The Mongolian Mining Journal. april. 2015 № 004
Recently Mongolia lost a case submitted by Khan Resources to arbitration and the Rio Tinto dispute also might be referred to arbitration. S.Bold-Erdene talks to arbiter and legal advisor T.Altangerel to find out more about what the process entails. T.Altangerel worked in the Ministry of Law and Internal Affairs between 2005 and 2012 as head of an agency and was involved in the arbitration case against Altan Dornod Mongolia which that company lost.
What exactly is an arbitration court?
The usual method of resolving a dispute is going to court but this has some disadvantages. For example, you can lose a lot of time in going through the stages of a court case, and the court can be inflexible and also sometimes lack special knowledge of some of the issues in contention. There are several other ways to solve a dispute, such as arbitration and mediation. Both these processes are regulated by law in Mongolia.
Arbitration usually aims to resolve business and civil disputes after the parties agree to abide by the award. Arbitration is professional, doesn’t take as much time as other methods, and costs less. These are the advantages of arbitration. The parties will have to agree on the arbitration method. A third party acceptable to the disputants will resolve the dispute independent of both parties. He or she is called an arbitrator, not a judge.
There are two kinds of arbitration: permanent and temporary. Permanent arbitration is based on an organization. For example, there are arbitration facilities at the Chamber of Commerce and Industry whereas in London, there is the Court of International Arbitration. A temporary one is established to resolve a dispute where the disputing parties select the location for discussion as well as the arbitrator.
Mongolia is actively considering entering into major agreements with foreign investors. Could these be made without prior arbitration?
The parties in any major project or negotiation have to be clear on what to do in case of a potential dispute. So that kind of regulation is essential. It is also good for both parties to know where to go and whom to approach when a problem crops up. Both parties in any investment negotiations should insist from the beginning on a reliable and easily accessible conflict resolution mechanism. It is grossly unwise to overlook this when any agreement, especially a major one, is prepared. It is up to the parties to opt for local resolution or intentional arbitration, but global companies usually prefer the latter to the local judicial process.
Why is that?
International arbitration is independent whereas local courts can be unreliable regarding skills, bias, political pressure and corruption. Also the disputing parties choose the arbitrator themselves knowing their award will be binding and will usually not be overturned on appeal. That is why arbitration is the choice for solving disputes over cross-country investments and businesses. Some, however, are not convinced of the advantages of arbitration, doubting its independence and questioning the restrictions on appeals. For example, Australia does not allow arbitration in investment agreements. If the national court system is well established, skilful and reliable, this can be the case.
The Government of Mongolia has been asked to pay $100 million to Khan Resources. The Ministry of Law says it might appeal against the award. Do you think that will be a good idea?
As I said, an arbitration award is most often final. However since the decision made abroad has to be confirmed by a local court, there are a few very restricted situations where it can be appealed. Mongolia is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards which allows an appeal if there was a mistake in how the arbitral team was chosen or if the award violates a country’s general interest. Some countries have gone on appeal but broadly the convention does not encourage this. However, it is open to the parties to negotiate on how to implement the award.
You successfully represented the Government of Mongolia in the case against Altan Dornod Mongol in an arbitration court. What is the main legal difference between the two cases of Khan Resources and Altan Dornod Mongol?
The Mongolian Government began signing international agreements on its own in 1990. A law was passed to help attract investments and create a friendly legal environment for them. However, Mongolia signed too many agreements and conventions without any proper application of mind. This became evident when a dispute arose. We must study international agreements and conventions carefully and then need bring our own laws into conformity with them.
The first dispute was with Marubeni Corporation and it was solved at the British court. The next referral to arbitration was the case against Alstom Power Italia. This and the case of Khan Resources were based on the Energy Charter Treaty but we didn’t know about this and proposed to compromise.
The arbitration case of the Russian-invested Altan Dornod Mongol lasted for about 4 years, from 2007 to 2011 and had the gest amount of claim, $1 billion. The arbitration found no merit in the company’s claim. The company said the 68% windfall profit tax on gold and copper was in violation of the agreement between Russia and Mongolia on encouraging cross country investment. During the course of the arbitration the Mongolian Parliament suspended the law as the tax was too high, but our success depended on defending the law and we did this successfully. It was a complex case, full of risks. Though we won, there were news reports which said that we had lost, and we were constantly attacked.
I have little detailed information on the case of Khan Resources, so cannot comment on it. The company‘s claim as somewhat similar to Altan Dornod Mongol‘s and both used international and national legislations to make their case. The result of a dispute depends on many factors such as the facts on the ground, legal aspects, the State’s defence strategy, and the composition of the arbitration court.
What grounds were on our side in the Altan Dornod Mongol case?
The award was written in more than 200 pages, showing the range of arguments. In brief, the court agreed that the Government of Mongolia did not expropriate the company’s assets by imposing taxes, and that any new taxation did not violate the agreement between Russia and Mongolia to support mutual investments if there was no Agreement on Stability. It may be inconvenient for the investor if tax rates are increased, but that is risk a compny has to be ready for. I was confident of our arguments and did not think we would lose.
If Oyu Tolgoi is taken to arbitration, how should we prepare our case?
It’s not appropriate to give legal advice through media and plus, I don’t have any right to represent one side. Generally speaking, it’s better to resolve differences through talks than going to a court of arbitration. It is possible to use the services of a professional and experienced mediator and reach a compromise. Since we are not talking about a one-time investment and look forward to many years of cooperation, I personally think it would be better to go to a mediator instead of arbitration. Obviously, we must prepare a strong case if we do decide on arbitration. Until now, we never initiated any arbitration, we have always been the defendant. We have to carefully consider if the issues in the case are important enough, and the law is really on our side. Then there would be nothing wrong with going to arbitration. Since it involves a investor, we need to think of even more factors and assess the situation rightly.
Do you think that the impression created by the arbitrations is that Mongolia does not well understand international law and that this is affecting the reputation of the country?
There is truth in this perception. A small country like Mongolia cannot afford to pay huge amounts because of irresponsible decisions. Of course, we cannot accept every move of investors on the ground that investment is important. The State needs to find a delicate balance to conflicting demand. At the moment the Government of Mongolia should be focused on not repeating the case with Khan Resources.