An introduction to arbitration in Central Asia

In recent years, Central Asia has experienced significant growth in foreign investment, driven by strategic economic reforms. Countries like Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan, with their abundant natural resources, are becoming increasingly attractive to global investors, transforming the region into a hub for international trade and investment.¹

Historically, national courts in Central Asia have held a dominant position in resolving disputes arising in the region. However, investors in Central Asian countries are now increasingly embracing arbitration as their preferred mechanism for dispute resolution. This shift is reflected in the growing number of cases involving Central Asian parties administered by prominent arbitration institutions. According to the ICC Report for 2023, Central Asia accounted for approximately 12% of the ICC's caseload,² an increase from the approximately 10% accounted for by the CEE and CA regions in 2022.

While major international institutions like the ICC remain popular choices for investors in the region, local arbitration institutions are starting to play a larger role in the regional arbitration arena. Two institutions are particularly noteworthy – the International Arbitration Centre at the Astana International Financial Centre and Tashkent International Arbitration Centre.

International Arbitration Centre (Kazakhstan)

Kazakhstan has made significant strides to position itself as a prime destination for foreign investment. As part of the President’s “100 Concrete Steps” Plan, Kazakhstan aims to join the ranks of the world’s top 30 most developed countries by 2050. A key component of this plan is the establishment of the Astana International Financial Centre (AIFC) and the adoption of legislative reforms to enhance the legal and regulatory framework, making Kazakhstan more attractive to international businesses and investors.

2019 Amendments to the Law on Arbitration

In January 2019, Kazakhstan amended its 2016 Law on Arbitration to align it with international conventions and practices, significantly enhancing the appeal of arbitration within the country.³ These amendments are expected to foster foreign direct investment, improve Kazakhstan's trading patterns, and strengthen the institutional framework for arbitration. Below is the list of the key amendments.

1. Relaxation of Arbitration Agreement Requirements: The 2019 amendments simplified the requirements for arbitration agreements, making more of them enforceable and allowing for ad hoc arbitration. Previously, agreements needed to explicitly state the intention to arbitrate, specify the subject matter, name the arbitral institution or rules, and obtain consent from the relevant state body if a state entity was involved.
2. Foreign Law as Governing Law: The new law allows parties to choose foreign law as the governing law for contracts involving at least one foreign party. Previously, Kazakh law was mandatory for contracts involving state entities. Now, only contracts purely between Kazakh parties must be governed by Kazakh law.
3. Determining Choice of Law: The applicable law will now be determined by appropriate conflict of laws rules set by the tribunal, aligning with Article 7 of the European Convention on International Commercial Arbitration.
4. Grounds for Annulment Reduced: Awards can no longer be annulled merely for non-compliance with the written form and signature requirements. Kazakh courts are now restricted from examining the substance or merits of an award during annulment or recognition proceedings, in line with the New York Convention to which Kazakhstan is a signatory.
5. Irrevocable Consent for State Parties: The law now states that a state party cannot revoke its consent to arbitration. Previously, consent from the relevant industry’s authorized body could be revoked at any time.

Astana International Financial Centre (AIFC)

The AIFC officially launched in 2018, marking a significant milestone in Kazakhstan’s efforts to diversify its economy and establish itself as a key financial services hub in Central Asia. The AIFC offers a unique ecosystem modelled after the world’s leading financial centres, such as New York, London, Hong Kong, Singapore, and Dubai. It operates as a "country within a country," with its own independent judiciary, the AIFC Court, which applies English common law and comprises distinguished common law judges. The AIFC aims to facilitate international investment, leverage the Belt and Road Initiative, and support the ongoing privatization of Kazakhstan’s state assets.

Since its inception, over 1,700 companies from more than 70 countries have registered with the AIFC, and it has resolved over 1,600 disputes. The centre has successfully attracted approximately USD 8 billion in investments across public markets, private equity, and direct investment.⁴

A key component of the AIFC is the International Arbitration Centre (IAC), which offers an alternative dispute resolution option for AIFC participants and other investors. The IAC is not limited to administering disputes arising from transactions within the AIFC but is also available for general commercial disputes where contracts refer disputes to the IAC.

IAC Arbitration Rules and Features

The IAC administers proceedings based on the 2022 IAC Arbitration Rules⁵, which are broadly similar to those of leading arbitral institutions. The rules include standard procedural elements, such as initiating arbitration, appointing arbitrators, seeking interim or emergency relief, consolidating proceedings, and joining additional parties to arbitral proceedings. Key features of the IAC rules include:

1. Internationally recognised panel of arbitrators: The IAC boasts a diverse and reputable panel of arbitrators from around the globe, including members from the EU, the UK, Hong Kong, China, and the USA. This panel includes a number of distinguished English King's Counsel, ensuring that parties have access to experienced arbitrators for their disputes.
2. Virtual Hearings, Emergency Arbitration and Expedited Procedure: The IAC permits virtual hearings and provides for emergency arbitration, ensuring flexibility and responsiveness in handling disputes. The IAC also allows for expedited procedures to ensure quicker resolution of disputes when necessary.
3. eJustice System: The IAC's eJustice system enables parties to file cases electronically from anywhere in the world without needing to be physically present at the IAC’s premises.

Under the Rules, a party may, with the tribunal's permission, request an order from the AIFC Court of First Instance to enforce the tribunal’s order for interim relief or an award. This is particularly useful when enforcement actions need to be carried out in Kazakhstan. AIFC Court decisions are enforced in Kazakhstan in the same manner as decisions of the national courts.

Strategic Presence in Key Regions

Another advantage of the IAC is its strategic presence in key regional jurisdictions. The IAC's headquarters are located in Astana, the capital of Kazakhstan, with additional premises in Almaty. Furthermore, the IAC has established a presence in eight countries across Eurasia that are key trading partners with Kazakhstan: Armenia (Yerevan), Azerbaijan (Baku), Georgia (Tbilisi), Kyrgyzstan (Bishkek), Tajikistan (Dushanbe), Turkey (Istanbul), Turkmenistan (Ashgabat), and Uzbekistan (Tashkent). In 2024, IAC opened an office in Beijing.⁶

This extensive network enhances the IAC's ability to administer disputes effectively and provides a robust platform for international arbitration across the region, reinforcing Kazakhstan's position as a central hub for dispute resolution in Central Asia.

Tashkent International Arbitration Centre (TIAC)

TIAC is a relatively new arbitration institution, established in 2018 as part of Uzbekistan's broader efforts to liberalize its economy and enhance the investment climate. These efforts included the recent adoption of the new International Commercial Arbitration Law in 2021, recognized by UNCITRAL as compliant with the Model Law.⁷ Uzbekistan has been a signatory to the 1958 New York Convention on the Recognition and Enforcement of Awards since 1996.

1. Eligibility and tax exemptions for Foreign Arbitrators: Foreign arbitrators are eligible to serve as arbitrators at TIAC, and do not require work permits to serve as arbitrators. Moreover, non-resident arbitrators of Uzbekistan are also exempt from paying personal income tax on fees received for their arbitration services.
2. Application of Foreign Laws: Arbitrators can apply the laws of other jurisdictions to resolve disputes and are no longer limited to Uzbek law.
3. Legal Practice Flexibility: Representatives of parties involved in arbitration administered by TIAC do not require a license to practice law in Uzbekistan, including for proceedings in Uzbek courts for reviewing arbitration decisions or addressing arbitration-related issues.
4. Enforceability of Arbitral Decisions: The Decree confirms that arbitral decisions made by TIAC are enforceable within Uzbekistan and globally under the New York Convention. Local courts are mandated to assist TIAC in obtaining and collecting evidence and taking necessary measures to ensure the execution of arbitral decisions.
5. Multilingual Proceedings: TIAC administers arbitration proceedings in Uzbek, Russian, and English.
6. Online Arbitration Capabilities: Applications for international arbitration, hearings, and other procedural activities can be conducted online.

Since inception, TIAC has administered nearly 70 international arbitration cases. According to TIAC, all cases in their roster are international in nature with parties from Europe, China, South Asia, Russia and Middle East. These cases included disputes relating to commercial contracts, joint ventures, construction projects, and investment agreements, among others. The panel of arbitrators at TIAC is internationally diverse and include arbitrators from the Middle East, North Africa, Europe, Asia, and the Americas.⁸

TIAC's Arbitration Rules were updated in 2021 and employ international standards in administration of disputes, including expedited procedure, early determination, virtual hearings, electronic filings and emergency arbitration.⁹ TIAC offers several unique features that set it apart from other arbitration centres:

1. Zero Administration Fees: TIAC does not charge fees for administering arbitrations. It remains financially independent, sustaining its operations through memberships, training programs, and events.
2. Collaboration with HKIAC: TIAC has established a strategic partnership with the Hong Kong International Arbitration Centre (HKIAC), launching the Cross-Institutional Rules of Arbitration in 2023. Parties can choose to have their dispute jointly administered by TIAC and HKIAC by agreeing to a specific arbitration clause that provides for the Cross-Institutional Rules of Arbitration to apply, or for arbitration to be "“conducted” or “administered” by TIAC and HKIAC". This partnership leverages TIAC's cost-effective services and regional expertise with HKIAC's extensive experience in international arbitrations. This collaboration is particularly advantageous for disputes arising from increased trade and investment between the CIS region and China, aligning with the Belt and Road Initiative.

The Rules introduce a unique "cross-institutional decision-making mechanism," enabling TIAC and HKIAC to jointly administer arbitrations. HKIAC makes key procedural decisions, including the existence and validity of an arbitration agreement prior to the tribunal's constitution, the appointment of arbitrators and emergency arbitrators, the resolution of challenges to and the removal of arbitrators, and the handling of applications for expedited or emergency arbitration. These services are provided by HKIAC without administrative fees, except in limited circumstances.

The Cross-Institutional Rules designate Hong Kong as the default seat of arbitration unless otherwise agreed upon by the parties. This means that, in the absence of an alternative agreement, the Hong Kong courts will supervise and support arbitration proceedings under these Rules.

3. Tailored Rules for Technology Disputes: TIAC has introduced specialised rules for technology disputes, recognizing the unique needs of these cases. These rules include the following:
   1. Experimental Evidence: Given the complexity of modern technology disputes, which often involve highly technical codes or algorithms, TIAC’s rules allow parties to demonstrate technical codes or algorithms through experiments. The tribunal can request that experiments be conducted or repeated in its presence or that of the parties and experts, ensuring compliance with technical standards. TIAC Rules facilitate the early identification and discussion of the necessity and handling of experimental evidence, ensuring a level playing field from the beginning.
   2. Cybersecurity Measures: In response to the increasing importance of cybersecurity, TIAC's rules mandate precautions for data use and transfer to prevent cyber incidents, thereby safeguarding the arbitration process's integrity. The Cybersecurity rules raise cybersecurity standards in TIAC arbitrations, giving tribunals and parties the authority to adopt and enforce baseline measures. These rules address the admissibility, disclosure, and reliance on materials obtained through illicit activities, and allow for separate arbitration agreements for disputes arising from future security breaches. The Cybersecurity rules are incorporated on an opt-in basis.

Conclusion

Both the Tashkent International Arbitration Centre (TIAC) and the International Arbitration Centre (IAC) at the Astana International Financial Centre (AIFC) closely follow international best practices with their respective rules and, in some respects, go even further. Their modern rules, combined with recent pro-arbitration developments in Kazakhstan and Uzbekistan, are likely to provide significant comfort to investors in the region, creating a more stable and conducive environment for foreign investments.

However, as these institutions are still relatively young, it remains to be seen how they will handle the expected significant influx of investment-related disputes in Central Asia, particularly those arising from China's Belt and Road Initiative and the evolving geopolitical landscape, including the impact of Russian sanctions.

[1]   Eurasian Development Bank, The Economy of Central Asia: A Fresh Perspective, available at: https://eabr.org/upload/iblock/1fe/EDB_2022_Report-3_The-Economy-of-CA_eng.pdf; European Bank for Reconstruction and Development, Regional Economic Prospects, available at: https://www.ebrd.com/news/2024/central-asian-economies-to-record-strong-growth-despite-natural-disasters-in-the-region.html.

[2]   ICC Dispute Resolution Statistics: 2023. Available at: https://iccwbo.org/news-publications/news/icc-dispute-resolution-statistics-2023/#:~:text=In%202023%2C%20the%20ICC%20Court,the%20ICC%20Appointing%20Authority%20Rules.

[3]   https://online.zakon.kz/Document/?doc_id=35110250&pos=72;-48#pos=72;-48

[4]   https://aifc.kz/annual-reports/aifc-annual-report-2022/

[5]   https://iac.aifc.kz/en/regulations

[6]   https://astanatimes.com/2024/05/aifc-court-and-international-arbitration-centre-open-office-in-china/

[7]   https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration/status

[8]   https://arbitrationblog.kluwerarbitration.com/2024/07/12/interviews-with-our-editors-diana-bayzakova-and-dr-islambekov-rustambekov/

[9]   https://www.tiac.uz/tiac-rules-of-arbitration