Administrative claims of investors against the Ministry of Energy of the Republic of Kazakhstan (DOE) with the participation of investors

             The main reason for the refund was the wrong choice of the procedure by the plaintiff.

For example, in a lawsuit filed by O LLP against the Ministry of Energy to challenge the decision to refuse to extend the exploration period under the contract, the court of first instance returned the claim, stating that the subsoil use contract was equivalent to investment contracts.

A dispute arose between the parties over the extension of the exploration period. The issue of extending the exploration period follows from the terms of the contract.

The Ministry is a party to the contract, therefore, civil relations have arisen between the parties to this case, the resolution of which is possible through a lawsuit in accordance with the CPC (No. 7194-22-00-4/746).

The appellate instance considered these conclusions of the court to be justified and appropriate to the circumstances of the case, noting that public law relations arise between subjects of law in connection with the exercise by one of the participants of his powers in relation to the other. A civil contract, which is, among other things, a contract for subsurface use, is not a way of expressing public law relations.

Consequently, it cannot be considered in administrative proceedings. The court applied a similar basis in the case of the claim of LLP "A" to the Ministry of Energy for recognition as illegal and cancellation of the decision to refuse to extend the period of exploration under the Contract (No. 7194-22-00-4/3130).

In this case, the SMAS in its definition indicated that the contested legal relations arose as a result of the performance of the contract and are related to the contractual legal relations of the parties.

The dispute between the parties arose on the issue of extending the period of exploration under the contract, therefore, civil relations arose between the parties to this case, the resolution of which is possible through a lawsuit in accordance with the CPC.

Sometimes the return on such grounds took place already in the cassation instance, which indicates that the courts of the first and second instances were inattentive in considering this category of cases.

For example, in the administrative case on the claim of JV "K" LLP against the Southern Interregional Directorate of State Inspection in the Oil and Gas Complex of the Ministry of Energy on invalidation of an unscheduled inspection, cancellation of the act on the appointment of an inspection, the act on the results of the inspection and the order to eliminate the violations identified, the following was established (No. 7194-21-00-4/1630).

The SMAS decision of February 11, 2022 denied the claim. By the decision of the SCAD court of Nur-Sultan dated May 22, 2022, the court's decision was upheld.

The SCAD of the Supreme Court pointed out that the courts of the first and appellate instances committed violations of the rules of procedural law when making decisions, which were not mentioned in the plaintiff's complaint, but affected the legality of the contested judicial acts.

In the opinion of the cassation instance, the court should have returned the claim of the Partnership for the cancellation of the act on the results of the audit without consideration due to the fact that it is not subject to consideration in administrative proceedings (No. 6001-22-00-6ap/1264 dated January 19, 2023).

It was established that on November 5, 2021, the Department drew up an act on the results of the audit No. 14.

The plaintiff, disagreeing with this act on the results of the audit, appealed it to the court. However, the Act on the results of the audit cannot be an independent subject of judicial proceedings, since the administrative procedure is one of the stages of the adoption of an administrative act by a state body.

The final decision based on the results of the audit is an order to eliminate the identified violations.

Therefore, the SCAD of the Supreme Court concluded that the act on the results of the audit contested by the plaintiff does not entail legal consequences for him in the form of violations of rights, freedoms and legitimate interests, therefore, it is not an onerous administrative act, and therefore is not subject to appeal in administrative proceedings.

Given this, courts should carefully examine the circumstances of the filed claim and what is the subject of the dispute.

Now let's look at the satisfied claims of investors in order to find out the main mistakes of the state body. The majority of investor lawsuits against the Ministry of Energy are related to activities in the extractive sector of the economy.

Disputes about the legality of inspections are an essential category of disputes. The assessment of the legality/illegality of an inspection is based solely on compliance with the requirements established by law and the procedure for conducting such inspections. Thus, the decisions of the courts of first instance should be exhaustive and should not imply the existence of grounds for filing an appeal.

However, often administrative authorities (and this applies not only to the Ministry of Economic Development, but also to other government agencies), even if they lose, file an appeal in the court of first instance, and then appeal to the cassation.

For example, in the case of the claim of the company "N" to the specialized environmental prosecutor's office of the Atyrau region, the Russian State Institution "Western Interregional Directorate of the State Inspection in the Oil and Gas Complex of the Ministry of Energy" on the recognition of illegal actions of the Environmental Prosecutor's Office to make and send to the Department a request for an inspection (No. 7194-22-00-4/3837).

The SMAC motivated the satisfaction of the claim by the fact that the actions of the prosecutor of the Environmental Prosecutor's Office to make and send to the Department a request for an inspection were illegal.

The appeal board agreed with the conclusions of the court of first instance.

However, the administrative body filed a complaint with the cassation.

The SCAD of the Supreme Court noted that according to Article 156 of the PC, inspection and preventive control and supervision with a visit to the subject (object) of control and supervision are considered invalid if they are conducted by the control and supervision body in gross violation of the requirements for organizing and conducting inspections and preventive control and supervision with a visit to the subject (object) of control and supervision established by this By the Code (No. 6001-23-00-6ap/1407 dated November 23, 2023). In this case, there was no reason to conduct an audit, and therefore the act of appointing an audit is unlawful.

Thus, despite the evidence of the conclusions of the court of first instance, due to the actions of the administrative body, the case passed all instances.

Budgetary funds were spent, the time of judges and government officials was spent, and the financial costs were also borne by the investor.

This problem does not apply only to administrative claims against the Ministry of Energy, as the analysis showed, most administrative authorities violate the established procedures for conducting inspections or find it difficult to prove compliance with such procedures in court.

Very often, administrative authorities do not follow the procedure for conducting inspections, for example, the necessary signatures are missing, evidence of measurements is not provided to the court, etc.

It is important to note that in the APPC, the burden of proof is placed on the defendant– an administrative body.

In this regard, the mistake of the administrative authorities is the failure to provide clear evidence to the courts of the grounds and results of inspections, as well as their failure to comply with established procedures.

It is also necessary to study the errors of the courts when considering investment disputes on non-property claims.

Thus, T LLP filed a lawsuit against the Ministry of Energy, the Western Interregional Directorate of State Inspection in the Oil and Gas Complex of the Ministry of Energy and JSC Information and Analytical Center for Oil and Gas to declare illegal and repeal paragraph 4/77 of the regulation on the elimination of violations No. 100/11 dated September 17, 2021, issued on violations identified during preventive control with a visit to the subject of control (No. 7194-21-00-4/1601).

The SMAS decision of January 26, 2022 denied the claim. By the resolution of the SCAD court of the city of Nur-Sultan dated June 9, 2022, the decision was changed.

Paragraph 4/77 of the regulation was declared illegal and repealed.

The SCAD of the Supreme Court noted that in resolving the dispute and satisfying the stated requirements, the appellate instance, applying the provisions of Article 70, part two of Article 80 of the CPC, sub-paragraphs 6) and 7) of paragraph 2 of Article 152-1 of the SC, came to the correct conclusion that the contested regulation did not comply with the requirements of administrative acts.

In particular, the order does not contain a specific list of identified violations, indicating data on purchases, the nature of violations, and references to violated paragraphs of the Rules.

It is not specified what measures the plaintiff needs to take to eliminate the identified violations, the causes and conditions contributing to them.

Further, the SCAD of the Supreme Court notes that "by defining a specific list and nature of violations in judicial acts, the courts actually replaced the administrative body and filled in the gaps of the administrative act, which is unacceptable" (No. 6001-22 00-6ap/1602).

Thus, the courts should not replace the work of the administrative body itself. The defendants should understand that the burden of proof is placed on them in the CPA.

And due to the requirements of Article 12 of the CPC, all doubts, contradictions and ambiguities of the legislation of the Republic of Kazakhstan on administrative procedures are interpreted in favor of the participant in the administrative procedure.

As the analysis shows, repeated mistakes by government agencies lead to the fact that the judicial system is under significant strain.

The above case is one of many in which the courts, in the absence of audit and analysis results, are forced to carry out the work of administrative authorities, which leads to an increase in the waiting time for court decisions.

Plaintiffs also suffer from this, in the person of investors, who are forced to suspend their activities, seek funds to pay for legal services, etc.

Determination of jurisdiction

The dispute between the courts of first instance located in different regions, cities of republican significance and the capital is resolved by the Supreme Court of the Republic of Kazakhstan upon the submission of the relevant regional or equivalent court (Part 2 of Article 109 of the CPC).            

Defendants in investment disputes

The defendant is "an administrative body or official who is being sued in court" (paragraph 15, part 1, Article 4 of the CPC). In turn, the administrative body according to subclause 7) of the first part of Article 4 of the APPC is a state body, a local government body, a state legal entity, as well as another organization that, in accordance with the laws of the Republic of Kazakhstan, are authorized to adopt an administrative act, commit an administrative act (inaction).

             The defendant is "an administrative body or official who is being sued in court" (paragraph 15, part 1, Article 4 of the CPC). In turn, the administrative body according to subclause 7) of the first part of Article 4 of the APPC is a state body, a local government body, a state legal entity, as well as another organization that, in accordance with the laws of the Republic of Kazakhstan, are authorized to adopt an administrative act, commit an administrative act (inaction).            

Refunds of claims

Refunds for administrative claims are carried out on the grounds provided for in the second part of Article 138 of the CPC.

The basis (subparagraph, part two of Article 138 of the CPC)

          2) the claim does not comply with the requirements of the second part of Article 131 of this Code

             5) there is a dispute between the same parties in the proceedings of the same or another court.

             6) the plaintiff has withdrawn the filed claim

             9) the parties have concluded an agreement on reconciliation, mediation or dispute settlement

             11) the case is not subject to consideration in the order of administrative proceedings

          15) the court refused to restore the missed deadline

             17) the case is beyond the jurisdiction of this court

A large number of refunds based on subparagraphs 11) and 17) of the second part of Article 138 of the CPC are related to errors made by plaintiffs when filing civil lawsuits with the SMAS.

In accordance with the second part of Article 5 of the CPC, the task of administrative proceedings is the fair, impartial and timely resolution of administrative cases in order to effectively protect and restore violated or disputed rights, freedoms and legitimate interests of individuals, rights and legitimate interests of legal entities in public relations.

It is important to note that public law relations arise between subjects of law in connection with the exercise by one of the participants of his powers in relation to the other.

If we are talking about challenging the terms of a contract, which is a civil contract, then the state body acts in it as a party to the contract and is not associated with the exercise of authority.

Consequently, such cases are considered in civil proceedings.

For example, SMAS returned the claim, stating that "the defendant's refusal is not an onerous act, does not contain an authoritative expression of will, and is not aimed at the emergence, modification, and termination of the plaintiff's rights and obligations arising from public law relations.

In these circumstances, the claim should be returned, regardless of the wording of the claims, as not subject to consideration in administrative proceedings" (No. 7194-23-00-4/1127).

Or in another case, SMAS noted that "the plaintiff's claims in this case do not relate to public law relations, the plaintiff's claims are based on the terms of the Contract concluded between the parties.

The plaintiff disputes the defendant's refusal to extend the Contract.

Therefore, if there is an investment contract with the State, this dispute cannot be the subject of an administrative claim.

Based on the above, the court considers that the claim is not subject to consideration in administrative proceedings" (No. 7194-23 00-4/675). This is the issue that accounts for the largest number of refunds.

It is described in more detail in section 4.1 of this analysis.

We also note the following regarding the relatively low level of administrative claims. According to Part 1 of Article 120 of the CPC, reconciliation of the parties is allowed if the defendant has administrative discretion, which is the authority of an administrative body or official to make one of the possible decisions based on an assessment of their legality, for the purposes and limits established by the legislation of the Republic of Kazakhstan.

In this regard, the CPC does not oblige the judge to take measures to reconcile the parties, as established by Part 1 of Article 174 of the CPC.

This causes a difference in the number of reconciliations in administrative and civil cases.

In the future, it should be borne in mind that if the concept of an administrative contract is introduced into the APPC, appropriate changes will affect the reconciliation mechanism.

Abbreviations used

1) APPC – Administrative Procedural Code of the Republic of Kazakhstan;

2) CPC – The Civil Procedure Code of the Republic of Kazakhstan;

3) Civil Code of the Republic of Kazakhstan;

4) PC – Business Code of the Republic of Kazakhstan;

5) NP VS – Normative resolution of the Supreme Court of the Republic of Kazakhstan;

6) NC – The Tax Code of the Republic of Kazakhstan;

7) SCAD of the Astana City Court - the judicial board for administrative cases of the Astana City Court;

8) SCAD VS – judicial board for administrative cases of the Supreme Court of the Republic of Kazakhstan;

9) SMAS – Specialized Interdistrict Administrative Court;

10) SMEC – Specialized Interdistrict Economic Court;

11) The CGO is a central government agency.

Used regulatory sources

The rules of substantive law, which were guided by the courts when considering investment disputes, include the legislative acts currently in force.

The main regulatory legal acts regulating the issues of disputes of the generalized category are:

1) The Constitution of the Republic of Kazakhstan;

2) The Civil Code of the Republic of Kazakhstan dated December 27, 1994 No. 268-XIII;

3) Business Code of the Republic of Kazakhstan dated October 29, 2015 No. 375-V;

4) The Administrative Procedural Code of the Republic of Kazakhstan;

5) The Civil Procedure Code of the Republic of Kazakhstan;

6) Land Code of the Republic of Kazakhstan dated June 20, 2003 No. 442;

7) Budget Code of the Republic of Kazakhstan dated December 4, 2008 No. 95-IV;

8) The Code of the Republic of Kazakhstan dated December 25, 2017 No. 120-VI "On Taxes and other mandatory payments to the Budget" (Tax Code), etc.

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