2015: The Year of Judicial Reform in Kazakhstan

Since its independence in 1991, the Republic of Kazakhstan has had a number of remarkable economic reforms. It is widely credited with having the most open and dynamic market economy of all the CIS nations. Every year it moves higher in key global rankings. In 2006 President Nursultan Nazarbayev set the ambitious goal of making Kazakhstan one of the 50 most competitive countries in the world in 10 years. That goal was achieved 2 years early, in 2014.[1] The President then set the new goal of making Kazakhstan one of the 30 most developed countries in the world by 2050. Many independent observers expect that the country will also reach this goal early.[2] For these and other reasons, Kazakhstan is considered a safe and attractive destination for foreign direct investment from all parts of the world. 

But one notable area which has lagged behind other areas of reform has been judicial reform. While Kazakhstan has always had many excellent judges, its judicial system also has suffered from many of the problems typical for emerging market countries, including: (i) lack of independence of the courts, (ii) insufficient training of judges, leading to questionable decisions, (iii) elements of corruption, and (iv) a perception of bias against foreigners in disputes with the state.

As in many other emerging market countries, one reason for these "emerging market court problems" in Kazakhstan has been inertia. It is easier to privatize an electrical power plant or to create an international standard flag-carrier airline than to completely overhaul the court system. And, for most citizens, having a constant supply of electricity and the ability to fly to another part of the country to visit relatives are more immediate and more tangible benefits than the benefit of knowing the courts are administering justice fairly and impartially to local and foreign claimants.           

But Kazakhstan's ability to reform its judiciary has had additional constraints not found in many other emerging market economies. Following its independence, Kazakhstan did not have a court system which could easily be reformed to meet international standards. Having never been a colony, Kazakhstan did not inherit an judicial system based on English or French models. And, unlike some East European countries, Kazakhstan did not have a pre-Soviet official court system that it could revert to. Its practice of administering justice through decisions of a highly respected "bi" (elder) of each "zhuz" (clan) worked well for the pre-Soviet era, but was not suitable for modern post-Soviet Kazakhstan.          

This is not to say that there were no reforms to Kazakhstan's judicial system. A number of important reforms took place during the first 20 years following independence, including the establishment of specialized courts, dismissals of corrupt judges (including 6 Supreme Court judges in 2011), pay increases for judges, the establishment of an excellent database of court decisions and upgrading of many court buildings and information systems. However, these reforms tended to be sporadic and did not resolve the basic "emerging market court problems" mentioned above. In short, reforms were occurring, but not at the same pace as reforms to Kazakhstan's economy or other sectors of Kazakhstan society.

The consistency of judicial reforms started to improve about 3 or 4 years ago. They accelerated after the re-appointment of Kairat Mami as the Chairman of the Supreme Court in 2013. Mr. Mami is the former General Prosecutor of Kazakhstan with many years of experience as a judge and a reputation for being tough on corruption. 

These reforms have been quiet and, for the most part, they have had little notice by most citizens of Kazakhstan and by foreign investors. But these reforms have been consistent and they have been important.

Recent statistics bear this out.

• During 2013–2014 formal criminal investigations were launched against 8 judges under the anti-bribery provisions of the Criminal Code. Six of those judges were convicted.  
• In 2013, 56 judges were punished with disciplinary sanctions, and 52 judges received disciplinary sanctions in 2014.
• In 2013, 4 judges were officially terminated under "negative grounds" pursuant to of Kazakhstan's Constitutional Law "On the Judicial System and Status of Judges of the Republic of Kazakhstan" (Article 34.1.11) and 21 judges left honorably or voluntarily resigned pursuant to that law (Article 34.1.1) (out of a total of 2,214 judges). While some of the judges in the latter group were excellent judges who voluntarily resigned for personal reasons, it is believed that some of them left their positions in order to avoid additional revisions and evaluations of their activities by court commissions. For 2014, the corresponding figures were 11 judges and 69 judges (out of a total of 2,664 judges). 

Such statistics would have been unthinkable in the early years after independence. Clearly judges who underperform and judges who violate the law or judicial norms are no longer tolerated.  

Statistics also show that the old perception of bias against foreign investors and in favor of the state may no longer be true: 

• In 2014, 40.8% of all claims challenging the actions of state authorities and state officials were successful, and almost 1/3 of the actions of the tax and customs authorities which were challenged were declared illegal by the courts. 
• During the 6-year period ending in 2014, approximately 240 billion tenge were awarded in favor of legal entities (including foreign investors), whereas only 40 billion tenge were awarded in favor of state authorities.

During past year, the Government has emphasized the need to attract new investors, especially foreign investors, in order to push Kazakhstan to the next stage of its development and to offset some of the stresses placed on the economy by geopolitical events and the drop in oil prices. This emphasis has resulted in major positive changes to the investment legislation.  It also has resulted in a recognition that Kazakhstan must now have a judicial system meeting international standards of transparency, independence and skilled judges, if the country is to attract significant new investments and move to the next level of development. In short, there has been a recognition that the country's reforms in the judicial sphere must now be accelerated to catch up to the country's reforms in the economic sphere.   

This focus on continued judicial reform was crystallized in two important speeches of President Nazarbayev. On 11 March 2015, the President gave a televised speech to the Nur Otan political party in which he laid out 5 institutional reforms for modernizing the country. The President's second reform is to continue the process of reforming the judicial system. The President described the current system for selecting judges and the inefficient qualification requirements of judges the "weak links" of today's judicial system.

He said the qualification requirements to become a judge will be toughened and that applicants for becoming a judge must have at least 5 years of experience in the judicial system and must pass a tough selection test. Following that, they will have an on-the-job 1-year training period. Higher level judges will be required to have lower court experience. The President said that judges cannot be beyond public criticism and that "openness is an antidote for corruption in the community of judges." 

In tying judicial reform to the ability to attract investments, the President stated: "Both non-resident and local investors must have confidence in the fairness of Kazakhstan's justice." He then hinted at a new court for investors by stating that non-resident judges should be engaged to examine investment disputes "to increase confidence in justice" and, further, that investment disputes "must be examined based on the best foreign and international standards." 

President Nazarbayev's 11 March speech is highly significant since it was the first time that the need for judicial reform was stated so bluntly and so publicly and was the first time judicial reform was given equal priority with other key reforms. 

The need for judicial reform was raised again by President Nazarbayev in his inauguration speech on 29 April 2015. He again stressed the relation between investment and the judicial system. He said that the reforms will make Kazakhstan's judicial system impartial and that fair trials will be available to investors and business. Public justice for investments and a new center for resolving investment disputes "will place this country's business climate among the most attractive in the world."     

On 19 May 2015, President Nazarbayev issued a new decree announcing the creation of the Astana International Financial Center ("Astana IFC") as of 1 January 2016. The Astana IFC will be a bold new city-in-a-city, having the goal of becoming one of the top 10 financial centers in Asia, and one of the top 30 financial centers in the world, within 5 years. 

One of the most exciting aspects of the Astana IFC is its proposed independent financial court, which will hear cases involving the Center's participants and, possibly, other investment disputes arising in Kazakhstan. The court will have foreign judges and, possibly, may allow foreign lawyers to appear. All proceedings and documents will be in the English language and the court will hear disputes under agreements governed by English law. The new court is expected to be modelled in many respects after the Dubai Financial Center Court and the new Singapore International Commercial Court. Both of those courts are credited with helping to make their cities leading financial and legal centers, and giving those cities some of the best investment climates in the world. It is hoped that the Astana IFC court will help Kazakhstan achieve the same result.         

The Supreme Court, together with the Government and the National Bank of Kazakhstan, are working on the details of the Astana IFC court, as well as drafting the necessary changes to the laws and the Constitution to effect the new court. A new law on the Astana IFC and its court is expected to be submitted to the Majilis (the lower house of Parliament) in September. 

To implement the changes to the judicial system, Kazakhstan's Supreme Court has commenced a series of sweeping initiatives designed to improve the selection process for judges and to increase the quality of their decisions, as well as to make court proceedings more transparent. The French system of requiring candidates for judges to have special types of education is being considered. As suggested by the President, new judges will be subject to a 1-year probation period, after which they will be evaluated before being appointed to continue. Most judges then will be evaluated every 5 years. Steps to increase the liability of judges for breaches of ethical standards and violations of the legislation are being considered.

Prior to the 19 May decree about the Astana IFC, the Supreme Court had been drafting legislation to create a new specialized court (or a panel consisting of Astana City Court judges) which would hear only investment disputes, along with an appellate collegium at the Supreme Court to hear investment dispute appeals. An international advisory body of leading international judges and lawyers would be created to advise the Supreme Court on implementing best international standards for these 2 new investment dispute bodies. Clarification of the relationship between these 2 proposed investment dispute resolution bodies within Kazakhstan's existing court system and the new independent financial court at the Astana IFC (and the possibility of expanding the mandate of the new court to include investment disputes not involving participants in the Astana IFC) is under active consideration.  But as of late May it is expected that these 2 proposed investment dispute resolution bodies will be separate from the Astana IFC court.       

To summarize, Kazakhstan's courts have made significant strides to improve themselves over the past 3 or 4 years, even though this is not widely known to the public or the investment community. Of all the courts in the Eurasian Economic Union and the CIS countries, Kazakhstan's courts clearly come the closest to meeting international standards. 

It is now widely recognized in Kazakhstan that a transparent, independent and skilled judiciary is a fundamental element of any country's investment climate. Kazakhstan is taking the difficult steps to achieve such a judicial system, so that it can secure its current level of development and then move forward to the next level of development. The first 5 months of 2015 have brought rapid changes to Kazakhstan's judicial system. The intensification of reforms in the existing courts over the next 7 months, coupled with the development of plans to launch the new financial court at the Astana International Financial Center, will make 2015 the most important year of judicial reform since independence. 

Curtis Masters

The Director of the Kazakhstan office of the global law firm Baker & McKenzie and a resident of Kazakhstan since 1996. He is a member of the Operating Committee of the Foreign Investors Council Chaired by the President of the Republic of Kazakhstan and is a Board member and the Secretary of the Kazakhstan Foreign Investors Council Association.

Previously he was the Co-Chairman of the Legal Working Group of the Foreign Investors Council. He also served as a Board member of the American Chamber of Commerce in Kazakhstan.

Mr. Masters is a native of Chicago and is a graduate of Harvard University Law School