April 28, 2021
Invalid transactions under the legislation of the Republic of Kazakhstan
- Contested and void transactions
- Grounds for recognizing the transaction as invalid under the Civil Code
- Grounds for recognizing the transaction as invalid under other legislative acts
- Persons who have the right to demand that it be declared invalid
- Consequences of the invalidity of the transaction
1. Contested and void transactions
According to paragraph 1 of Article 157 of the Civil Code of the Republic of Kazakhstan, the concept of “invalid transaction” is divided into two categories – voidable and void transactions.
A contested transaction is recognized as invalid by virtue of a court decision, and a court decision is not required to invalidate a void transaction; it is invalid by virtue of its recognition as such by law. However, in the event of a dispute about the nullity of the transaction, its invalidity is established by the court.
2. Grounds for recognizing the transaction as invalid under the Civil Code
The transaction is declared invalid if the requirements for the form, content and participants of the transaction, as well as for the freedom of expression of their will, are violated on the grounds established by the Civil Code or other legislative acts.
- A transaction made without obtaining the necessary permission or after the expiration of the validity of the permission is void. The term “permit” in this sense means permits issued by the permitting authorities through a licensing or permitting procedure, in accordance with the legislation on permits and notifications;
- The court may declare invalid a transaction that pursues the goals of unfair competition or violates the requirements of business ethics.
Unfair competition is any action in competition aimed at achieving or providing an undue advantage.
Unfair competition includes the following actions:
1) unlawful use of means of individualization of goods, works, services, as well as objects of copyright;
2) unlawful use of goods from another manufacturer;
3) copying the appearance of the product;
4) discrediting a market entity;
5) knowingly false, dishonest and unreliable advertising;
6) sale (purchase) of goods with compulsory assortment;
7) call for a boycott of the seller (supplier) of a competitor;
8) call for discrimination against the buyer (supplier);
9) appeal of a market entity to terminate the contract with a competitor;
10) bribery of an employee of the seller (supplier);
11) bribery of the buyer’s employee;
12) unlawful use of information constituting a commercial secret;
13) the sale of goods with the provision of inaccurate information to the consumer regarding the nature, method and place of production, consumer properties, quality and quantity of goods and (or) its manufacturers;
14) incorrect comparison by a market entity of goods produced and (or) sold by him with goods produced and (or) sold by other market entities.
- A transaction made by a person under the age of fourteen (a minor) is void, except for transactions corresponding to their age – small everyday transactions executed at the very moment they are made.
- A transaction made by a minor who has reached the age of fourteen, without the consent of his legal representatives, may be recognized by the court as invalid at the suit of the legal representatives.
- A transaction made by a person recognized as incapable due to mental illness or dementia at the suit of his guardian is void.
- At the request of the trustee, the court may invalidate a transaction made by a person with limited legal capacity by the court.
- A transaction made by a citizen who, at the time of its execution, was in such a state when he could not understand the meaning of his actions or manage them, may be recognized by the court as invalid at the suit of this citizen, but if during his lifetime the citizen did not have the opportunity to bring a claim , after the death of a citizen at the suit of other interested parties.
- A transaction made as a result of a delusion of significant importance may be recognized by the court as invalid. A delusion about the nature of the transaction, the identity or such qualities of its subject matter that significantly reduce the possibility of its intended use is essential. A delusion in motives can serve as a basis for the invalidity of a transaction only if such a motive is included in its content as a suspensive or canceling condition.
- A transaction made under the influence of deception, violence, threat, as well as a transaction that a person was forced to complete as a result of a combination of difficult circumstances on extremely unfavorable conditions for himself, than the other party took advantage of (an enslaving transaction), may be recognized by the court as invalid at the claim of the victim …
- A transaction made as a result of a malicious agreement between a representative of one party with the other party may be recognized by the court as invalid at the claim of the injured party. Subsidiary liability may be imposed on a dishonest representative.
- A transaction made by a legal entity in contradiction with the goals of activity, definitely limited by the Civil Code, other legislative acts of the Republic of Kazakhstan or constituent documents, or in violation of the statutory competence of its body, may be invalidated at the suit of the owner of the property of the legal entity or its founder (participant ) if it is proven that the other party to the transaction knew or should have known about such violations.
In addition, the Civil Code provides that in case of non-compliance with a simple written form, and this is directly provided in the laws or by agreement of the parties, such a transaction is considered null and void. Also, if the simple written form is not observed, the foreign economic transaction is considered null and void.
Failure to comply with the requirement of notarization entails the nullity of the transaction, except if the transaction is actually executed by the parties or one of the parties, its content does not contradict the legislation and does not violate the rights of third parties.
3. Grounds for recognizing the transaction as invalid under other legislative acts
The norms on the invalidity of transactions are contained in the Code of the Republic of Kazakhstan “On marriage (matrimony) and family” (article 43), the Code of the Republic of Kazakhstan dated December 27, 2017 No. 125-VI “On subsoil and subsoil use” (article 39), Laws of the Republic of Kazakhstan dated May 13, 2003 No. 415-II “On Joint Stock Companies” (paragraph 1 of Article 74), dated July 6, 2004 No. 574-II “On Inland Water Transport” (paragraph 2 of Article 82), dated March 7, 2014 No. 176- V “On rehabilitation and bankruptcy” (Article 7) and other legislative acts.
Code of the Republic of Kazakhstan dated December 26, 2011 No. 518-IV “On marriage (matrimony) and family”
A marriage contract may be declared invalid by a court in whole or in part on the grounds of the invalidity of transactions. The court may also recognize the marriage contract as invalid in whole or in part at the request of one of the spouses, if the terms of the contract put this spouse in an extremely disadvantageous position or violate the property rights of children born or adopted in this marriage (matrimony).
Code of the Republic of Kazakhstan dated December 27, 2017 No. 125-VI “On Subsoil and Subsoil Use”
The grounds for recognizing a subsoil use contract as invalid are:
1) recognition of the auction for granting the right to subsurface use invalid;
2) the absence in the subsoil use contract of the mandatory conditions established by the Code;
3) establishment of the fact that the competent authority was provided with deliberately inaccurate information that influenced its decision to conclude a subsoil use contract with this person;
4) other grounds provided for by the laws of the Republic of Kazakhstan.
Law of the Republic of Kazakhstan dated May 13, 2003 No. 415-II “On Joint Stock Companies”
Failure to comply with the requirements provided for by law, when making a major transaction and an interested party transaction, as well as making other transactions in violation of the requirements of the legislation of the Republic of Kazakhstan, may result in the recognition of these transactions as invalid in court at the suit of interested parties.
Law of the Republic of Kazakhstan dated July 6, 2004 No. 574-II “On Inland Water Transport”
Agreements of the parties to the contract of carriage with the purpose of limiting or eliminating the liability established by this Law are invalid.
Law of the Republic of Kazakhstan dated March 7, 2014 No. 176-V “On Rehabilitation and Bankruptcy”
The grounds for the invalidity of transactions are:
1) the price of the transaction and (or) other conditions differ significantly for the worse for the debtor from the price and (or) other conditions under which similar transactions are made in comparable circumstances;
2) the transaction does not correspond to the activities of the debtor, limited by the laws of the Republic of Kazakhstan, constituent documents, or was made in violation of the competence determined by the charter;
3) the property was transferred (including for temporary use) free of charge or at a price that significantly differs for the worse for the debtor from the price of an identical or similar product under comparable economic conditions or without grounds for transfer to the detriment of the interests of creditors;
4) if the transaction, completed within six months before the initiation of the rehabilitation and (or) bankruptcy case, resulted in the preferential satisfaction of the claims of some creditors over others;
5) agreements on donation of the debtor’s property, if such a transaction differs significantly from transactions concluded a year before the initiation of a rehabilitation or bankruptcy case;
6) a transaction made without the intention to create appropriate legal consequences for such a transaction, to the detriment of the interests of creditors.
4. Persons who have the right to demand that it be declared invalid
A request to declare a transaction invalid may be submitted by interested parties, an appropriate state body or a prosecutor.
An interested party is a person whose rights and legitimate interests have been violated or may be violated as a result of the specified transaction.
A claim on the application of the consequences of the invalidity of a void transaction may be presented by any interested person, regardless of whether the claim has been made to declare a void transaction invalid.
5. Consequences of the invalidity of the transaction
The consequences of the invalidity of the transaction are expressed in the form:
– bilateral restitution (in the form of an obligation to return by one of the parties to the other everything received under the transaction);
– if it is impossible to return in kind, reimbursement of the value of the property subject to return, the cost of using the property, work performed or services rendered in monetary terms;
– other consequences of the invalidity of the transaction (confiscation), (vindication).
When applying the consequences of the invalidity of the transaction, the courts should take into account that bilateral restitution cannot be applied as a consequence if the court finds that, as a result of one (first) invalid transaction, the disputed property was again alienated to new acquirers on the basis of subsequent transactions.
The recognition by the court of the first transaction as invalid by virtue of paragraph 8 of Article 157 of the Civil Code does not entail any legal consequences, except for those related to its invalidity, and is invalid from the moment of its execution, unless otherwise provided by the Civil Code, legislative acts or follows from the essence or the content of the transaction.
It should be noted that restitution and vindication, used as consequences of the invalidity of transactions, have similar goals – the return of lost property.
In case of restitution, the demand for the return of the property received under an invalid transaction, as a general rule, entails the return of the counter-provision for the property received. In case of vindication, due to the absence of an obligation relationship between the plaintiff and the defendant, the latter cannot state any claims against the plaintiff (vindicant).
In cases where the reclamation of property is carried out by the owner from other persons, the application of consequences in the form of vindication depends on the presence or absence of the following circumstances: whether the transaction for the alienation of property is paid or gratuitous; from the good faith or bad faith of the acquirer; method of disposal of property from the possession of the owner: against the will of the latter or at his will.
The use of vindication, as a consequence of the invalidity of the transaction, does not deprive the defendant of the right to file an independent claim against the person who sold him the disputed property for the return of funds or other property received under the invalid transaction, as well as to demand compensation for the damage caused.