Choice Of Governing Law For Agreement With Kazakhstani Counterparty

If your counterparty is a Kazakhstani company, the choice of governing law would be one of the major questions in an agreement being entered into with such counterparty.

This choice is extremely important because, from a Kazakhstani law perspective, the law governing an agreement covers such basic for any agreement aspects of its execution and performance as interpretation of the agreement, rights and obligations of the parties, performance of the agreement and consequences of its failure to perform/ improper performance, termination of the agreement, grounds and consequences of its invalidity and also possibility of its assignment.

Kazakhstani law offers sufficient freedom in the choice of law. The general rule is that an agreement is governed by law of the jurisdiction chosen by the parties, unless otherwise is established by laws of Kazakhstan.

There are several cases where the legislation prohibits using foreign law as the law governing an agreement. Such cases, in particular, include agreements, the subject of which is real estate located in Kazakhstan, and assets registered in a state register in Kazakhstan (e.g. railway vehicles, inland water vessels, vessels for river-sea navigation, etc.).

Apart from that, creation of a legal entity in Kazakhstan (including when a foreign person/entity acts as a shareholder/participant in such legal entity), termination of its operation, transfer of shares/ participatory interest in such legal entity and also other relationships associated with mutual rights and obligations of its shareholders/ participants must be governed by Kazakhstani law.

For each party to an agreement the main argument for choosing its "own" law as governing is normally a desire to "play by own rules". Quite often, the choice of foreign (non-Kazakhstani) law is also inspired by underdevelopment in Kazakhstani law of such traditional for many legal systems concepts as representations and warranties, indemnity, waiver, and some others.

Sometimes, the use of foreign law is triggered by the fact that Kazakhstani "commercial" law emerged relatively recently, and court practice for certain types of court cases is fairly limited, which entails for a foreign counterparty a certain risk that application of Kazakhstani law would not offer...