Termination of the contract, recovery of losses and incurred expenses.

On July 19, 2022, the Judicial Board for Civil Cases of the Supreme Court of the Republic of Kazakhstan, consisting of: the presiding judge N.K., judges B., G., a representative of the limited liability company "T" - J.A., having considered the petition of the limited liability company "T" in open court via online mobile videoconference (hereinafter – LLC "T", the Company) on the cancellation of the decision of the limited liability partnership "Arbitration" dated December 3, 2021 (hereinafter referred to as the arbitration award) in a civil case filed by individual entrepreneur "K", S.A. (hereinafter referred to as IP "K" S.A.) to LLC "T" on termination of the contract, recovery of losses and incurred expenses,

received at the request of LLC "T" for a review of the ruling of the Judicial Board for civil cases dated February 22, 2022,

LLC "T" applied to the court for the annulment of the arbitration award dated December 13, 2021, arguing that the dispute is not the subject of arbitration due to the absence of an arbitration clause, pointing to other procedural violations committed by the arbitration.

By an arbitration award dated December 13, 2021, the claim of IP "K" S.A. to LLC "T" was satisfied.

The agreement dated April 21, 2017 No. 015/KZ/2017 has been terminated.

Losses in the amount of 52,161,000 tenge, or 8,810,980 Russian rubles, the cost of paying the arbitration fee 1,564,830 tenge, or 264,329 Russian rubles, and the cost of paying for the services of a representative in the amount of 2,000,000 tenge, or 337,837 were recovered from LLC "T" in favor of IP "K" S.A. Russian rubles, as well as notary expenses of 45,000 tenge, or 7,601 Russian rubles at the exchange rate of the National Bank of the Republic of Kazakhstan.

By the ruling of the Judicial Board for Civil Cases dated February 22, 2022, the Company's request for the annulment of the arbitration award was denied.

In the petition, LLC "T" asks to cancel the court ruling and the arbitration award, to recover from IP "K" S.A. the costs incurred, referring to the violation of the norms of substantive and procedural law, incorrect definition and clarification of the range of circumstances relevant to the case.

Having heard the explanations of J.A., who supported the arguments of the petition, having examined the case materials and the arguments of the petition, the judicial board comes to the following conclusions.

In accordance with part 5 of Article 438 of the Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as the CPC), the grounds for cassation review of judicial acts that have entered into force are significant violations of substantive and procedural law that led to the issuance of an illegal judicial act.

Such violations were committed during the consideration of the case.

It follows from the case file that on April 21, 2017, in the city of the Republic of Belarus, the Company (seller) and IP "K" S.A. (buyer) concluded contract No. 015/KZ/2017, under which the seller sells and the buyer buys the goods specified in the Delivery Specification (Appendix No. 1); in The price of the goods includes the cost of the goods, delivery to the customs terminal of the "H" crossing (Republic of Kazakhstan), assembly and installation of the supplied products at the facility (hereinafter referred to as the Contract).

The decision of the Economic Court of the Republic of Belarus dated March 24, 2021 satisfied the claim of LLC "T" to IP "K" S.A. for debt collection under the Contract in the amount of 6,214,560 Russian rubles, as well as 7,081.51 Belarusian rubles in reimbursement of the plaintiff's expenses for the payment of state duty.

IP "K" S.A. was duly notified of the consideration of the case, submitted a written petition, but did not participate in the consideration of the case, and subsequently did not appeal the court's decision.

By the ruling of the specialized interdistrict economic court dated August 2, 2021, the above-mentioned decision of a foreign court was recognized and enforced on the territory of the Republic of Kazakhstan at the location of the debtor, and a writ of execution was issued for recovery.

By the decision of Arbitration LLP dated December 13, 2021, the claims of IP "K" S.A. against the Company for termination of the contract, recovery of the amount of losses and expenses incurred were satisfied.

On February 2, 2022, a representative of LLC "T" filed a petition with the court for the annulment of the arbitration award.

In rejecting the request of LLC "T", the court of appeal proceeded from the fact that there were no grounds for revoking the arbitration award provided for in Article 52 of the Law of the Republic of Kazakhstan "On Arbitration" dated April 8, 2016 (hereinafter referred to as the Law). Motivated by the fact that clause 7.2 of the Agreement provides: "If it is impossible to settle them through negotiations, disputes and disagreements arising under this Agreement are subject to resolution in the Arbitration Court of the plaintiff's country. The court's decision is final and binding on both Parties," concluded that the dispute should be considered by arbitration, since arbitration courts do not exist either in the country of the plaintiff, IP "K" S.A. (Republic of Kazakhstan), or in the country of the defendant, LLC "T" (Republic of Belarus).

At the same time, these conclusions of the judicial board for civil cases are based on the incorrect application of substantive law, as well as the incorrect definition and clarification of the range of circumstances relevant to the case.

According to part 3 of Article 465 of the CPC, when considering a case, the court establishes the existence or absence of grounds for revoking an arbitral award provided for by law by examining evidence submitted to the court in support of the stated claims and objections.

An analysis of the above norm allows us to conclude that the court establishes the existence or absence of grounds for annulment of decisions, while the range of these grounds is provided for in article 52 of the Law, is exhaustive and cannot be interpreted broadly.

In accordance with paragraph 1 of article 52 of the Law, in order for an arbitration award to be annulled by a court, the party filing a motion for annulment must provide evidence that:

1) it contains a decision on an issue not provided for by the arbitration agreement or not subject to its terms, or contains rulings on issues beyond the scope of the arbitration agreement, as well as due to the non-jurisdiction of the dispute to arbitration.

If arbitral awards on matters that are covered by an arbitration agreement can be separated from awards on matters that are not covered by such an agreement, then only that part of the award that contains decisions on matters not covered by the arbitration agreement can be set aside.;

2) one of the parties to the arbitration agreement has been declared legally incompetent by the court or the arbitration agreement is invalid according to the law to which the parties subordinated it, and in the absence of such indication – according to the legislation of the Republic of Kazakhstan.;

3) the party was not properly notified of the appointment of an arbitrator or of the arbitration proceedings, or for other reasons deemed valid by the court, could not provide its explanations.;

4) the composition of the arbitral tribunal or the arbitration procedure did not comply with the agreement of the parties, unless such agreement contradicts any provision of this Law from which the parties cannot derogate, or in the absence of such agreement did not comply with this Law.;

5) there is a court decision or an arbitration award that has entered into legal force and has been rendered in a dispute between the same parties, on the same subject and on the same grounds, or a court or arbitration ruling on the termination of proceedings in connection with the plaintiff's rejection of the claim.;

When applying for the annulment of the arbitration award, the Company indicated the following violations:

1) non-jurisdiction of the dispute to arbitration;

2) the party was not properly notified of the appointment of an arbitrator or of the arbitration proceedings, or for other reasons deemed valid by the court, could not provide its explanations.

When considering a case, the court shall establish the existence or absence of grounds for annulment of the arbitral award provided for by law by examining the evidence submitted to the court in support of the stated claims and objections.

The issues of jurisdiction of the dispute to arbitration are determined by the content of the arbitration clause.

The arbitration agreement is a civil law contract, therefore, the relevant provisions of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code) on contracts should be applied to it. According to paragraph 1 of Article 393 of the Civil Code, a contract is considered concluded when an agreement has been reached between the parties in the required form on all essential terms. Essential are the terms of the subject of the contract, the terms that are recognized as essential by law or are necessary for contracts of this type, as well as all those conditions regarding which, at the request of one of the parties, an agreement must be reached. Without defining the subject of the contract, no contract can be considered concluded. The subject of the arbitration agreement may include the obligation of the parties to submit certain disputes to arbitration. Therefore, the arbitration agreement should contain information that makes it possible to individualize a particular arbitration, to which the parties have committed themselves to submit a dispute that has already arisen or may arise. In the absence of such information in the arbitration agreement itself, as well as if it is impossible to apply complementary rules (in particular, the provisions of the European Convention on Foreign Trade Arbitration), such arbitration agreements should be considered not concluded.

In accordance with clause 7.2 of the Agreement, if it is impossible to settle them through negotiations, disputes and disagreements arising under this Agreement are subject to resolution in the Arbitration Court of the plaintiff's country. The court's decision is final and binding on both parties.  To the sides.

In the present case, the arbitration agreement was confused with the prorogation agreement. A prorogation agreement is an agreement on the jurisdiction of cases involving foreign entities. Such an agreement modifies the general rule of jurisdiction and determines, at the option of the parties, the competent court of a foreign State, whose jurisdiction includes dispute resolution. The legal nature of clause 7.2 of the Agreement is controversial, since the term "Arbitration Court" is understood differently in Belarus and the Republic of Kazakhstan. There are no state arbitration courts in Kazakhstan and Belarus. All courts are part of the system of the Supreme Court of the Republic of Kazakhstan. There are specialized inter-district economic courts, but they are part of the general court system.

In accordance with sub-paragraphs 2) and 3) of Article 2 of the Law on Arbitration, a court is a court of the judicial system of the Republic of Kazakhstan, which, in accordance with the civil procedure legislation of the Republic of Kazakhstan, is authorized to consider cases of disputes arising from civil law relations at first instance; and arbitration is arbitration formed specifically to consider a specific dispute., or permanent arbitration. In accordance with subparagraph 4) of article 2 of the Law on Arbitration, an arbitration agreement is a written agreement between the parties to submit to arbitration a dispute that has arisen or may arise from civil law relations. The Law on Arbitration does not provide for such a thing as an "Arbitration court". Clause 7.2 of the Agreement does not contain the exact name of the arbitration, which does not allow for reliable individualization of permanent arbitrations in the Republic of Kazakhstan if the parties intended to conclude an arbitration agreement. In this case, according to subparagraph 2) of paragraph 1 of Article 27 of the Law on Arbitration, arbitration returns the statement of claim if the claim is filed in arbitration, not provided for in the arbitration agreement. The plaintiff does not have the right to apply to arbitration of his choice without prior written agreement of a specific permanent arbitration with the other party. In this case, the parties concluded not an arbitration agreement, but a prorogation agreement. Since it contains an indication of the court of the plaintiff's country, this agreement can be attributed to relatively certain prorogation agreements. Thus, the competent court will be the relevant specialized interdistrict economic court, which is the court of the Republic of Kazakhstan. And it is necessary to apply to the specialized interdistrict economic court of the Republic of Kazakhstan in accordance with the provisions of the CPC on jurisdiction and jurisdiction.

In accordance with Article 392 of the Civil Code, when interpreting the terms of a contract, the court takes into account the literal meaning of the words and expressions contained therein. The literal meaning of a contract clause, in case of ambiguity, is established by comparing it with other terms and the meaning of the contract as a whole.

Taking into account this rule, the board comes to the following conclusions:

1) The provisions of clause 7.2 of the Agreement define the entity that resolves disputes - the plaintiff's Arbitration Court. In this case, the plaintiff is a resident of the Republic of Kazakhstan, therefore, we are talking about the Arbitration Court of the Republic of Kazakhstan. In accordance with paragraph 1 of article 75 of the Constitution of the Republic of Kazakhstan, justice in the Republic of Kazakhstan is administered only by the court. The judicial system of the Republic of Kazakhstan does not include Arbitration courts.

4) Since the same clause 7.2. of the Contract also reflects the name of the act to be rendered – the court decision. Consequently, the parties intended to go to court. Moreover, according to subparagraph 8) of article 2 of the Law, arbitration issues an act called an arbitral award.

5) The Law does not provide for conducting arbitration proceedings in an arbitration court. The legislator assigns the conduct of arbitration proceedings to arbitration or an arbitrator. At the same time, the Law provides a separate definition of definitions: arbitration, arbitrator, court, thereby indicating the various entities resolving the dispute.

6) To the application for the annulment of the arbitration award, the Company attached the decision of the Economic Court of the Republic of Belarus No.140-2/20 dated March 20, 2021, from the content of which it follows that the defendant interprets the concept of an arbitration court as an arbitration clause (taking into account the reference to the norm of the relevant Law), the plaintiff - as an official state body administering justice; from According to the content of the contract, it is not possible to unambiguously determine the existence and type of the reservation, including taking into account the respondent's position on its type. Thus, the competent court of a foreign State concluded that there was no arbitration clause in the Contract. By the ruling of the specialized interdistrict economic court dated August 2, 2021, the above-mentioned decision of a foreign court was recognized and enforced on the territory of the Republic of Kazakhstan at the location of the debtor, and a writ of execution was issued for recovery. The recognition of the legal force of the court decision indicates the onset of the legal consequences of the judicial act, while the recognition was carried out before the start of arbitration proceedings until November 8, 2021, and the Company notified the arbitrator of the existence of this decision. However, this fact was not given a proper legal assessment by the judicial board for civil cases when resolving the Company's argument that the dispute was not under the jurisdiction of arbitration.

In view of the above, the board considers that the dispute is beyond the jurisdiction of arbitration.

The contested judicial act does not assess the Company's arguments about the improper notification of the arbitration proceedings to the Company.

Arbitration proceedings by virtue of article 5 of the Law are conducted in compliance with the principles, the violation of which, depending on the materiality, entails the cancellation of the arbitral award.

Improper notification of the party about the appointment of an arbitrator or about arbitration proceedings indicates a violation of the principle of competition and equality of the parties, since the party's right to participate directly in the arbitration proceedings has been violated, which, by virtue of subparagraph 3) of paragraph 1 of article 52 of the Law, is an independent basis for the cancellation of the award.

The party against whom the award was made applies for its cancellation due to the failure to notify the arbitration proceedings, the said argument is subject to verification by the court for documentary evidence of compliance with the requirements of the Law on proper notification.

The court should have checked the arbitrator's compliance with the requirements of article 30 of the Law on the procedure for Notifying Persons Participating in the Case.

We are talking about ignorance and failure to participate in arbitration proceedings due to several circumstances.:

Improper notification by the arbitral tribunal of the appointment of an arbitrator or of arbitration proceedings.

In this case, the court is obliged to verify the arguments of the party and the compliance of the actions of the arbitration court to notify the persons involved in the case with the requirements of the Law.

The party was notified of the appointment of an arbitrator and the arbitration proceedings, but could not provide its explanations due to objective circumstances.

In this case, the party against whom the arbitral award was made is obliged to provide evidence of a valid reason preventing the submission of explanations. At the same time, an explanation is understood not only as the presentation of a response, since it is not only about the defendant, but also about the party against whom the decision was made, moreover, explanations can be oral, which are carried out at a court hearing.

On January 4, 2022, T LLC received a postal item with an attachment of the arbitration award dated December 13, 2021, the ruling dated December 10, 2021 on the existence of Arbitration jurisdiction and on postponement of consideration of the case on the merits of the dispute until December 13, 2021, these circumstances confirm the arguments of the Company about the violation by the arbitrator of the principles of arbitration proceedings on the adversarial and equal rights of the parties provided for in article 5 of the Law are the basis for the annulment of the arbitral award.

In accordance with paragraph 3 of Article 109 of the CPC with IP "K" S.A. in favor of the Company, the costs of paying the state fee in the amount of 1 174 387 (782 413 + 391 208 + 766) tenge.

Guided by subparagraph 8) of part 2 of Article 451 of the CPC, the judicial board DECIDED:

The ruling of the Judicial Board for Civil Cases dated February 22, 2022 in this case should be canceled and a new ruling should be issued on the annulment of the arbitration award dated December 13, 2021, of the limited liability partnership Arbitration, in the case of the claim of the individual entrepreneur "K" S.A. to the limited liability company "T" for the termination of the contract, recovery of losses and expenses incurred.

To collect 1,174,387 (one million one hundred seventy-four thousand three hundred eighty-seven) tenge from the individual entrepreneur "K" S.A. in favor of the limited liability company "T" in reimbursement of the costs of paying the state fee.

The petition of the limited liability company "T" is to be satisfied.

 

 

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