27% of the World's Jurisdictions Apply Common law | FinReview
19 October 2021

27% of the World’s Jurisdictions Apply Common law

Central Asia is a region with significant investment potential. However, attracting international investment requires the creation of certain conditions. One of these conditions is the rule of law and guaranteed legal protection.

Four years and counting, the Astana International Financial Centre has been home to the AIFC Court and the International Arbitration Centre that operate based on the principles and procedural rules of the law of England and Wales.

Analysts of FinReview.info have reviewed their peculiarities and the effects they have on the country.

The rule of law is the foundation of economic development

Investments are one of the most important factors in the development of the internal economic situation of any state. In addition to attracting capital, they create new jobs, strengthen production capacity through new technologies and knowledge, expand the sales market within international supply chains, and improve business processes. Their contribution to the country’s economy has a lasting effect and lies in the fact that with a simultaneous increase in exports and foreign direct investment by 10%, GDP growth reaches 9%, which is a fairly high indicator.

But in order to attract international investment, it is necessary to create certain conditions. For example, it is especially important for investors to have access to independent and qualified judges and arbitrators who will fairly resolve any possible disputes. That is why the rule of law corresponds to the level of economic development of a country. It can even be said that equality before the law and guaranteed legal protection are the backbone of the economy.

The AIFC is of particular importance in the issue of the legal system as a tool for economic development

The AIFC is a unique platform that brings together the best practices and modern capabilities of international financial centres from New York and London to Dubai, Hong Kong and Singapore. A special system of justice and arbitration has been created here.

To do so, amendments were made to the Constitution in 2017. Their essence and basis are the independent legal system of the AIFC, a court with a special legal status and exclusive competence. A separate jurisdiction based on Common law is a unique phenomenon for our country, but not for the world. 27% of 320 jurisdictions in the world use Common law on their territory. Now the AIFC is also this list.

What is the need for a separate jurisdiction based on Common law?

In general, it provides investors with a clear understanding of the procedure for legal proceedings and predictability of law enforcement practice. This is due to the fact that the Anglo-Saxon system is a case law, that is, an individual approach is applied in each case.

And now, in order, about the main advantages of Common law.

Firstly, in a contract under Common law, everything is spelled out as clearly as possible, and references to legal norms that are not directly spelled out in such an agreement are minimal. In continental civil law, many provisions of the law will be additionally applied “by default,” even if they are not specified in the agreement. This, in turn, complicates the process of concluding contracts, since the investor will have to in-depth understanding of the legislative norms.

Secondly, legal issues when signing contracts under Common law are fairly standard and often do not require discussion. Because of this, the processes of negotiations on such agreements are optimised. The involvement of lawyers in the negotiation process of the parties to the transaction also decreases.

Thirdly, the interpretation of the rules of a contract written under Common law is usually not questionable. This is due to well-established age-old practices. Any question can be answered in the official comments and court precedents.

Fourth, the independence and impartiality of the court and arbitration. Investors can be sure that all the arguments presented will be taken into account when considering a case.

Therefore, the application of Common law in the jurisdiction of the AIFC creates investor confidence in the financial centre

In Kazakhstan, the AIFC Court is represented by 8 justices and a registrar. All of them are members of the Bar Association of England and Wales, have served as appellate and Supreme Court judges, and have experience in international litigation, arbitration and mediation.

The AIFC Court has its own rules and regulations, developed from scratch. They are based on the rules and principles of the law of England and Wales but are not a simple reprint. English laws were taken as a basis, but the rules themselves were developed considering the practical experience of similar courts in other financial centres.

The AIFC Court consists of two instances: the first instance court and the appeal court. At the same time, at the level of the first instance there is a division according to the amount of claims. For disputes up to USD 150 thousand, there is a so-called small claims court, which uses facilitated procedures.

In addition, the AIFC judicial system is represented not only by modern legal proceedings, but also by the International Arbitration Centre. As it happens, many disputes in the commercial sphere are resolved specifically through arbitration and mediation.

41 arbitrators were recruited to work at the International Arbitration Centre, 25 of whom can also act as mediators. Among them are representatives of the countries of the European Union, Hong Kong, Japan, India, Russia, Singapore, Great Britain, Ukraine, USA and China, as well as domestic experts.

765 cases were considered by the AIFC Court and the International Arbitration Centre

Settlement of a dispute through mediation is the most popular way for businesses. As such 669 agreements were considered. 79 decisions were rendered in arbitration, 17 in the Court.

It is not only the bodies and participants of the financial centre that can resolve disputes in the AIFC Court and the International Arbitration Centre. For this, it is enough to have a clause in an agreement. The number of such contracts already exceeds 5 thousand. At the same time, the organisation of the process itself is free – this is one of the main advantages of the AIFC judicial system over foreign counterparts.

Also, the settlement of disputes can take place in the AIFC Court or the Arbitration Center in case of agreement of the two parties.

Another advantage of the financial centre’s judicial system is the enforcement of decisions. The decisions of the AIFC Court are binding in Kazakhstan and other countries with which our country has such agreements. Among them, for example, Russia and other CIS countries. Arbitral awards, in turn, are enforceable almost worldwide in accordance with the New York Convention of 1958.

It is also important to note that the rules for conducting proceedings in the AIFC Court and the Arbitration Centre differ. In the Court, both the filing of claims, and the timetable for consideration, and the choice of a judge are strictly regulated. In arbitration, on the other hand, in line with world practice: the parties themselves can develop their own rules of arbitration, together they choose the arbitrators and the rules according to which the proceedings will be conducted.