Carrying out business activities with the participation of the quasi-public sector
In the Kazakh economy, a huge part is occupied by the quasi–public sector - these are state-owned enterprises, joint-stock companies and business partnerships, where the state is the founder (shareholder) and legal entities affiliated with them (paragraph 31, paragraph 1, Article 3 of the Budget Code of the Republic of Kazakhstan).
The main regulatory legal acts regulating disputes on issues related to contractual relations involving the quasi-public sector are:
The Constitution of the Republic of Kazakhstan (hereinafter referred to as the Constitution),
The Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code),
The Budget Code of the Republic of Kazakhstan, the Law of the Republic of Kazakhstan "On Local Public Administration and Self-government in the Republic of Kazakhstan" dated January 23, 2001 No. 148,
Law of the Republic of Kazakhstan "On Concessions" dated July 7, 2006 No. 167 ,
The Law of the Republic of Kazakhstan "On State Property" dated March 1, 2011 No. 413-IV,
The Law of the Republic of Kazakhstan "On Competition" dated December 25, 2008 No. 112-IV,
The Law of the Republic of Kazakhstan "On Investments" dated January 8, 2003 No. 373,
The Law of the Republic of Kazakhstan "On Limited and Additional Liability Partnerships" dated April 22, 1998 No. 220,
The Law of the Republic of Kazakhstan "On Joint-Stock Companies" dated May 13, 2003 No. 415,
The Law of the Republic of Kazakhstan "On Public Procurement" dated July 21, 2007 No. 303-III,
The Law of the Republic of Kazakhstan "On the National Welfare Fund" dated February 1, 2012 No. 550-IV,
The Law of the Republic of Kazakhstan dated February 20, 2006 "On Securitization" and others.
Also, if an international treaty ratified by the Republic of Kazakhstan establishes rules other than those contained in these Laws, the rules of the international treaty shall apply.
Also, when resolving cases of this category, they are guided by the regulatory rulings of the Supreme Court of the Republic of Kazakhstan (hereinafter referred to as NP) Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated July 10, 2008 No. 2 "On certain issues of the application of legislation on limited and additional liability Partnerships", "On the practice of courts applying legislation on environmental protection" No. 16 dated December 22, 2000, "On the application of Legislation on public procurement by Courts" dated December 14, 2012 No. 5, etc.
However, despite these regulations, many legal relations related to quasi-public sector entities did not find clear and specific regulation in the current legislation. The lack of necessary legal regulation of the activities of these legal entities leads to ineffective results in the use of state property (voting shares and participation interests), which contradicts the principles of effective use of state property for the benefit of society (paragraph 4) of art. 6 of the Law "On State Property".
On October 15, 2015, Deputies of the Senate of the Parliament of Kazakhstan adopted the Law "On Public-Private Partnership", which provides for the structure of the PPP agreement and the regulation of legal relations between its subjects.
The purpose of the law is to create conditions for effective long-term interaction between the state and business entities by pooling their resources to ensure sustainable socio-economic development of the country and the implementation of socially significant tasks.
According to the provisions of the Law, participants in public-private partnerships are the state, quasi-public sector entities on the one hand, and businesses on the other, as well as financial organizations that finance these projects.
In addition, the law defines the qualification requirements for a potential private partner to participate in the competition, as well as the terms of the competition and the procedure for concluding a PPP agreement. At the same time, the competition can be conducted either in a simplified manner using standard tender documentation and a standard public-private partnership agreement (mainly for local projects), or using two-stage procedures where the public-private partnership facility is unique and technically complex.
The implementation of public-private partnerships is envisaged in all areas of the economy, with the exception of facilities that cannot be transferred for the implementation of public-private partnership projects, the list of which is determined by the President of the Republic of Kazakhstan, due to the strategic objective of attracting investments (for example, specially protected natural areas, water management facilities (dams, hydroelectric power plants), which have a special strategic importance and others).
Such attention to PPPs is due to the fact that today public-private partnership is one of the priorities for economic development in the Republic of Kazakhstan and attracting private investment. With its successful implementation, this tool will allow the state, business and every citizen of the republic to benefit.
With the adoption of the Law, contractual forms of PPP have been significantly expanded through the introduction of life cycle contracts, research and development contracts (PPP in innovation), service contracts and leasing mechanisms.
It also defines the mechanisms for the implementation of an institutional PPP, involving the creation of a joint venture between public and private partners to implement the project.
Institutional PPP is aimed at attracting direct investment through the involvement of quasi-public sector entities, fifty percent or more of the voting shares (shares in the authorized capital) of which are directly or indirectly owned by the state.
In addition, along with the applied one- and two-stage tenders, it is planned to introduce new mechanisms for determining a private partner, such as concluding a PPP contract through direct negotiations and holding a competition on simplified procedures for small forms of PPP. The conclusion of a PPP contract through direct negotiations will be carried out if a private partner has a ready-made facility for the implementation of a PPP project on its basis. The private partner has the right to independently initiate a negotiation process with the state and conclude an appropriate agreement.
The law provides for a clear definition of the forms of participation of PPP entities: the state, the private sector and quasi-governmental legal entities (JSC, LLP with state participation) in PPP projects.
State support measures are also provided for all projects implemented on the basis of PPP. These include subsidies, compensation for investment costs; compensation for operating costs; remuneration for management; accessibility fees; government guarantees for infrastructure bonds; government loan guarantees; transfer of exclusive intellectual property rights; provision of in-kind grants; co-financing of PPP projects; government consumption guarantees.
The adoption of the PPP law will ensure the effective fulfillment of government obligations without increasing budget expenditures and the share of the public sector in the economy.
Based on the goals and objectives of the adoption of the Law, we should expect a wider use of the institute of PPP in all areas of the economy, which will lead to the emergence of legal disputes, which will require the development of uniform judicial practice.
The senators also approved in two readings the accompanying draft law "On Amendments and Additions to Certain Legislative Acts on Public-Private Partnership,"4 which amends the Civil, Land, Budget Codes and 14 laws.
These changes should be taken into account in law enforcement practice.
A civil law contract is an effective and flexible instrument of public-private partnership. It allows you to take into account the interests of both parties to the greatest extent, while respecting the principle of consistency – building medium-term or long-term relationships between participants in public-private partnerships on a contractual basis.;
The legal registration of PPPs is possible through various legal constructions, both general and specially designed for PPPs. These include, in particular:: -concession agreements;
-production sharing agreements;
-investment agreements defining the rights to the objects being created;
-lease agreements with investment obligations;
- agreements on joint activities;
-various mixed contracts.
Disputes related to the conclusion, amendment, termination of an agreement (transaction) and the fulfillment of contractual obligations between legal entities, citizens engaged in business activities, with the participation of the quasi-public sector, are considered by specialized interdistrict economic courts, in accordance with their jurisdiction established by the Civil Procedure Code.
According to art. 31 of the CPC, as a general rule, a claim against a legal entity is filed at the location of the body of the legal entity.
At the same time, in cases of the generalized category, it is possible to file a claim in accordance with art. 32 of the CPC at the choice of the plaintiff.
In particular, a claim against a legal entity may also be filed at the location of its property.
A claim arising from the activities of a branch or representative office of a legal entity may also be filed at the location of the branch or representative office.
Claims arising from contracts that specify the place of performance may also be filed at the place of performance of the contract.
These generalizations indicate that the courts of the republic comply with these CPC norms.
As judicial practice shows, cases are mainly considered on disputes arising in the process of procurement of goods, works and services by state bodies, state institutions, state-owned enterprises, as well as joint-stock companies with a controlling stake owned by the state and affiliated legal entities, which are currently regulated by the legislation on public procurement., as well as civil legislation regulating certain types of obligations.
If additional work was necessary and the customer was notified about it in a timely manner, that is, the requirements of Article 654 of the Civil Code of the Republic of Kazakhstan are fulfilled, the Contractor has the right to demand payment within the amount determined by the public procurement contract and allocated from the budget in compliance with the procedures provided for by budget legislation.
Thus, PSKOV OSKEMEN-KURYLYS LLP (hereinafter referred to as the Partnership) filed a lawsuit with the State Institution "Department of Construction, Architecture and Urban Development of the East Kazakhstan Region" (hereinafter referred to as the Construction Department) for the recovery of 35,927,867 tenge, indicating that it fully fulfilled its obligations under the contract from On July 4, 2012, No. 92 on the development of design estimates and the construction of a 320-bed school with a 100-bed boarding school in the city of Shemonaiha, East Kazakhstan region. In 2012, the Partnership actually completed 83.4% of the work, while the design and estimate documentation provided for the completion of 41% of the work with the 2012 market coefficient.
As a result, financial savings were generated. At the same time, the Partnership completed the work that was overlooked during the preparation of the design and estimate documentation. Without additional work, the facility would not have been put into operation. The fact of the work in the amount of 35,927,867 tenge has been fully confirmed, however, the Construction Department has not made the payment.
The claim was partially satisfied by the decision of the specialized interdistrict Economic Court of the East Kazakhstan region dated December 25, 2013. Debts in the amount of KZT 35,683,067 were collected from the Construction Department in favor of the Partnership, and 1,070,492 tenge were reimbursed for court costs related to the payment of state duty.
The rest of the claim for the recovery of 244,800 tenge was denied. By the decision of the Appellate Judicial Board for Civil and Administrative Cases of the East Kazakhstan Regional Court dated February 20, 2014, the court's decision remained unchanged.
By the decision of the Cassation judicial board of the East Kazakhstan Regional Court dated May 26, 2014, the decision of the appellate instance remained unchanged. When reviewing the case by way of supervision at the protest of the Prosecutor General of the Republic of Kazakhstan and at the request of the Construction Department, the supervisory judicial board found no violations of the requirements of art.387 paragraph 3 of the Civil Procedure Code of the Republic of Kazakhstan (hereinafter – CPC).
It follows from the case file that on July 1, 2012, the Construction Department (the customer) and the Partnership (the contractor) signed contract No. 92 for the development of design estimates and the construction of a 320-bed school with a 100-bed boarding school in the city of Shemonaiha, East Kazakhstan region. Under the terms of the contract, the contractor undertook to perform the contract work on the construction of the facility on a turnkey basis.
The contract price was 1,187,504,204 tenge. Taking into account the additional agreements, the term of the agreement is set until December 31, 2013.
The courts established and the case materials confirmed that in 2012 the Partnership completed and the Construction Department accepted works in the amount of 990,486,000 tenge, in 2013 in the amount of 127,668,464 tenge, for a total of 1,118,154,464 tenge. This amount has been fully paid by the customer.
According to the Act of the State Acceptance Commission on the acceptance of the constructed facility into operation dated October 4, 2013, the facility was put into operation. At the same time, before the facility was put into operation, the Partnership carried out additional work in the amount of 35,927,867 tenge in the form of an entrance group, asphalt access roads to the boarding school from the street, pipes for draining meltwater, 111 mattresses, blinds and a football field with artificial turf and fencing were purchased.
The Construction Department does not dispute the performance of additional works and the acquisition of the specified property, these works have been accepted by the state acceptance commission.
The court of first instance, deciding on partial satisfaction of the claim, proceeded from the fact that additional work was necessary, and the customer was notified about it in a timely manner, that is, the requirements of Article 654 of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code) were met.
In addition, he took into account that the additional work was carried out without increasing the estimated cost of the work on the POI, the estimate was checked by the designer of Semstroyproekt LLP and the correctness of the application of the prices was confirmed. The letters of the akim of the Shemonaikha district and the deputy akim of the East Kazakhstan region were also the subject of research and evaluation by the court, from which it followed that the issue of the possibility of paying for additional work performed was resolved at different levels of local executive power.
The fact that the Partnership has performed additional work with the knowledge of the customer has been reliably established and documented. The total cost of the work performed does not exceed the amount determined by the public procurement contract and allocated from the budget in compliance with the procedures provided for by budget legislation.
The arguments about performing additional work in violation of the law on public procurement, without the consent of the customer, were the subject of research and proper assessment by local courts. Having discovered the need to perform additional work related to the interests of children and the turnkey delivery of the facility, the contractor made an estimate for the cost of such work, which was checked and approved by the technical supervision, and was also signed by the customer. Subsequently, the work was fully completed and accepted by the state acceptance commission.
Thus, under the circumstances mentioned, the local courts made the correct conclusion about the partial satisfaction of the claims of the Partnership.
According to paragraph 3 of Article 305 of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code), the pledge of the right of lease or other right to another person's thing is not allowed without the consent of its owner or the person having the right to economic management, if legislative acts or a contract prohibit the alienation of this right without the consent of these persons.
In accordance with paragraph 1 of the regulatory resolution of the Supreme Court of the Republic of Kazakhstan dated July 16, 2007 No. 6 "On certain issues of the application of land legislation by Courts", property relations in the possession, use and disposal of land plots, as well as transactions with them, are regulated by the civil legislation of the Republic of Kazakhstan, unless otherwise provided by land, environmental, water legislation, legislation on the subsoil, on flora and fauna and on specially protected natural territories of the Republic of Kazakhstan.
The provisions of a special law, that is, the Land Code of the Republic of Kazakhstan, apply to the provision of land plots as collateral.
Articles 77, 79 of the Land Code of the Republic of Kazakhstan dated June 20, 2003 (as amended at the time of the transaction) specify exhaustive restrictions on the pledge of land and land use rights, and an exhaustive list of documents when transferring land as collateral. These provisions of the law do not require obtaining the consent of the owner, and the decision of the land user is sufficient to provide collateral.
In accordance with subparagraph 7) of paragraph 2 of Article 33 of the Land Code, transactions by land users with respect to the right of land use on land plots granted on the right of temporary land use for farming and commercial agricultural production are not allowed, except for the transfer of collateral. Thus, the courts applied a law that could not be applied and drew the wrong conclusions.
In such circumstances, the conclusions of the courts on the invalidation of the pledge agreement regarding a land plot of 15,336 hectares are unfounded and contradict the above-mentioned norms of the Land Code.
When considering similar cases, one should be guided by the judicial act of the supervisory board and apply the norms of a special law.
In accordance with clause 13, art.37 of the Law "On Public Procurement", in case of non-fulfillment or improper fulfillment of obligations assumed by the supplier under the public procurement contract, the customer is obliged to take measures to recover penalties to the income of the relevant budget, state enterprise, legal entity, fifty percent or more no later than ten working days after the end of the financial year. voting shares (stakes in the authorized capital) owned by the state, or legal entities affiliated with them.
However, this period does not apply to the pre-trial period and the statute of limitations. The late transfer of the land allocated for capital construction by the plaintiff to the defendant is unreasonably attributed to force majeure, which entails the release of the contractor from liability for late fulfillment of obligations under the contract.
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