English law and the AIFC, integration or imitation?

Speech by Arman Shaikenov at the English Law Day Forum in Almaty

Before I start analyzing the Constitutional Law on AIFC (Astana International Financial Center), let me give an illustration: Imagine that you’re running a casino. You come to realize that your casino is becoming less and less popular, fewer and fewer patrons come to gamble, because of the lack of professionalism among croupiers and poor observance of rules by both players and personnel. Simply speaking, everyone is cheating and that does not help the business.

What would be the right decision in such sad situation? Probably, reestablishing order and promoting some reforms. What do we do? Well, we admit that the rules are bad and the service is poor (which is true) but then we bring in one more table, mark it as the special one, put it under the direct control of the CEO, declare that some special although uncertain rules will be applied to it and passionately promise that cheating and unprofessionalism may be allowed everywhere except at this special table.

You don’t have to share my opinion but I consider it to be a little naive to expect that such measures would lead to a sudden flourishing of our business. We definitely may expect that certain patrons who are on good terms with our managers may benefit from them and tip the croupier generously but I wouldn’t expect the shareholders to win from it.

Now let me share my opinion on constitutional law aspects with regard to the project.

I expect a more specified analysis from Mr. Valikhan Shaikenov who, I know, is ready to provide the exact articles of the Constitution, that are violated by the law in dispute. Meanwhile I would like to speak about constitutionalism in general. I’m not going to lecture such experienced lawyers as yourselves, but do we all understand that constitutional law is not just text on paper but also the culture of it’s implementation in accordance with the well-developed legal doctrine, widely accepted by the humanity? Don’t we realize that since the Magna Carta, constitutional law has been and is developed in order to limit the powers, to subordinate states to the best interests of society and to limit their abilities to establish rules, which we call «law», by establishing strict and supreme principles? If we do, how can we accept the fact that the law on AIFC (Astana International Financial Center) creates an alternative jurisdiction under which «the law of the Centre» will be created without any participation of the Parliament? «The law» that is going to regulate and resolve issues of legal capacity of individuals and legal entities, civil freedoms and rights, obligations and responsibility of individuals and legal entities, conditions of ownership and other rights of property, issues of the judicial system and legal proceedings and even the administrative-territorial structure of the Republic (as borders of the AIFC (Astana International Financial Center) are to be established by the President who is the head of the supreme regulatory body of the Centre, and the question of jurisdiction is obviously the question of the administrative-territorial structure and even of higher matters)? I do understand that the law requires that regulatory acts of the Centre are to be subordinated to the Constitution, but that is not the only requirement of the constitutionalism. Another one is that it is for the Parliament to determine, how the law in the Republic shall be shaped, even within the limits established by the Constitution.

Another constitutional principle is the one of equal access to justice. Does anyone in this room actually believe that say a shepherd in the steppes somehow deserves for his commercial dispute, however small it may be, to be resolved by a less competent, less honest judge, in accordance with a less developed legislation, than a commercial dispute between two participants of the Centre does? On the other hand, if you believe that in both cases the quality of justice served to them would be equal, then the question arises: what’s the point in having two different jurisdictions? Was the true aim to provide a certain level of comfort for foreigners by letting them enjoy the legal systems they’re used to? If yes, the law is far from fulfilling such goal: nothing in the Kazakh legislation prevents foreigners from enjoying the opportunities that the Private International Law section of the Civil Code provides them with. As for the issue of recognition and enforcement of international and foreign arbitration and judicial awards, it could be dealt with without ruining the constitutional order.

Another question is the one of the status of the law itself. The general theory of constitutionalism requires that laws subordinate to constitutions, it is obvious – constitution is not just the supreme law but something fundamentally different – laws are given by governments for people to obey, constitution is given by people for governments to obey. Taking this into account the very concept of «constitutional laws» is disputable but if we take it as a legal reality, the only way to interpret this concept is to accept that only those laws, directly mentioned in the text of the Constitution as «constitutional laws» shall have such status. Any other approach would inevitably open huge opportunities for the state to manipulate the constitution by simply amending the constitutional law. The Parliament and the President are not the people; they represent the people in accordance with the authority granted by the people. So, constitutional stability is a crucial element of constitutionalism and one of the requirements to attain and maintain such stability is for the Parliament to not be able to issue as many «constitutional laws» as they wish. This requirement is not met in the case of AIFC (Astana International Financial Center). I strongly believe that we are dealing with a constitutional crisis, due to the abuse of constitutional authorities.

Now let me speak about principles on which law of the Centre is deemed to be based. It is obvious that the English law is not going to be used on Kazakh soil. As a matter of fact, it is not even possible to introduce the law of England and Wales due to its specific nature – we would have to incorporate all the statutory acts, all the judicial precedents and even all the customs which together build the law of England and Wales – absolutely unthinkable. It is clear for us – lawyers, but we send the wrong message to the business society. The law of the AIFC (Astana International Financial Center) will consist of what we call «normative legal acts» with the opportunity for the courts to take into account previous own or foreign judicial acts at the court’s discretion – it is not how the English legal system works. The only connection with the English and Welsh law we may think about is unclearly mentioned «principles» on which normative legal acts may be (not necessarily) based. What are such principles? Even less would I dare to lecture on English law but there are some very general principles common for all developed legal systems, such as fairness, equality, autonomy of will, inviolability of property, independence of judgment, freedom of contract. We don’t need to implement any foreign principles of law – all such principles are stated in the domestic legislation. The question of implementation of such principles is the question of culture and political regime, it has nothing to do with the AIFC (Astana International Financial Center). There are also some basic principles which make each family of legal systems unique. But what are they if we speak about English law (forgive me for not mentioning Wales for briefness)? I would be very grateful if anyone could mention «English law principles», different from ours, without which a foreign investor would feel uncomfortable in Kazakhstan. But I can immediately think about following differences butting us (civil system lawyers) and them:

  • Different understanding of ownership as a bundle of separable rights.
  • Different understanding of obligation: we understand it as a legal bond (vinculum iuris), part of a legal relationship, they concentrate on the question of duty.
  • Obligatory requirement of consideration for a contract not to be void in English law.
  • Absence of the good faith duty in contractual relationship between parties in English law.
  • Prohibition of enforce-ability of contractual penalties in English law.
  • Absence of any clear division between the material and procedural law, public and private from the point of view of a civil law specialist.

It’s the matter of taste what doctrine to prefer, my heart due to my experience is given to the civil law system although I completely understand the opposite position. But let me ask you a question: regardless of our belonging to any specific legal system, do you believe that differences I’ve just mentioned do really constitute any significant obstacles for foreign investments? How many of your clients even know, let alone care, about our definition of ownership as the right to use, possess and dispose? How many businessmen you know, who would abandon a deal as soon as they read the Civil Code and find out that we recognize gratuitous contracts? How many trans-national corporations have left the country upon learning about the right of parties to establish penalties in a contract? Not so many, I guess.

May I suppose that the success of English legal and judicial system is not determined by its legal doctrine but by the set of historical, political, cultural, economical and military reasons – by circumstances which may never be fixed by applying «acts of the Center, based on principles of English law»? So, what are we disrupting the stability of the constitutional law, uniformity of the legal system, equality of citizens for?

Another question is: who will be the judges? After 18 years as practicing lawyer, I am extremely skeptical about our judicial system. Corruption, low level of competence, political dependance – all this is the gloomy truth in my country. And I am of a very strong opinion, that this reality is the basic reason for our economical failure. But if we believe that we are able to find enough quantity of honest, professional and experienced judges, able to provide the true justice for the AIFC, why don’t we employ them in the Supreme Court with the far greater effect for the county? It is obvious that foreigners shall not be judges.

Justice is the most important function of a state – way more important than any other, because it is against human nature to subordinate and the only excuse for a state power is that by the power it maintains law and order. Judicial function is more than political, it’s a basement for the political, social and economical life of any country and therefore, is the basis for a country’s sovereignty. We just cannot imagine that a president or a deputy of a parliament, of a country which is not occupied by foreign military force, may have a foreign citizenship. The same shall apply to judges and the article of the law which states that courts of AIFC (Astana International Financial Center) are not the part of Kazakhstan judicial system (a legal nonsense if we consider the concept of a sovereign unitary state) may not change a thing.

The law does not directly allow to appoint foreigners as judges, moreover – we still have a prohibition to do so in the Constitution. Unfortunately, I have no doubts that the senseless article about separation of the AIFC’s courts from the judicial system will be interpreted in a way which will eliminate this prohibition. As far as I learned from conceptual documents, it is expected. My only possible answer is that we have to learn from foreign lawyers, we have to attract them as consultants and experts, we have to listen to them, while drafting laws, we have to integrate them into the local professional society. But we have to reserve all positions of judges for Kazakh citizens. Citizenship is the specific political and legal relation between a state and an individual and this tie is absolutely necessary for execution of the sovereign functions. Justice is not an arbitration – it is what we call the «public power».

What shall we do now? Being a realist and thinking practically, I do not believe that we have any chance to cancel or significantly modify the constitutional law on the AIFC in the nearest future for political reasons. I think that the law only sends the world a message about instability of the legal system, political dependence of our economy, lack of professionalism and a refusal to conduct institutional reforms. By adopting the law, without true reforms both in political and legal spheres, we do not integrate into the world legal and business society, we only imitate such integration. And that is the reality we have to find our way through. If the law may not be canceled or modified, what may be done? I believe that we shall take the following course of action:

  • We shall stop misleading clients and foreign investors and clearly state that the center is not going to utilize the English law but rather create its own, limited, mixed legislation. We may not yet predict the shape of such legislation but we have certain hopes that this legislation may reduce the regulative pressure on business.

We shall do our best to ensure that.

  • We shall try to use the AIFC (Astana International Financial Center) as the proving ground to test novellae in legislation for the whole territory of the country.
  • We shall use the AIFC (Astana International Financial Center) as the proving ground for the judicial reform in Kazakhstan. The best judges and arbitrators from the AIFC (Astana International Financial Center) shall later take their positions in the Supreme court and other judicial bodies of the country.
  • We shall ensure the absolute transparency of any activity of the AIFC (Astana International Financial Center).
  • We shall ensure the true independence of the AIFC (Astana International Financial Center) from the political powers. Even if you say «independence» a hundred times, it will not help. The only way to establish such independence is to establish a system of true civil control from the professional society.
  • We shall work on making sure that the AIFC (Astana International Financial Center) will not become a club of privileged players but an accessible opportunity for many. Therefore, a set of clear and simple qualification rules shall be created.

Many thanks for the opportunity to share my opinion. Special thanks to Missis Aigul Kenzhebaeva, who has invited me to the discussion.