Abdulaziz Janturaev

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In the era of globalization and expanding cross-border trade, alternative dispute resolution, in particular international commercial arbitration (ICA), is becoming a crucial tool for resolving commercial disputes. While many developed countries, such as Singapore and France, have established a robust legal framework and infrastructure for ICA, Uzbekistan is still in the process of developing its capacity in this area. In this article, I will analyze Uzbekistan’s current readiness for the ICA, identify challenges and propose a comprehensive approach to strengthening the country’s position as an attractive destination for international businesses seeking dispute resolution services.

Legal Basis of Arbitration in Uzbekistan

Uzbek legislation contains two laws governing arbitration: one for domestic cases and one for international commercial arbitration. The Arbitration Courts Act, adopted in 2006, defines the basic principles, functions and jurisdiction of arbitration courts, as well as the types of disputes they may resolve and the applicable law. Thus, article 9 of the Act provides that arbitration courts shall hear disputes arising out of civil legal relations, including economic disputes between enterprises, while excluding certain types of claims, such as administrative, family and labor disputes.

In addition, Article 10 of the Law stipulates that in domestic arbitration disputes, only Uzbek legislation should be applied, taking into account the customs of business turnover and similar laws where necessary. Any attempt to apply foreign laws or international rules risks invalidating the arbitration, although arbitrators usually avoid this in order to preserve the legality of their decisions.

Despite this legal framework, arbitration in Uzbekistan faces problems, mainly due to public ignorance and lack of trust in the system. The mistrust is exacerbated by the fact that arbitral awards often do not comply with the law, mainly due to the lack of experience of judges. In 2021 alone, more than 200 arbitral awards were invalidated by state courts, showing a worrying trend.

With regard to international commercial arbitration, the Law “On International Commercial Arbitration” of the Republic of Uzbekistan, which entered into force in August 2021, represents a significant step forward in the development of ICA in the country. The Law fully replicates the UNCITRAL Model Law with some modifications. Article 4 of the Law, mirroring article 1 of the UNCITRAL Model Law, defines the jurisdiction of international commercial arbitration. In particular, it provides for the application of the ICA in the following cases:

1) The places of business of the parties to the arbitration agreement are located in different countries at the time of its conclusion; or

2) If one of the following places is outside the country in which the parties have their places of business:

   a) The place of arbitration, if specified in or pursuant to the arbitration agreement;

   b) Any place where the majority of the obligations arising out of the commercial relationship are to be performed or the place most closely related to the subject matter of the dispute; or

3) Arbitration shall be considered international if the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

In a recent dispute in Uzbekistan, a court disregarded an arbitration clause in a contract between a foreign company and an individual, violating Article 13 of the Law on International Commercial Arbitration. Instead of referring the case to arbitration as required by law, the court decided to hear the case directly. This decision raises concerns about the judiciary’s support for arbitration and calls into question the country’s compliance with international conventions promoting arbitration.

Current State of ICA in Uzbekistan:

Uzbekistan currently has only one ICA institution, the Tashkent International Arbitration Center (TIAC), which was established in 2018 under a  Presidential Decree. By comparison, there are more than 1,100 domestic arbitration courts in the country. According to data.egov.uz, since its establishment, the TMAC has resolved more than 20 international commercial disputes and has received more than 50 appeals, according to its head, which is still relatively low given its status as the only ICA institution in Uzbekistan.

Several factors contribute to the slow growth of ICA in Uzbekistan:

1. Legal Expertise: Judges in Uzbekistan often lack experience in applying international law, resulting in invalid arbitral awards. In 2021, state courts overturned more than 200 domestic arbitration awards, indicating the need for more legal education and training.

2. Procedural rules: The lack of specific procedural rules for the establishment of ICAs in Uzbekistan hinders their development. The introduction of clear rules, such as those in Singapore and France, could facilitate the growth of ICAs.

Learning from International Practices

To improve its readiness for the ICA, Uzbekistan can learn from the experience of countries that have successfully developed their arbitration system and infrastructure:

France: France has a long tradition of supporting arbitration, and the legislative framework distinguishes between domestic and international arbitration. French courts consistently uphold the principle of party autonomy and limit their intervention in arbitration proceedings. The legal framework for commercial arbitration is clearly set out separately for domestic (Articles from 1442 to 1503 of the Code of Civil Procedure) and international arbitration (Articles 1504 to 1527).

As a regional and historical aspect in the current legislation of our countries, the practices of Kazakhstan and Georgia also offer valuable insights into successful arbitration practices that Uzbekistan can adopt to strengthen its own system.

Kazakhstan has made significant changes in modernizing its arbitration laws and infrastructure. In 2016, Kazakhstan adopted a new Arbitration Law based on the UNCITRAL Model Law, providing a solid legal framework for both domestic and international arbitration. The country has also established the Astana International Financial Centre (AIFC) Court and International Arbitration Centre (IAC), which operate under English law principles and have gained international recognition for their efficiency and impartiality. Uzbekistan can benefit from Kazakhstan’s experience by incorporating similar provisions from the UNCITRAL Model Law into its own legislation and establishing specialized arbitration centers to attract international cases.

Georgia has also undertaken reforms aimed at strengthening the arbitration system and promoting itself as a regional arbitration center. The country’s Law on Arbitration, adopted in 2010, complies with international standards and provides for the recognition and enforcement of arbitral awards. Georgia has also established the Tbilisi International Arbitration Center (TIAC), which offers modern facilities and procedural rules for resolving domestic and international disputes. Uzbekistan can take inspiration from Georgia’s approach by adopting legislation to facilitate the recognition and enforcement of arbitral awards and by establishing specialized arbitral institutions for the efficient administration of proceedings.

By incorporating the provisions of the UNCITRAL Model Law, establishing specialized arbitration centers and ensuring recognition and enforcement of arbitral awards, Uzbekistan can create a favorable environment for international arbitration and increase its competitiveness in the global market.

Strategies for enhancing Uzbekistan’s readiness for the ICA

To enhance Uzbekistan’s readiness for the ICA, a comprehensive approach covering legal, institutional and capacity building aspects should be adopted:

Legal Reforms:

  • Introduce special procedural rules for the establishment of the ICA, clearly defining the requirements and processes.
  • Amend existing legislation to limit the scope of review of arbitral awards by domestic courts to procedural aspects, in line with international best practice.
  • Strengthen the legal framework for enforcement of foreign arbitral awards, ensuring compliance with the New York Convention.

Institutional Development:

  • Establish additional ICA institutions to promote competition and provide more options for businesses seeking arbitration services.

  • Encourage existing institutions, such as TIAC, to adopt specialized rules and procedures tailored to international disputes, drawing from the experiences of SIAC and HKIAC and regional allies.

  • Foster collaborations between local ICA institutions and renowned international arbitration centers to exchange knowledge and best practices.

Capacity Building:

  • Invest in education and training programs for judges, lawyers, and other legal professionals to enhance their understanding and application of international arbitration law.
  • Organize workshops, seminars, and conferences to raise awareness about ICA among the business community and promote its benefits.

  • Encourage the development of a specialized pool of arbitrators with expertise in international commercial disputes.

Conclusion

Uzbekistan has taken the first steps towards establishing a legal framework for the ICA, but significant challenges remain in the areas of legal expertise, procedural rules and broader economic and capacity building issues. By taking a comprehensive approach that includes legal reforms, institutional development, capacity building, infrastructure development, and international cooperation, Uzbekistan can increase its readiness for the ICA and position itself as an attractive destination for international businesses seeking dispute resolution services.

By addressing these challenges and capitalizing on growth opportunities, Uzbekistan can unlock the potential of the ICA and contribute to its economic development by attracting foreign investment and facilitating cross-border trade. A strong and effective ICA regime will not only benefit business, but also enhance Uzbekistan’s reputation as a safe and secure place for international trade.            

Cite as:  Abdulaziz Janturaev, “Enhancing Uzbekistan’s Readiness for International Commercial Arbitration: A Comprehensive Approach”, Uzbekistan Law Blog, 07.05.2024.