On the compulsion on the obligation of officials of the authorized body to make a decision on changing the contract
No.6001-23-00-6i/10 dated 08/17/2023
Plaintiff: "I RT" LLP
Respondent: State Institution "Ministry of Industry and Infrastructural Development of the Republic of Kazakhstan"
The subject of the dispute is about the coercion and obligation of officials of the authorized body to make a decision on changing the contract.
Review of the plaintiff's cassation appeal.
PLOT: The main activity of the Partnership is the subsoil use and processing of mineral raw materials. In addition, the Partnership holds the right to subsurface use based on a contract dated January 24, 2017 for the exploration of gold-bearing ores at a deposit in the area (hereinafter referred to as the Contract).
According to paragraph 3 of section 2 of the Contract, the Exploration Contract is concluded for 5 years, that is, until January 24, 2022. Based on the results of exploration work, the Partnership has compiled a "Report on the preliminary geological and economic assessment of gold-bearing ores at the deposit. Report on the assessment of oxidized deposits by the Minutes of the meeting of the State Commission on Mineral Reserves of the Republic of Kazakhstan dated August 21, 2019 No. 2079-19-P (hereinafter – GKZ) The Partnership has agreed to confirm the reserves of gold-bearing ores at the deposit in the amount of 1505.7 thousand tons of ore, 1070.1 kg of gold.
Paragraph 3.4 of the GKZ protocol recommended that the subsurface user continue to study the technological properties of gold-bearing ores within the framework of pilot production in the amount of 200 thousand tons, for a period of two years. Further, the expert commission of the Ministry of Subsoil Use dated December 9, 2021 (Protocol No. 31) made a positive decision to extend the contract for two years, subject to the fulfillment of the financial obligations of the subsoil user for mandatory contributions to the socio-economic development of the region.
Thus, based on the requests of the Partnership dated October 25, November 30, 2021, according to the minutes of the meeting of the expert commission on subsoil use dated December 9, 2021, a proposal was submitted to the Competent Authority to begin negotiations on amendments and additions to the Contract.
At the same time, based on the recommendations of the expert commission on subsoil use dated August 2, 2022 (Protocol No. 27), it was decided to cancel the previously positive decision of December 9, 2021. The said decision of the expert commission has not been challenged by the plaintiff in court.
By notification dated September 1, 2022, the defendant notified the plaintiff of the expiration of contract No. 5036-TPI dated January 24, 2017, and also announced the cancellation of an earlier positive decision dated December 9, 2021. Clause 8 of the Contract stipulates that when the term of the Contract is changed, appropriate changes and/or additions are made to the Contract.
The courts found that no changes or additions were made to the Contract for the extension of its validity by the parties.
According to paragraph 73 of section 21 of the Contract, the contract is terminated upon expiration of its validity, unless the parties have reached an agreement on its extension.
According to paragraph 3 of section 2 of the Contract, the exploration contract was concluded for a period of 5 years, therefore, it expired on January 24, 2022 due to the expiration of its validity. No termination of the term on the initiative of the defendant has been established before its expiration.
Judicial acts:
1st instance: the claim was denied.
Appeal: the court's decision is upheld.
Cassation: judicial acts have been changed.
Cancellation of the refusal to make a decision to amend contract No. 5036-TPI dated January 24, 2017, and in this part, a new decision was made to assign responsibilities to the Ministry's working group to begin negotiations on amendments and additions to the contract, taking into account the recommendations of the expert commission under the Ministry of Subsoil Use dated December 9, 2021 (protocol No. 31).
Conclusions:
By rejecting the claim, the local courts concluded that in this case there were no grounds for extending the Contract and the defendant's actions in sending a notice of termination were lawful.
Paragraph 5 of Article 37 of the Code of the Republic of Kazakhstan "On Subsoil and Subsoil Use" (hereinafter referred to as the Code) stipulates that, based on the results of consideration of the application, the competent authority concludes an addendum to the contract with the applicant and sends the applicant a signed copy of it or refuses to conclude an addendum.
Paragraph 12 of Article 278 of the Code stipulates that subsurface use contracts concluded prior to the entry into force of this Code by agreement of the parties, as well as in cases provided for by the laws of the Republic of Kazakhstan or contracts, may be amended. The competent authority, no later than five working days, submits the received application for consideration by the expert commission on subsoil use issues established in accordance with Article 45 of this Code.
The Expert Commission is an advisory body attached to the competent authority (the state body that is a party to the contract) in order to develop recommendations when considering applications from subsurface users on amendments and additions to the contract.
The expert commission reviews the application within no more than twenty working days from the date of its receipt and sends its recommendations to the competent authority (the state body that is a party to the contract). Based on the recommendations of the expert commission, the competent authority, within five working days from the date of receipt of the recommendations of the expert commission, after reviewing the application, decides to refuse to make amendments and additions to the subsurface use contract or to begin negotiations on amendments and additions to the subsurface use contract, taking into account the recommendations of the expert commission.
Negotiations on amendments and additions to the subsurface use contract are conducted by a working group of the competent authority (the state body that is a party to the contract). Negotiations are conducted within two months from the date of submission by the subsurface user to the competent authority (the state body that is a party to the contract) of the draft supplement and other necessary documents for consideration by the working group.
This period may be extended by agreement of the parties. The results of the negotiations are formalized by the protocol.
The draft amendments and additions to the subsurface use contract approved by the working group are signed by the competent party to the contract). If the draft addendum to the subsurface use contract affects the key financial and economic indicators of the subsurface use contract, by decision of the working group of the competent authority (the state body that is a party to the contract), the specified draft is sent for economic expertise before it is signed.
The procedure for conducting economic expertise is determined by the authorized body in the field of state planning. Meanwhile, it follows from the case file that the defendant, having decided to start negotiations in December 2021, reversed this decision in August 2022. This means that there are two recommendations of the expert commission and, accordingly, decisions of the Ministry.
It follows that the initiated procedure for conducting two-month negotiations, taking into account the possibility of its extension, was not brought to a logical conclusion, since, based on the first recommendation of the expert commission, the Ministry's working group had already entered the stage of discussing the issue of amendments and additions to the Contract.
The provisions of article 278 of the Code do not contain provisions for revoking an earlier decision. Thus, the defendant violated the procedure provided for by the Code. Consequently, there are no circumstances regarding the failure to reach an agreement on the extension of the Contract, namely the negative decision of the working group.
In the context of the above, as well as taking into account the criteria of fairness and reasonableness, the judicial board believes that the claim was subject to partial satisfaction, and the parties were brought to the stage of starting negotiations on amendments and additions to the Contract, taking into account the recommendations of the expert commission of the Ministry of Subsoil Use No. 31 dated December 9, 2021.
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