits of the competence of national courts in cases involving a foreign element are wider than the competence of foreign courts whose decisions require recognition and enforcement.
Coming back to the lack of a unified approach on this issue, it is important to emphasise that this results in the complication or impossibility of recognising and enforcing foreign judgments. This may deprive the party in whose favour the judgment is rendered of the opportunity to enforce its rights, with the result that the resolution of disputes arising in state courts is inferior to alternative methods of conflict resolution, including international commercial arbitration, for the above-mentioned reasons.
THE OBJECTIVE NEED FOR A UNIVERSAL INSTRUMENT FOR THE RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS
In accordance with the current multilateral and bilateral international treaties, today the decisions of state courts of about twenty countries (Azerbaijan, Armenia, Belarus, Vietnam, Georgia, India, China, North Korea, Kyrgyzstan, Lithuania, Moldova, Mongolia, UAE, Pakistan, Russia, Tajikistan, Turkmenistan, Turkey, Uzbekistan, Ukraine) can be enforced on the territory of the Republic of Kazakhstan.
In practice, situations often arise where it is necessary to enforce a decision of a state court of a country with which there is no relevant international treaty or it has not been ratified and has not entered into force. For example, in one of the cases, City Court No.2 of Petropavlovsk, based on Art. 501, Art. 268-269 of the Civil Procedure Code, issued a ruling on returning the application for the execution of a decision of the state court of the Italian Republic without consideration, due to the fact that the Agreement on Legal Assistance in Civil Matters of November 3, 2010, No. 1094, has not been ratified by the parties, and therefore there is no international treaty between Italy and Kazakhstan under which legal assistance is provided, including in the framework of recognition and enforcement of court decisions.
Clearly, the absence of a comparable universal international legal instrument to the New York Convention in the field of recognition and enforcement of court decisions makes this method of dispute resolution less attractive. However, not all disputes can be resolved in arbitration due to non-arbitrability and other reasons. In this regard, the administration of justice on behalf of the state in disputes with a foreign element expressed in one form or another cannot be completely replaced or displaced by arbitration.
The problem of unification of the regulation of the institute of recognition and enforcement of foreign judicial decisions is intended to be solved by the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters of July 2, 2019 (hereinafter referred to as the Convention), adopted at the 22nd Session of the Hague Conference on Private International Law.
STATUS OF THE CONVENTION AND ITS MECHANISM
At present, the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, adopted on July 2, 2019 (hereinafter referred to as the Convention), which aims to unify the regulation of the recognition and enforcement of foreign judgments, has not yet entered into force. However, it has been signed by states such as Israel, Costa Rica, the Russian Federation, the United States, Ukraine, and Uruguay. Ukraine, unlike other countries mentioned, ratified the Convention on August 29, 2022, and it will enter into force on September 1, 2023, on its territory, as well as on the territories of the European Union member states (excluding Denmark) that have also ratified it. Therefore, on the specified date, the Convention will enter into force in 27 countries.
The Convention establishes the traditional understanding of the mechanism for recognition and enforcement of foreign court decisions. Article 4 provides a rule on the recognition of court decisions of member states. Articles 5 and 6 set out the conditions that such decisions must meet. Article 7 introduces a traditional list of grounds for refusing recognition and enforcement of a court decision in international civil proceedings. Article 9 confirms the admissibility of recognising and enforcing a separate part of a court decision if an appropriate application is submitted specifically for that part or if only that part is subject to recognition or enforcement. Article 12 provides a list of documents that must be submitted to the court of the state where recognition or enforcement of a court decision is sought.
According to the implemented mechanism, a foreign court decision is enforceable only when it has entered into force and is enforceable in accordance with the procedural law of the state concerned. However, according to Article 13 of the Convention, the enforcement procedure itself is governed by the procedural rules of the enforcing state.
It is worth noting here the Convention's drawback, which is that a serious issue regarding canceled court decisions remains unresolved. In practice, situations arise when a court decision that has entered into force in one state is enforced in another state, while at the same time, it is canceled or revised in the first state.
The Hague Conference on Private International Law incorporated a certain flexibility into the Convention it developed. Thus, in accordance with Article 18, states are given the right to declare that they will not apply the Convention to a particular issue. At the same time, the state making such a declaration must ensure that the declaration is no broader than necessary and that the particular issue is clearly and precisely defined. For example, the European Union has declared that it (excluding Denmark) will not apply the Convention to leases of non-residential immovable property located in the territory of the European Union.
Moreover, Article 23 establishes the priority of a previously concluded international treaty that contains provisions regarding the recognition and enforcement of court decisions between contracting states. Thus, the Convention resolves in advance the issue of competition with other existing international treaties, such as the Minsk Convention of 1993, The Kiev Agreement of 1992 and corresponding bilateral international treaties that regulate the institution of recognition and enforcement of foreign court decisions in their favour.
A certain "concession" has also been made regarding an international treaty concluded after the Convention, but with a reservation that such international treaty shall not affect the obligations under Article 6, according to which a judicial decision rendered on rights in rem in immovable property shall be recognised and enforced only and exclusively if such property is situated in the territory of the State of origin.
SCOPE OF THE CONVENTION
The subject of recognition is represented by court decisions, which are defined in subparagraph b) of paragraph 1 of Article 3 as any decisions on the merits made by a court, regardless of how such a decision may be called, including a ruling or order, as well as a determination of costs or procedural expenses by the court (including court officials), provided that such a determination relates to a decision on the merits of the dispute that can be recognised or enforced under the Convention. However, interim measures are not covered by the Convention, which cannot be said about those settlements that are approved by the court or concluded in court during the proceedings, provided that they are subject to enforcement as court decisions.
According to paragraph 1 of Article 1, the Convention applies to the recognition and enforcement of judgments in civil and commercial matters and does not extend to tax, customs and administrative matters. Also, in accordance with paragraph 3 of Article 2, it does not apply to arbitration and related proceedings.
Paragraph 1 of Article 2 formulates a sufficiently wide range of issues to which it does not apply (issues of family law, insolvency and bankruptcy, wills and succession, intellectual property, etc.).
However, decisions affecting the above-mentioned issues are excluded from the scope of the Convention only if they are the subject of the dispute. If one or more of these issues arise only as a preliminary question, then according to paragraph 2 of Article 2, recognition and enforcement of the decision can be fully regulated by the Convention.
As noted above, states may make declarations and reservations that will further restrict the scope of the Convention, making it a flexible tool to encourage the participation of as many countries as possible.
We believe that the accession of the Republic of Kazakhstan to the Convention will have a positive effect on increasing investment attractiveness and will play a key role in further integration into the global community.
Such accession will not require significant changes in the legal regulation. However, an amendment will need to be made to the Civil Procedure Code regarding the possibility of recognising and enforcing not only the whole decision but also its separate part, provided that it is separable and can be enforced.
Paragraph 30 of the Normative Resolution of the Supreme Court of the Republic of Kazakhstan dated July 11, 2003 No. 5 "On the Judicial Decision in Civil Cases" provides an identical list of documents that a party seeking recognition and enforcement of a court decision must submit to the competent court, as stipulated by the Convention. The grounds for refusing recognition and enforcement of court decisions provided by the Convention and the Civil Procedure Code are also almost identical. The only difference lies in the ground for refusal based on the decision being obtained through fraud.
We believe that the signing and ratification of the Convention by the Republic of Kazakhstan will allow both domestic and foreign participants in international economic turnover to have a sufficient level of guarantees for the protection of their interests, as well as reduce costs and increase the speed of recognition and enforcement of foreign court decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.