AIFC Court

Nov 23, 2022

To embed, copy and paste the code into your website or blog: <iframe frameborder="1" height="620" scrolling="auto" src="//www.jdsupra.com/post/contentViewerEmbed.aspx?fid=7d998b7e-11ed-4029-a069-238a3d6f91c0" style="border: 2px solid #ccc; overflow-x:hidden !important; overflow:hidden;" width="100%"></iframe> When considering a proper dispute resolution forum for a contractual arrangement between the parties incorporated or operating in different jurisdictions, the parties often tend to prefer international arbitration over litigation in a court of competent jurisdiction. Despite conventional advantages of arbitration, it is not necessarily always the best or most efficient choice for every kind of dispute. A choice of dispute resolution forum will likely be efficient if a careful consideration of key aspects of a particular project, arrangement, and/or dispute is given, including: jurisdiction(s) of the parties, governing law, consolidation and summary disposal. Without focusing on project or dispute-specific features, below is a high-level review as to which particular details are worth looking at and which can make a real difference when making a choice between arbitration and litigation, including when choosing between the International Arbitration Centre (IAC) and the Astana International Financial Centre (AIFC) Court, in particular. A qualification of any the below factors as an advantage or disadvantage is rather general and may vary depending on the peculiarities of each specific case. LITIGATION Stability of a Court Panel A court has a permanent panel of judges, which are appointed to review the case by the court administration (registrar). Unlike in arbitration, the parties are less dependent on availability of the judge to review the case. Notably, the AIFC Court’s panel of judges has been recently reappointed for the next five years. This panel includes experienced English judges who have already reviewed a number of cases, including where the relevant contracts are governed by Kazakhstan law. Time and Cost of Litigation Because the rules applicable to litigation are more straightforward and would usually set time limits for the judge to consider the case (as opposed to arbitration, which is a consensual process), the litigation may be faster. That being said, similar to arbitration, the timing of litigation may vary and will highly depend on peculiarities of the case, its administration, and cooperation between the parties thereto. In addition, and as a consequence of a faster resolution, the litigation costs can be substantially lower. All applications, administration, and hearings at the AIFC Court are free of charge until the end of November 2022, and all parties to a contract which is agreed to before the end of November 2022 and includes the AIFC Court for dispute resolution will be eligible to receive free administration of any dispute resolution at the AIFC Court under that contract before and after the end of November 2022. [1] Involvement of a Third Party by Court In a litigation, the court will usually have a broad discretion in deciding whether the introduction to the proceedings of a third party (e.g., a party that is not a party to the contract or a party that has not been initially named as claimant or defendant) is necessary. In contrast with arbitration, the consent of all parties to the proceedings in this case is not required. Thus, involvement of a third party in litigation is usually easier. Right to Appeal The arbitral awards are generally “final” and non-appealable. Therefore, the opportunity to challenge the award is limited by, e.g., potential challenge and invalidation thereof based on lack of jurisdiction. The judgments can be appealed on the basis of violation of rules of procedural and/or material law. Under the AIFC Court Rules and Regulations, judgment of a so-called “lower court” (i.e., Court of First Instance or Small Claims Court) can be appealed, subject to obtaining a “permission to appeal.” Such permission can be applied for and granted by either the lower court or the appeal court in case the appeal would have a real prospect of success or there is some other compelling reason why the appeal should be heard. The appeal court will grant such permission in case the judgment of a lower court was wrong or unjust because of serious irregularity in the proceedings of the lower court. Consent of a Competent Authority The requirement to obtain consent of a competent authority only applies to: (1) arbitration fora in Kazakhstan, and (2) disputes involving Kazakhstan resident party and Kazakhstan state authority or quasi state entity. A strong argument exists that this requirement does not apply to AIFC Court. Public Hearings Court hearings are public and non-confidential by default. The parties may request that the litigation is conducted privately, but such request must be substantiated to the satisfaction of the court. For example, under AIFC Court Rules and Regulations, the court may direct the hearing to be held in private if, among other grounds, it involves confidential information (including information relating to personal financial matters), and publicity would damage that confidentiality or if a private hearing is necessary to protect the interests of a party or witness. Eventually, it is up to the court to decide whether to hold hearings privately. Appointment of Judge (Panel), Procedural Rules, and Language in Litigation Unlike in arbitration, the parties must stick to the predefined procedural rules and language of the proceedings. The parties to litigation will not have a luxury of choosing the judge or a panel of judges (where applicable). Obviously, that gives less flexibility to the parties. Award of Costs in Court Despite the general rule (which is most often applicable to international arbitration) that the losing party must pay the costs of the winning party, the court has a broad discretion to order a different allocation of costs, taking into account, inter alia, an assessment of whether the costs have been reasonable (i.e., whether the costs have been reasonably incurred, the amount thereof is reasonable, and the party has been acting reasonably). Such determination by the court will usually address the questions of whether the costs are payable by one party to another and what the amount and timing are for payment of costs. This determination would usually take some time. This general rule is not necessarily relevant to the proceedings in AIFC Court: notably, AIFC Court Rules and Regulations provide for the possibility of immediate assessment of costs which can be utilized by the party to the proceedings via filing a relevant claim with the court. Similarly, in IAC arbitration, the amount of costs and the allocation thereof between the parties are defined in the award. Enforceability of Judgments Under the general rule, enforcement of judgments is made either on the basis of an applicable international treaty or (in the absence thereof) a so-called “reciprocity” principle. In this respect, due to the broad coverage of jurisdictions under the 1958 New York Convention, enforceability of arbitration awards in foreign jurisdictions has a wider coverage and therefore is more attainable. But if the assets affected by the judgment are located in Kazakhstan this may not be a great disadvantage. Consolidation and Summary Disposal While arbitration institutions are seeking to improve their rules on consolidation of disputes into single arbitrations and the use of summary procedures for “unarguable” issues, litigation usually achieves these more readily. ARBITRATION While the above sets out a high level “pros and cons” summary for the choice of litigation for dispute resolution purposes, arbitration has its advantages and disadvantages as well, all of which must be carefully scrutinized before agreeing to this dispute resolution forum. Freedom of Choice The parties to arbitration are free to choose the applicable procedural rules, arbitrators, venue (seat of arbitration), and language of the proceedings. This implies a greater extent of flexibility and consideration of each party’s preference. Therefore, choice of arbitration purports a greater extent of the parties’ autonomy. Confidentiality As opposed to litigation, the arbitral proceedings, as well as documents pertaining thereto (including an award), are confidential and private—and this can be a great advantage. Under IAC Arbitration and Mediation Rules the general rule is that “unless otherwise agreed by the parties, all meetings and hearings shall be in private, and any recordings, transcripts, or documents used in relation to the arbitral proceedings shall remain confidential.” This can be important for the parties whose reputational risks are a concern. This also matters in case there are confidentiality undertakings towards third parties with no or limited exceptions as to permitted disclosure. A common exception is International Centre for Settlement of Investment Disputes (ICSID) arbitrations, for which awards tend to be published a few months after being made. Enforceability of Arbitral Award Because there are 170 contracting states to the 1958 New York Convention, enforcement of arbitral awards is generally more accessible (subject to compliance with procedural formalities), provided that the jurisdiction where the award is granted and the jurisdiction where it is to be enforced are the parties to the abovementioned convention. Kazakhstan is a party to the 1958 New York Convention, and therefore awards granted by IAC should be enforceable in the jurisdictions that are parties to the convention. Along with the abovementioned aspects that make arbitration attractive for dispute resolution purposes, there are factors that can be viewed as a downside of choice of arbitration. As can be inferred from the above discussion, these include heavy time and monetary outlays, lack of opportunity to appeal the award, and limited flexibility of the parties. Jurisdiction In addition to these disadvantages, when choosing arbitration, it is important to make sure that arbitration will have jurisdiction over the arrangement or the dispute thereunder. The arbitration is usually best suitable for commercial disputes. The question of jurisdiction may forestall arbitration when the dispute involves matters within exclusive jurisdiction of courts—for example, a regulatory matter (i.e., a matter related to the exercise by competent/state authority of its regulatory function, taxation) or a matter concerning rights to immovable property, etc. Under IAC Arbitration Rules and Regulations, it is the arbitration tribunal which will resolve on its jurisdiction. Lack of proper jurisdiction may lead to invalidation of an arbitral award or expensive, and time consuming, arguments about jurisdiction. CONCLUSION While the above does not set out an exhaustive list of angles to look at when choosing a dispute resolution forum, it is intended to provide a brief practical summary guidance as to which aspects may help arrive at the most efficient and informative solution. Clearly, the ultimate choice between litigation and arbitration must be made on a case-by-case basis with due holistic consideration of all relevant details. In any case, it is both advantageous and practical that AIFC offers both platforms—AIFC Court and IAC—as alternative dispute resolution fora. [1] Same release from administration fees applies in IAC.