Coronavirus in Kazakhstan: Ways to Mitigate its Legal Effect on Business
On 15 March 2020 the President of Kazakhstan (“RoK”), K.K. Tokayev, signed a decree introducing state of emergency (“SE”) from 16 March to 15 April 2020. The decree is likely to cause contractual defaults, termination of contracts, sanctions, losses and litigation/arbitration in Kazakhstan and possibly abroad.
Even before the introduction of the SE, some businesses were affected by the coronavirus due to, for example, significant drop in demand, delays or inability to supply goods, perform work and other consequences of the global pandemic.
My partner Almat Daumov and I have analysed possible options to mitigate the negative legal implications of SE and the global pandemic on Kazakh businesses.
- Performance of Contracts During the Pandemic
- For Those Affected by the SE Decree
As you may know, the SE Decree, among other things, restricts the operation of large trade facilities, shopping malls, cinemas, theatres, exhibitions and other public areas, it also prohibits entertainment, sports and other public events, and restricts entry to and exit from Kazakhstan, except for diplomats and delegations of international organisations. Quarantine has been introduced as an additional measure.
The SE regime will mostly affect shopping malls, tenants of retail spaces, organisations engaged in entertainment, education and training. The restriction on entry and exit from Kazakhstan may seriously affect companies that engage foreign labour, for example, the oil and gas industry, construction, services, consulting and many others.
The introduction of the SE regime represents a force majeure event. According to the first section of Article 359.2 of the Republic of Kazakhstan Civil Code ("Civil Code"), an entrepreneur is liable for breach of a contract unless he (she) proves that force majeure circumstances have occurred and that such force majeure events had an immediate impact on relevant contractual obligations.
It is quite possible that a counterparty would disagree with a reference to the force majeure, and the entrepreneur will have to prove this in court. Thus, it may be appropriate to collect relevant evidence at an early stage.
One should bear in mind, however, that a contract may set out higher thresholds to invoke force majeure or even exclude certain circumstances. In such case, under Kazakh law, a contract would prevail. It is therefore important to carefully read the contract.
Introduction of the SE regime somewhat simplifies proof of force majeure for entities directly affected by the SE Decree. Such organisations may want to notify counterparties of the force majeure events referring to the SE Decree.
Under Kazakh law, the occurrence of force majeure leads to the extension of relevant obligations affected by the force majeure and during its duration. If the contract so provides, the parties may terminate the contract. The contract may set out other implications of force majeure on relevant obligations.
- For Those Not Affected by the SE Decree
Activities of the overwhelming majority of companies in Kazakhstan will probably not be affected by the SE Decree. This, however, does not mean that they cannot refer to force majeure.
If the proper performance of a contract has become impossible due to the pandemic, one may try to obtain a force majeure certificate from Kazakhstan Foreign Trade Chamber LLC (a subsidiary of Atameken National Chamber of Commerce, which certifies force majeure and other similar circumstances in relation to contracts with foreign parties).
As mentioned, careful study of the contract would help to understand if one can rely on force majeure, e.g. generally force majeure provisions in contracts include pandemics, and this can eliminate or minimise contractual liability. The contract may provide for other circumstances as a basis for exemption from liability.
- Notice to a Counterparty
Notice of the force majeure to the counterparty may be required. The contract may set out additional requirements on the course of action in the event of force majeure, e.g. notice within a certain time frame, provision of certain documents, etc. Failure to notify may serve as a ground to reject references to force majeure circumstances.
Service of notice should be recorded - sent by courier, contents of the shipment should be indicated in the waybill, the address should be double-checked, and other relevant procedures stated in the contract should be followed. We would recommend notifying a counter-party of the force majeure even if the contract is silent. It is preferable to explain in the notice why and how force majeure impacts performance of the contract.
- Applicable Law
One should bear in mind that contracts with foreign parties may be governed by the laws of a foreign state. In such case, apart from review of the force majeure provisions of the contract, one should consult a foreign lawyer on whether or not force majeure events have occurred under such foreign law and what needs to be done to prove such events, etc.
It is possible that the legislation of a foreign state, in addition to force majeure, may provide for other grounds for exemption or reduction of contractual liability, possibly revision of the terms of the contract.
- If Your Counterparty Claims Force Majeure
If your counter party refers to force-majeure, as mentioned, just a reference to such circumstances is not enough. One needs to prove causal link between the performance of specific obligations under the contract and the force majeure events.
As stated above, read the contract carefully. Certain force majeure events may be excluded by the contract. Failure to comply with the contract requirements for the force majeure events (notification, provision of evidence, etc.) may serve as a ground to reject a reference to force majeure events.
- Tax Liabilities
Force majeure events may serve as a ground to claim a so-called "tax credit" - a deferral or repayment of the tax liability in instalments
Deferral refers to the possibility to defer payment of tax for up to six months.
For example, the deadline for payment of a corporate income tax is on or before 10 April 2020. A deferral may be provided until 10 October 2020.
Similarly, value added tax for the first quarter of 2020 must be paid before 25 May 2020. The deferral may allow payment until 25 November 2020.
- Instalment Plan
The Republic of Kazakhstan Tax Code also provides for the possibility to repay tax during a period of up to three years in equal instalments on monthly or quarterly basis. To exercise this right a taxpayer may request the tax authority to change deadline for the performance of tax liability and attach a number of documents.
Deferral or payment in instalments may be available to a taxpayer whose financial position does not allow payment of tax when scheduled, provided there are good reasons to believe that the taxpayer will become capable of paying tax in future.
Force majeure (emergency situations of a social, natural, man-made, environmental nature, military operations and other force majeure events) may serve as a ground to seek deferral or an instalment plan.
Instalment plan or deferral could be available where tax liability is secured by a pledge or a bank guarantee. One can file a list of counterparties-debtors to the tax authority and indicate receivables.
Enforcement of Foreign Arbitral Awards in Kazakhstan: Main Points and Useful Statistics
I have been preparing a presentation on enforcement of foreign arbitral awards in Kazakhstan for a local event, and I have thought that it would be useful to share with you some of the points of my presentation. Apart from the boring stuff like the procedure, we have found out some interesting statistics which you may find useful.
- Kazakh courts enforce foreign arbitral awards and judgments based on a treaty or on the basis of reciprocity (Kazakhstan is a party to the 1958 NY Convention, the 1961 European Convention);
- One can seek to enforce a foreign arbitral award or a judgment within three years following entry into effect.
There is a caveat – when you formulate a relief requested before a foreign arbitral tribunal please bear in mind the following: Kazakh law governing enforcement of judicial acts makes it very clear – it is relatively straightforward to enforce a money judgment as opposed to the one which requires a debtor to undertake certain actions. In relation to the latter category of judgments/awards the debtor’s main monetary exposure would be to pay a daily penalty of approx. USD 69. This may not be as painful in the case of a multi-million-dollar award;
- Judgment creditor should file an application to a Kazakh court at the place of the debtor’s registration or the location of its assets along with:
3.1. The award (original or a certified copy) and its certified translation (Russian/Kazakh) + apostille;
3.2. The arbitration agreement (original or certified copy) and its certified translation (Russian/Kazakh) + apostille;
3.3 Proof of payment of the state duty (approx. US$35);
Some additional documents-sometimes weird, may be required by a court (applies mostly to regional courts) e.g. proof of entry of the award into effect or a stamp on the award, etc.);
- Court reviews the application within 15 business days; may set a hearing (at its discretion);
- Court’s ruling is enforceable immediately, but it can be appealed. It is good that the court must issue an enforcement writ within a day following announcement of its ruling on the application, and it can be enforced right away, although an appeal may be pending. But this puts the debtor in a difficult situation, if the debtor disagrees with the ruling. By the time the Court of Appeals reviews an appeal, funds may be out of the country, and injunctive relief is very rarely granted to keep the funds inside Kazakhstan;
We have very randomly looked at the statistics of enforcement of foreign arbitral awards in Kazakhstan since 1 January 2016. Our review, which does not pretend to be exhaustive and absolutely reliable, suggests that Kazakh courts have enforced approx. 89% of foreign arbitral awards.
However, this does not necessarily mean that everything will be ok. The larger the amount of the award, the greater is the risk of issues at the stage of review of the application and enforcement.
Among those 11% of rejected applications we have found the following grounds some of which look really weird:
- No proof of proper notice to respondent;
- Invalidity of a guarantee based on which an arbitral award was issued;
- External monitoring procedure (seems like a foreign law governed insolvency) is not envisaged by Kazakh law;
- No proof of partial enforcement or non-enforcement outside Kazakhstan;
- Cancellation of an arbitral award;
- No proof of entry of the arbitral award into effect;