Differentiation of the category of investment disputes and jurisdiction of cases between courts

Due to the lack of clear concepts and criteria in legislation, as well as a unified register of investors, the main problem in judicial practice was the definition of the concept and status of an investor, investment activity, investment dispute, and delineation of the category and jurisdiction of cases. During the first year of its work, the specialized judicial board of the Supreme Court of the Republic of Kazakhstan studied international experience, developed common approaches together with the International Council, conducted explanatory work by posting information on the Supreme Court's website, sending letters to local courts and various government agencies, holding round tables and conferences with investors, and developing judicial practice. Based on the results of the generalization conducted by the board for 2016, amendments and additions to the CPC were initiated in terms of specifying the concept of "investor", the terms of preparation and consideration of cases were extended, which were adopted by Law No. 91-VI of July 11, 2017. According to paragraph 4 of Article 27 of the CPC, an investor is recognized as: 1) a foreign legal entity (its branch, representative office) engaged in business activities in the territory of the Republic of Kazakhstan; 2) a legal entity established with foreign participation in accordance with the procedure established by the legislation of the Republic of Kazakhstan, fifty or more percent of the voting shares (participation shares in the authorized capital) of which belong to a foreign investor. For these two categories, an investment contract with the Government is not required. Thus, disputes between foreign investors working in Kazakhstan without a contract and government agencies are classified as investment disputes. For example, prior to the introduction of these changes in 2016, the application of LLP "P" to the State Revenue Administration of Aktobe for recognition as illegal and cancellation of the decision and notification of the customs authority was returned by the Astana court due to the lack of jurisdiction of the case.

Differentiation of the category of investment disputes and jurisdiction of cases between courts

The court proceeded from the fact that the disputed legal relations are not related to investment activities, since there is no investment agreement with a government agency; 3) an investor (any natural or legal person) in the presence of a concluded contract with the state for investment. These can be both national and foreign individuals and legal entities who have concluded an investment contract with a government agency (central or local executive body). However, in judicial practice, there are difficulties in determining the status of an investor in the following cases:: - if the party to the dispute is a quasi-public sector organization, such as JSC "M", a subsidiary of JSC "S" in a lawsuit against the State Institution "Department of the Committee for Regulation of Natural Monopolies and Protection of Competition in the Almaty region" on the recognition of illegal and cancellation of the act on the results of an unscheduled inspection, regulations. According to paragraph 2 of Article 273 of the Tax Code, it does not regulate relations related to the implementation of investments from the state budget. The court found that non-governmental borrowed funds were received under a state guarantee for the implementation of the investment project "Construction of the Moynak hydroelectric power station on the Charyn River." By virtue of the provisions of paragraph 1 of Article 213 of the Budget Code, financing investment activities at the expense of a non-governmental loan provided under a state guarantee does not constitute an investment from the state budget and does not indicate that the plaintiff's investment activities are not regulated by the PC rules. Based on paragraph 4 of Article 274 of the PC, the plaintiff is recognized as a major investor, and the dispute is an investment one.; - if the party to the dispute is a natural monopoly entity, such as JSC "I" in a lawsuit against the RSU "Department of the Committee for Industrial Development and Industrial Safety in the West Kazakhstan region" on the recognition of illegal and cancellation of the act on the results of the audit of February 10, 2016. By the ruling of the Council of Ministers of the West Kazakhstan Region dated March 9, 2016, left unchanged by the Appellate Judicial Board for Civil Cases of the West Kazakhstan Regional Court dated April 26, 2016, the case was referred to the jurisdiction of the Supreme Court of the Republic of Kazakhstan. During the consideration of the case, the applicant's representative filed a motion for the jurisdiction of the Supreme Court of the Republic of Kazakhstan, since JSC "I" is not an investor, the investment agreement with the state body was not concluded. The applicant is included in the State Register of Subjects of Natural Monopolies, which excludes the possibility of carrying out investment activities. In accordance with paragraph 6 of Article 34 of the CPC, the specialized judicial board sent a submission to the Cassation Judicial Board for Civil Cases of the Supreme Court of the Republic of Kazakhstan on the determination of the jurisdiction of this case, which returned the case for consideration by the Court of Justice of the West Kazakhstan region.

Thus, when determining the status of the subject of the appeal and the jurisdiction of the case, the courts in each specific case need to check which funds are used to make investments (public, private, borrowed). According to the Washington Convention on the Settlement of Investment Disputes of March 18, 1965, ratified by the Law of the Republic of Kazakhstan dated July 9, 2004 No. 589-II, "investment dispute" means a dispute between a foreign investor and the state represented by its authorized bodies on all issues related to investments. In national legislation, the categories of disputes involving investors are listed in articles 27 and 28 of the CPC. The concept of "investment dispute" is laid down in paragraph 1 of Article 296 of the CPC. Based on the literal interpretation of the above-mentioned norms, the board distinguished four categories of civil cases involving investors and provided approximate lists of such disputes.: 1. Investment disputes are disputes arising from contractual obligations between investors and government agencies in connection with the investor's investment activities. If the party to the dispute is a large investor (making investments in the amount of at least 2 million times the MCI), the case is within the jurisdiction of the Supreme Court of the Republic of Kazakhstan, not a large investor - the court of Astana. The peculiarity of such cases is that the dispute must be related to the fulfillment of mutual obligations under an agreement between an investor and a government agency. As practice shows, such an agreement may have a different name (investment contract, concession contract, public-private partnership agreement, etc.) or be without a name, but must contain the main distinguishing features: the subject of the agreement (investment object), the amount of deposits (investments), as well as all other essential conditions related to the type of agreement.. Further in the text, the generalization is referred to as an investment agreement. When determining the threshold amount of investments in order to delineate the jurisdiction of cases, questions arose about the procedure for determining them: at the time of filing the claim or for the entire period of the investment agreement. As a rule, the size of the investment is clearly indicated in investment contracts. The fulfillment of investment obligations is confirmed by reports on the fulfillment of license/ contract conditions (LCS), in a separate column of which the amounts of investments are reflected. Large investors submit consolidated balance sheets and audit reports (conclusions) to the court as evidence of exceeding the threshold amount. Since paragraph 4 of Article 274 of the PC contains the concept of "large investor making investments", i.e. having a continuing character, the courts were informed about the need to determine the amount of investment for the entire period of the investment agreement. The amount of the MCI is determined in accordance with the Law "On the Republican Budget" in force on the date of filing the claim. Of the total number of cases received, 56 disputes or 63% were considered in the order of special claim proceedings (appeal against actions (inaction) of state authorities), and 19 disputes or 37% were considered in the order of claim proceedings. That is, statistical data confirms the explanations of the Supreme Court of the Republic of Kazakhstan on the classification of public law disputes considered by the courts in accordance with Chapter 29 of the CPC as investment disputes. In particular, a government agency, being a party to an investment agreement, exercises its powers to monitor its execution only by issuing an administrative act. Violation of contractual obligations on the part of a government agency in relation to an investor is also expressed in an administrative act adopted by it in the form of a prescription, submission, notification, order, including termination or amendments to this agreement.

And accordingly, the investor disputes the specified act in the order of special claim proceedings - Chapter 29 of the CPC. The following claims (statements) may be classified as investment claims: 1) on coercion to conclude, amend or extend the investment agreement: - the claim of a major investor of LLP "L" to the State Institution "Ministry of Energy of the Republic of Kazakhstan" on coercion to extend the term of the subsoil use contract dated April 7, 1999 (decision of the Supreme Court of the Republic of Kazakhstan dated June 13, 2017); - the claim of LLP "K" to the State Institution "Ministry of Energy of the Republic of Kazakhstan" on recognition of illegal refusal to extend the term of the contract for subsurface use dated September 12, 1997, forcing to extend the term of the contract for three years (Astana city court decision dated March 15, 2017). 2) on challenging the early termination or termination of the investment agreement: - by the ruling of the Astana city Court dated November 2, 2017, the civil case on the application of LLP "A" to the State Institution "Ministry of Investment and Development of the Republic of Kazakhstan" on recognition as illegal and cancellation of the order on early termination unilaterally of the contract dated November 30, 1998 No 268 were sent under the jurisdiction of the Supreme Court of the Republic of Kazakhstan. The reason was that, in accordance with appendix No. 6 to the subsoil use contract, the investments of LLP "A" for the project amount to 237,846,097 US dollars, which, at the fixed exchange rate of the US dollar at the date of the development of the work program, 184.1 tenge, amounts to 43 787 466 458 tenge. The dispute between the parties is related to the fulfillment of mutual obligations under the investment agreement, and the applicant is a major investor (decision of the Supreme Court of the Republic of Kazakhstan dated December 20, 2017); - the claim of LLP "B" and LLP "G" to the State Institution "Ministry of Investment and Development of the Republic of Kazakhstan" on challenging the notice of early termination of the contract dated December 29, 2012 for exploration of copper and gold at a deposit in the North Kazakhstan region (Astana court decision dated July 5, 2017); - the claim of "K" LLP to the State Institution "Department of Education of East Kazakhstan Region" on the recognition of illegal termination of concession agreements for the construction of kindergartens (Astana court decision of September 27, 2017). 3) on invalidation of the investment agreement: - the claim of the Akim of the East Kazakhstan region to the Investment Committee of the Ministry of Investment and Development of the Republic of Kazakhstan, LLP "U" on invalidation of the investment contract dated December 21, 2016, concluded between the Investment Committee and LLP "U" for the construction and operation of CHP-3 in the city Semey (Astana city Court decision of November 7, 2017). 4) on the recovery or contesting of tax, customs, social, environmental and other amounts accrued under the investment agreement: - the claim of a large investor of LLP "Zh" to the State Revenue Department of the West Kazakhstan region on recognition as illegal and cancellation of the notification of the results of the tax audit dated December 31, 2015 No. 554 on accrual The amount of corporate income tax (CIT) is 1,211,983,835 tenge and penalties are 153,959,190 tenge. It has been established that LLP "Zh" carries out activities for the extraction and exploration of hydrocarbons at the Chinarevskoye oil and gas condensate field in the West Kazakhstan region on the basis of a Contract dated October 31, 1997, concluded with the Investment Committee of the Republic of Kazakhstan. In the lawsuit, the investor pointed out the unreasonableness of the accrual of amounts, since the terms of the Contract established the stability of the tax regime until the end of its validity period (until May 26, 2031) with the provision of targeted tax preferences: to deduct corporate income tax (hereinafter – CIT) expenses for own construction in order to stimulate the construction and renovation of production facilities (decision The Supreme Court of the Republic of Kazakhstan dated April 27, 2016); - the claim of JSC "D" against the RSU "Department of State Revenue for the East Kazakhstan region" on the recognition of illegal and cancellation of notification No. 1158 dated January 18, 2017 regarding the accrual of CPI in the amount of 251,333,428 tenge, penalties in the amount of 63,911,452 tenge. According to subparagraph 6) of paragraph 4 of the contract dated December 20, 2005 between the Company and the Investment Committee of the Republic of Kazakhstan, the object of investment activity is the construction and operation of the railway line "Shar-Ust-Kamenogorsk Station", which includes investments in fixed assets in the amount of KZT 21,427,000,000. In accordance with the terms of subparagraph 1) of paragraph 2 of the contract, the applicant was granted investment tax preferences in the form of exemption from payment of CPI for a period of 5 years from the date of commissioning of production facilities by state acceptance commissions. This dispute touches upon issues related to the assets of a major investor within the framework of the implementation of an investment contract (Astana City Court ruling dated October 9, 2017 on the referral of the case to the jurisdiction of the Supreme Court of the Republic of Kazakhstan). 5) on appealing decisions, actions (inaction) of a state body during inspections of compliance with the terms of an investment agreement: - the claim of a major investor of JSC "M" to the State Institution "Department of the Committee for Regulation of Natural Monopolies and Protection of Competition in the Almaty region" on the recognition of illegal and cancellation of the act on the results of an unscheduled inspection, regulations on the issue of non-fulfillment of conditions investment agreement and refund of undeveloped amounts.

In order to exclude a dispute regarding the jurisdiction of the case of the Supreme Court of the Republic of Kazakhstan, a ruling was sent to the International Council to give an opinion. By the conclusion of the International Council, the dispute was recognized as an investment dispute, since it is related to the fact that the investor violated obligations under the investment contract (decision of the Supreme Court of the Republic of Kazakhstan dated June 27, 2016); - the claim of JSC "K" to the RSU "Ministry of Energy of the Republic of Kazakhstan" for recognition as illegal and cancellation of the notification dated April 21, 2017 on violation of financial obligations under the contract dated February 7, 2014 for the exploration of hydrocarbons (Astana court decision dated September 18, 2017). 6) on the compulsion to return the contract territory after the termination of the investment agreement; 7) on the compulsion to return the property provided to the investor as a state grant in kind or the recovery of its value by the state body upon early termination of the investment agreement; 8) other disputes, both on claims of investors and on claims of state bodies related to the execution of mutual obligations under the investment agreement. 2. Other disputes related to investment activities are disputes between an investor and a government agency related to violations of the legislation of the Republic of Kazakhstan. Regardless of the status of the investor (large or not large), such cases are within the jurisdiction of the Astana city Court. These include the following claims (statements): 1) on the recognition of illegal actions (inaction) of state bodies and their officials that violate the rights of investors during inspections in various fields of activity. For example: - in the field of industrial safety: the claim of LLP "S" to the Russian State Institution "Department of the Committee for Industrial Development and Industrial Safety in the Akmola region" on the recognition of illegal and cancellation of the act on the results of the inspection in the field of industrial safety dated October 25, 201 6 (Astana court ruling dated March 28, 2017 on the termination of production in the case in connection with the rejection of the claim); - in the customs sphere: the application of JSC "K" to the State Revenue Agency "Department of State Revenue for the West Kazakhstan region" on the recognition of the illegal act of customs inspection dated June 17, 2016 (ruling of the court of Astana dated December 4, 2017 on the dismissal of the claim without consideration at the request of the plaintiff); - in the field of natural monopoly and protection of competition: the claim of JSC "K" to the Russian State Institution "Department of the Committee for Regulation of Natural Monopolies and Protection of Competition in the West Kazakhstan region" on challenging orders to investigate violations of antimonopoly legislation and approving the conclusion based on the results of the investigation. By the ruling of the Astana city Court dated July 15, 2016, the request of the authorized body to transfer the case for consideration to the Council of Economic Cooperation of the West Kazakhstan region was refused.

By the ruling of the Supreme Court of the Republic of Kazakhstan dated August 25, 2016, the above definition remained unchanged. The courts concluded that the inspection disputed by the major investor concerns its contractual relations with suppliers of pipe products used for work at the Karachaganak oil condensate field, therefore it relates to other disputes related to the applicant's investment activities (jurisdiction of the Astana City Court). - in the field of ecology: application of JSC "N" to the State Institution "Committee for Environmental Regulation and Control of the Ministry of Energy of the Republic of Kazakhstan" and the State Institution "Department of Ecology of Atyrau region" on challenging the order to eliminate violations of the law (Astana court decision dated February 23, 2017). Also, the claim of "T" LLP to appeal the actions of the state environmental inspector for Atyrau region Zh. (Astana city Court decision of November 10, 2016). The defendant argued that the official was not a government agency, so the dispute was under the jurisdiction of the district court. The Supreme Court of the Republic of Kazakhstan concluded that, in accordance with the provisions of the Law "On Administrative Procedures", an official performs his functions and powers on behalf of a state body, and the procedure for appealing their actions and decisions is identical to the procedure for appealing decisions of state bodies. Since the dispute is related to the investment activity of the subsurface user and entails consequences in the form of compensation for the amounts of economic assessment of damage, it must be considered by the Astana city court.; - in the field of agriculture: the claim of "M" LLP to the akimat of the Burabay district of the Akmola region on the recognition of the illegal decree of the akim dated April 24, 2017 regarding the imposition of obligations to compensate losses of agricultural production (Astana court decision dated April 25, 2016.). These may be other statements: on appealing against the actions of state bodies in the field of licensing, on issues of attracting foreign labor. 2) on the recognition of illegal decisions of state bodies on the accrual of tax, customs and other mandatory payments to the budget to investors: - the claim of JSC "Exploration Production " To the "State Revenue Agency "Department of State Revenue for the city of Astana" on the recognition of illegal and cancellation of the act of customs inspection, decisions based on the results of consideration of the complaint and notification. By the ruling of the Astana city Court dated September 30, 2016, the application was returned due to the lack of jurisdiction of the case. By the ruling of the Supreme Court of the Republic of Kazakhstan dated November 1, 2016, this ruling was canceled, with the referral of the case to the Astana court for consideration on the merits. During the review of the materials in the court of appeal, it became clear that the main shareholders of JSC "Exploration Production "K" are JSC "National Company "K" (58%) and the Chinese state fund "China" (11%).

Differentiation of the category of investment disputes and jurisdiction of cases between courts

The main activity of the Company is related to the extraction of hydrocarbon raw materials and its subsequent sale, and the subject of the appeal was the decision of the state body on mandatory customs duties when declaring oil, that is, the dispute is related to the investment activity of the investor.; - the claim of K LLP against the State Revenue Department of the Kyzylorda Region on appealing the notification dated March 12, 2015 on the accrued amount of payment for emissions into the environment (Astana city Court decision dated November 31, 2017); - the claim of "M" LLP to the State Revenue Agency "Department of State Revenue for Astana city" on appealing the notification of the accrual of customs duties (Astana city Court decision dated November 28, 2017).

Differentiation of the category of investment disputes and jurisdiction of cases between courts

- the claim of "M" LLP against the State Revenue Agency "Department of State Revenue for the Karaganda region" on the appeal of the notification regarding the refusal to refund the amount of excess VAT (Astana court decision dated September 28, 2017); 3) on the recovery by the state body (authorized official) from the investor of the amount of damage caused to the environment: The Atyrau Region Department of Ecology has filed three lawsuits in the Atyrau Region Council of Economic and Social Services against T LLP to recover the amount of damage to the state's income. By the definitions of the Council of Economic and Social Council of Atyrau region dated June 21, 27 and 28, 2016, the cases were referred to the jurisdiction of the Supreme Court of the Republic of Kazakhstan, since disputes in these cases are investment, and T LLP is a major investor. By the rulings of the Supreme Court of the Republic of Kazakhstan dated August 17 and 18, 2016, the cases were sent by jurisdiction to the court of Astana for consideration on the merits. The Supreme Court of the Republic of Kazakhstan proceeded from the fact that the claim submitted by the applicant was not based on contractual obligations of the parties, but was related to the violation by the investor of environmental legislation and damage to the environment. Consequently, the disputes relate to other disputes related to the investor's investment activities within the jurisdiction of the Astana City Court. - the claim of the specialized environmental prosecutor of the Karaganda region to LLP "N" for recovery of the amount of damage caused to the environment to the state's income (Astana city court decision dated January 12, 2017). 4) on appeals against decisions, actions (inaction) of the state body in the field of intellectual property rights protection: - the claim of JSC "R" to the Ministry of Justice of the Republic of Kazakhstan and JSC "Moscow Factory "K" on recognition of illegal actions of the Appeal Board, recognition of illegal trademark registration (Astana court ruling dated June 26, 2017 on return of the claim due to non-elimination of deficiencies). 5) on the recognition of illegal actions to refuse to provide a state in-kind grant, imposing the obligation to provide a in-kind grant: - the claim of U LLP to the Akimat of Semey on the recognition of illegal actions to refuse to provide a in-kind grant in the form of a land plot on the right of gratuitous land use, imposing the obligation to provide a in-kind grant (Astana court ruling from On September 20, 2017, on the return of the claim at the request of the plaintiff). 6) on the forced seizure of the investor's property (nationalization, requisition) for state needs and compensation for losses; 7) compensation for damage to the investor as a result of the issuance by government agencies of acts that do not comply with the laws of the Republic of Kazakhstan; 8) other disputes between government agencies and investors related to violation of legal requirements. 3. Disputes involving an investor that are not related to investment activities are disputes between an investor and individuals and (or) legal entities that do not affect his investment activities.

Such cases are within the jurisdiction of district (city) and equivalent courts. These should include: 1) labor disputes between an investor and his employees: claims for reinstatement at work, for the recovery of wages, challenging orders to impose disciplinary penalties; for appealing acts on industrial accidents and related other claims: - the claim of LLP "N" to the State Institution "Department of Labor Inspection of the Karaganda region" on recognition as illegal and cancellation of the conclusion of the labor inspector for the Karaganda region on an industrial accident. It follows from the content of the statement of claim that the dispute arises from labor legislation.

According to paragraph 5 of Article 27 of the CPC, this claim is under the jurisdiction of the Ministry of Economic and Social Affairs of the Karaganda region. In this regard, the Astana city court returned the application - due to the lack of jurisdiction of the case; - the claim of LLP "S" to the RSE "National Center for Occupational Hygiene and Occupational Diseases" to a third party K. on the recognition of the illegal and cancellation of the conclusion of the expert commission dated May 31, 2017, the decision of the Republican Expert Commission on the establishment of K.'s occupational disease.; - the claim of JV "K" LLP to the State Institution "Labor Inspection Department of the South Kazakhstan region" on appealing the act on the results of verification of compliance with labor legislation dated August 17, 2017 (by the ruling of the Astana city Court dated October 23, 2017, both applications were returned for presentation to the Council of Economic and Social Services of the Karaganda region). 2) corporate disputes involving an investor: The parties have difficulties in determining the jurisdiction of corporate disputes, since the stated requirements are related to the contribution of shares in the authorized capital of Kazakhstani legal entities by foreign citizens. Thus, by the ruling of the Supreme Court of the Republic of Kazakhstan dated March 30, 2017, the claim of a German citizen S. was returned. to "I" LLP,

LLP "V", V. and S. on the recognition of ownership of the share of LLP "I" and the return of investment due to the jurisdiction of the case of the SMEC of the East Kazakhstan region. The reason for the refund was the absence of a dispute between the investor and the government agency, the dispute is a corporate one. Similarly, by a ruling of the Astana City Court dated September 6, 2017, the lawsuit of T. Corporation against the Department of Consular Service of the Ministry of Foreign Affairs of the Republic of Kazakhstan, All (Seychelles) Limited, lawyer/notary public, Mr. Sammy Freminot, Asia Corporation, Ascent Corporation, Etc., was returned to the IES., About . on invalidation of the alienation of shares, recognition of actions as illegal. 3) disputes arising from the investor's tort obligations: claims for compensation for material damage, penalties and losses, lost profits; 4) banking disputes involving the investor: claims for debt collection, contesting loan and pledge agreements, foreclosure on mortgaged property, etc.; 5) housing disputes involving the investor: claims for eviction, relocation, and contesting of real estate transactions by citizens and legal entities; 6) related to the protection of personal non-property rights of citizens: claims for the protection of honor and dignity, compensation for moral damage. 4. Disputes involving an investor that are subject to a simplified procedure in accordance with Article 145 of the CPC (the list of such cases is given in the article). Such cases are within the jurisdiction of district (city) and equivalent courts. 

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