Dispute with the competent authority

Our lawyers recently represented the interests of the subsoil user in a dispute with the Ministry of Energy on the issue of fulfilling license obligations – financing the training of Kazakhstani specialists. This case had some interesting nuances, such as: jurisdiction of the court over the case, determination of the statute of limitations, fulfillment of obligations after expiration of the license, basis for calculating the debt amounts.

The Ministry of Energy appealed to the court with a claim against the subsoil user on fulfilling contractual obligations under the license. At the same time, the contract for subsurface use was concluded before the legislation introduced a licensing of exploration and production. Therefore, the license was issued on the basis of the contract, not vice versa.

The contract included an arbitration clause, so we tried to challenge the competence of the court to consider the dispute. We also suggested that the court should obtain the opinion of the International Council at the Supreme Court of the Republic of Kazakhstan on the issue of jurisdiction.

However, both the court of first instance and the court of appeal concluded that the dispute arose not from the contract, which included the arbitration clause, but from the license that established "separate contractual terms". At the same time, the courts referred to paragraph 10 of Article 8 of the Law "On Arbitration", without explaining how this provision justifies the specified argument of the courts.

The Ministry of Energy included in the claim the arrears for two years, for which the general statute of limitations has expired. The Ministry of Energy argued that the statute of limitations should commence from the moment of sending a request for debt recovery. We insisted that the statute of limitations should commence from the moment when the Ministry of Energy became aware of or should have become aware of the debt (in our case, after receiving the LKU reports for the relevant years).

The courts of both instances supported our position on this issue. Moreover, the court of first instance issued a private ruling against the Ministry of Energy for missing the statute of limitations.

The subsoil user continued to finance the training of Kazakhstani specialists even after the license expired (i.e. neither the license nor the contract obliged the subsoil user). We pointed out this fact and tried to convince the court that there was not a failure to fulfill an obligation, but an improper (untimely) fulfillment of an obligation. We presented several hundred primary documents to the court as evidence of the fulfillment of the obligation.

However, the courts of first instance and appeal considered that the subsoil user voluntarily financed the training of local specialists after the expiration of the license, therefore such financing is in no way related to the fulfillment of obligations under the license. At the same time, the courts did not give any assessment to our argument that the state received everything that it expected to receive under the license in terms of training local specialists.

In conclusion, it should be noted the usual creative approach of the Ministry of Energy to the basis for calculating the obligation – 1% of production costs. The Ministry of Energy used both planned and actual production expenditure figures as a base for different years, depending on which indicator was higher. We pointed out this inconsistency to the court. However, the court of first instance concluded that the Ministry of Energy has the right "to determine the amount of obligations both from planned and actually incurred expenses, solely in the interests of the economic benefit of the citizens of Kazakhstan," although no law establishes such a thing.

The result of the trial: out of 172 million tenge of claims, the courts awarded the Ministry of Energy only 63 million tenge.