Arbitration in Mongolia has a long history, although its practice as a dispute resolution method adapted to international standards started to develop significantly only after the collapse of the Soviet Union.

Arbitration in Mongolia Prior to the Dissolution of the Soviet Union

Mongolia’s first arbitration rules were adopted 90 years ago, on 17 January 1930, and were aimed at governing disputes between ministries and public companies.[1] Similarly, the first arbitration institution in Mongolia, called the Foreign Trade Arbitration Court, was established on 2 July 1960.[2] In 1975, the need to amend the arbitration law was encouraged by the Convention on the Settlement by Arbitration of Civil Law Disputes Resulting from Relations of Economic, Scientific and Technical Cooperation, signed in Moscow on 26 May 1972 by the Governments of the Council for Mutual Economic Aid (COMECON), which included Mongolia.[3] The main purpose of the new arbitration legislation was to resolve trade disputes between COMECON members.[4]

It is unsurprising that investment arbitration was essentially non-existent during the Soviet era. As pointed out by Olga Boltenko, “Save for very limited exceptions, foreign capital was forbidden in the USSR for ideological reasons: it was viewed as inconsistent with the USSR’s emphasis on central planning, a planned command economy and domestic production.”[5]

Arbitration in Mongolia after the Dissolution of the Soviet Union

After the collapse of the Soviet Union, Mongolia adopted a Foreign Trade Arbitration Law in 1995, which was in turn replaced in 2003 by the Law on Arbitration.[6] According to the 2003 Law on Arbitration, the Foreign Trade Arbitration Court was renamed the Mongolian National Arbitration Center. Today, the institution is named the Mongolian International Arbitration Center.[7] The last revision of Mongolia’s arbitration legislation occurred on 6 January 2017 when the Arbitration Law of Mongolia (“2017 Arbitration Law”) was enacted.

The collapse of the Soviet Union also encouraged the development of the legislation regarding the foreign direct investments and Mongolia’s accession to international structures. Mongolia ratified the ICSID Convention on 14 June 1991. To date, Mongolia has entered into 44 Bilateral Investment Treaties, out of which six are only signed and not in force (BITs with Qatar, Croatia, Korea, UAE, Bulgaria, and Kyrgyzstan and two have been terminated (the BIT with Japan was replaced by the Japan-Mongolia EPA and the BIT with India was unilaterally denounced by India).[8] Mongolia is also party to the Energy Charter Treaty.

In 1993, Mongolia adopted its investment law and, in 1998, its Model BIT. In 2012, Mongolia tried to put in place a new Strategic Entities Foreign Investment Law[9] whose aim was to restrain the regime for foreign investments in strategic sectors such as natural resources, transport, communication and agriculture. This legislation generated considerable concerns[10]  and was heavily criticized, which pushed Mongolia to abandon it in 2013,[11] when its current Foreign Investment Law was enacted.

Commercial Arbitration in Mongolia

The 2017 Arbitration Law is based on the UNCITRAL Model law. It is divided into nine chapters and 52 Articles as follows:

• Chapter 1 – General Provisions (Article 1 to Article 7)
• Chapter 2 – Arbitration Agreement (Article 8 to Article 11)
• Chapter 3 – Composition of Arbitration Tribunal and Its Powers (Article 12 to Article 18)
• Chapter 4 – Power of Arbitration Tribunal to Order Interim Measures (Article 19 to Article 29)
• Chapter 5 – Conduct of Arbitration Proceedings (Article 30 to Article 39)
• Chapter 6 – Making of Award and Termination Proceedings (Article 40 to Article 46)
• Chapter 7 – Recourse against Award (Article 47)
• Chapter 8 – Recognition and Enforcement of Awards (Article 48 to Article 49)
• Chapter 9 – Additional Provisions (Article 50 to Article 52).

We will review some basic features of the 2017 Arbitration Law below.

Definition of International Arbitration in Mongolia

The 2017 Arbitration Law applies to both domestic and international arbitrations. International arbitration is defined in Article 3(2) of the 2017 Arbitration Law as an arbitration involving:

• parties whose places of business are located in different countries at the time of the conclusion of the arbitration agreement;
• parties whose places of business are located in different countries as compared to the country of the seat of arbitration;
• parties whose places of business are located in different countries as compared to the country of the performance of the substantial part of the parties’ obligations or the country most closely connected to the subject matter of the dispute; or
• parties who have expressly agreed that the subject matter of the arbitration agreements concerns more than one country.

Arbitrable Disputes in Mongolia

According to Article 9 of the 2017 Arbitration Law, any dispute as specified in the arbitration agreement shall be referred to arbitration, with exception of matters over which domestic courts have exclusive jurisdiction. Such exclusive jurisdiction is determined in Article 190 of the Civil Procedure Code of Mongolia and includes, for example, in rem disputes regarding land registration and disputes concerning the registration of trademarks.[12]

Composition and Jurisdiction of Arbitral Tribunals in Mongolia

In accordance with Article 12(1) of the 2017 Arbitration Law an arbitral tribunal shall be composed of one or more arbitrators. Although the precise number of arbitrators is to be determined by the parties (Article 12(2)), the default rule is a panel of three arbitrators (Article 12(3)).

Article 13 contains several pre-requisites that all arbitrators must meet: independency, absence of a conflict of interest or any other requirements specified by the parties. Article 13(2) also specifies that the appointment of an arbitrator shall not be precluded by reason of his/her nationality, unless otherwise agreed by the parties.

Pursuant to Article 18(1) of the 2017 Arbitration Law, once constituted the arbitral tribunal has the power to decide on its own jurisdiction, including any objections as to the existence or validity of the arbitration agreement. Article 18(2) of the 2017 Arbitration Law, in turn, embodies the principle of independence or separability of the arbitration agreement from the main contract, meaning that the validity of the arbitration agreement shall not be impacted by the invalidity of the contract containing it.

The arbitral tribunal also has the power to grant interim measures (Article 19). According to Article 27 of the 2017 Arbitration Law, the parties are obliged to respect any interim measure granted by the arbitral tribunal, unless its enforcement is challenged before domestic courts on grounds which are the same as the ones for final awards as set forth in Article 49 (see below).

Arbitral Awards Rendered in Mongolia

In its final award, the arbitral tribunal shall rule in accordance with the law applicable to the substance of the dispute if the latter was determined by the parties (Article 40(1)). In the absence of such determination, the arbitral tribunal shall apply the law which it considers appropriate (Article 40(3)) and, in any event, decide in accordance with the terms of the contract, while taking into account any trade usages applicable to the transaction (Article 40(5)). Article 40(4) of the 2017 Arbitration Law provides that the arbitral tribunal shall not rule ex aequo et bono unless otherwise agreed by the parties.

Arbitral awards shall be rendered in writing (Article 44(1)) and state the reasons upon which the decision of the arbitral tribunal is based (Article 44(2)). The arbitral award shall also state the date and the place of arbitration (Article 44(3)) and be signed by all members of the arbitral tribunal (Article 44(1)).

Within 30 days as of the receipt of the arbitral award, or any other period agreed by the parties, each party can request that the arbitral tribunal correct any computation, clerical or typographical error of the arbitral award (Article 46(1)). If the parties agree, each party can also request that the arbitral tribunal clarify the interpretation of the arbitral award (Article 46(2)). The arbitral tribunal shall decide on the above requests within 30 days as of their receipt (Article 46(3)).

Unless otherwise agreed by the parties, each party may also request that the arbitral tribunal make an additional award regarding claims presented in the arbitration proceedings but omitted in the arbitral award (Article 46(5)). Such a request must be made 30 days as of the receipt of the arbitral award and the arbitral tribunal shall rule on such a request within 60 days as of its receipt, if it considers that the request is justified (Article 46(5)).

Finally, Article 47(3) of the 2017 Arbitration Law provides that each party can apply for setting aside of the arbitral award within 30 days for domestic arbitrations and 90 days for international arbitrations, as of the receipt of the arbitral award or as of the resolution of the requests as per Article 46 (correction, interpretation or additional award).

Pursuant to Article 47(2), the arbitral award can be set aside only for the following reasons:

• Incapacity of either party to the arbitration agreement;
• Invalidity of the arbitration agreement;
• The party seeking the setting aside of the arbitral award was not given proper notice of the appointment of the arbitral tribunal;
• The party seeking the setting aside of the arbitral award was unable to present its case;
• The arbitral tribunal exceeded the scope of the arbitration agreement in its award;
• The composition of the arbitral tribunal was irregular, i.e., not in accordance with the agreement of the parties;
• The subject-matter of the dispute was not capable of resolution via arbitration under the laws of Mongolia; or
• The award is in conflict with the public policy of Mongolia.

Recognition and Enforcement of Foreign Awards in Mongolia

Mongolia ratified the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards on 24 October 1994. When acceding to the Convention, Mongolia made two standard declarations: first, that it will apply the Convention on the basis of reciprocity and, second, that it will apply the Convention only to “differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of Mongolia”.[13]

The regime for recognition and enforcement of foreign awards is, thus, based on the New York Convention and embodied in Article 49 of the 2017 Arbitration Law. The grounds for refusing the recognition or enforcement of foreign awards are the same as the grounds for setting aside awards rendered in Mongolia as per Article 47 of the 2017 Arbitration Law (see above).

Settlement of Disputes and Arbitration in Mongolia

The amicable settlement of a dispute between parties is always possible, even after the initiation of the arbitral proceedings. According to Article 43 of the 2017 Arbitration Law, if the parties reach amicable settlement of their dispute, the arbitral tribunal shall terminate the proceedings and, at the request of the parties, record such amicable settlement in an award which will have the same legal force as any award on the merits of the case.

Investment Arbitration in Mongolia

Mongolia is a country known for its mineral wealth. According to the Extractive Industries Transparency Initiative, the country disposes of a number of major mineral deposits of coal, copper, gold, petroleum and uranium that are particularly appealing to foreign investors. As indicated by the Mongolian National Chamber of Commerce and Industry, foreign direct investment in Mongolia “is heavily skewed towards mining”.[14] For example, in 2018, oil exploration and mining activities represented 68.4% of all foreign direct investments made in Mongolia.

Also, as summarized by Richy Chen, Mongolia’s recovery from the  2008 financial crisis “can be attributed to the 2009 Oyu Tolgoi Investment Agreement,  which stated the terms for how Australia’s Rio Tinto and Canada’s Ivanhoe Mines would operate Oyu Tolgoi […] to benefit Mongolia”. [15]

It comes thus without much surprise that all publicly-known investment arbitrations brought to date against Mongolia have concerned the mining sector. Currently, Mongolia is facing an investment arbitration brought by a US-incorporated company, WM Mining Company,[16] which “appears to hold an interest in the Big Bend placer gold mining project in the Zaamar goldfield, in north central Mongolia”[17]

We will review some of previous investment arbitrations against Mongolia below.

Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia

In late 2007, three Russian nationals, including Mr. Sergei Paushok, initiated an investment arbitration against Mongolia under the Mongolia-Russia BIT. The dispute related, inter alia, to the enactment in 2006 of a Law on Imposition of Price Increase (Windfall) Taxes on Some Commodities (the “WPT Law”) and a Law on Minerals imposing a maximum for foreign nationals employed by the mining companies that impacted Golden-East Mongolia (“GEM”), a gold mining company incorporated in Mongolia, owned directly or indirectly by the Claimants. The Claimants argued that by virtue of these laws, Mongolia breached, inter alia, Article 2 (full protection and security), Article 3 (fair and equitable treatment and non-impairment standards) and Article 4 (expropriation) of the BIT.

In its Award on Jurisdiction and Liability dated 28 April 2011, the arbitral tribunal composed of Marc Lalonde (President), Horacio Grigera Naon and Brigitte Stern dismissed the majority of the Claimants’ claims.

As a preliminary remark, the arbitral tribunal stated that “[a]ctions by legislative assemblies are not beyond the reach of bilateral investment treaties. A State is not immune from claims by foreign investors in connection with legislation passed by its legislative body, unless a specific exemption is included in the relevant treaty. On the other hand, the fact that a democratically elected legislature has passed legislation that may be considered as ill-conceived, counter-productive and excessively burdensome does not automatically allow to conclude that a breach of an investment treaty has occurred.”[18]

Regarding the claims relating to the WPT law, the arbitral tribunal ruled that Mongolia had not breached the Claimants’ legitimate expectations and, thus, the fair and equitable treatment standard, since no stability agreement in favor of GEM, that would shield the latter against tax increases in the future, was in place. It considered that, generally, “foreign investors are acutely aware that significant modification of taxation levels represents a serious risk, especially investing in a country at an early stage of economic and institutional development.”[19] It also considered that the WPT “by itself [could] not be considered an expropriatory measure”[20] for two reasons. First, the tribunal pointed out that the Claimants kept the ownership of GEM and continued to manage its day-to-day activities after the enactment of the WPT law.[21] Second, it held that the impact of the WPT law on GEM was not tantamount to expropriation, noting that “other mines not benefiting from a stability agreement still managed to continue their operation in spite of the application of the WPT”[22] and that, in any event, the losses suffered by GEM did not lead to “the destruction of an ongoing enterprise”.[23]

Similarly, regarding the Law on Minerals-related claims, the tribunal noted that “it is not unheard of that States impose restrictions on the hiring of foreign workers […]. By themselves, such restrictions, including a total ban of foreign workers, do not automatically constitute a breach of a BIT. The burden is upon the investor to prove that a particular provision of a BIT has been breached.”[24] The tribunal was of the view that the Claimants had not presented sufficient proof establishing Mongolia’s purported breaches and rejected the claims.

Beijing Shougang and others v. Mongolia, PCA Case No. 2010-20

On 12 February 2010, several Chinese investors, including Beijing Shougang Mining Investment Company, filed a Request for Arbitration and, thus, initiated an investment arbitration following the UNCITRAL Arbitration Rules (1976) against Mongolia under the China-Mongolia BIT and Foreign Investment Law. The dispute concerned the revocation by Mongolia of the mining license held by Tumurtei Khuder LLC, a Mongolian company owned by the Claimants, regarding the Tumurtei iron ore mine located in Khuder sub-province, Selenge province, in Mongolia. The Claimants alleged that the revocation of the mining license amounted to unlawful expropriation in breach of Article 4 of the China-Mongolia BIT and breached the principle of fair and equitable treatment and protection contained in Article 3 of the BIT as well as Article 10.1 of the Foreign Investment Law. In their Request for Arbitration, Claimants estimated their loss at USD 60 million.[25]

In its Award dated 30 June 2017, the arbitral tribunal composed of Judge Peter Tomka (President), Dr. Yas Banifatemi and Mark Clodfelter did not rule on the merits of the case, however, since it reached the decision that it lacked jurisdiction ratione materiae over the claims. The reason for this was the dispute resolution clause figuring in Article 8(3) of the China-Mongolia BIT which provides that “[i]f a dispute involving the amount of compensation for expropriation cannot be settled within six months after resort to negotiations […], it may be submitted at the request of either party to an ad hoc arbitral tribunal.” In this respect, the tribunal held that, pursuant to Article 8(3) of the BIT, “Arbitration before an ad hoc arbitral tribunal would be available in cases where an expropriation has been formally proclaimed and what is disputed is the amount to be paid by the State to the investor for its expropriated investment. In other words, arbitration will be available where the dispute is indeed limited to the amount of compensation for a proclaimed expropriation, the occurrence of which is not contested.”[26] It then concluded that it lacked jurisdiction with respect to the claim that “Respondent is in breach of Article 4 of the Treaty in that it unlawfully expropriated the Claimants’ investment”,[27] as well as all other claims regarding, inter alia, alleged breach of the fair and equitable treatment provision.

Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09

In January 2011, Canadian, Dutch and British Islands nationals initiated an investment arbitration against Mongolia on the basis of the Energy Charter Treaty, a joint venture contract and Mongolia’s Foreign Investment law. The dispute concerned the termination by Mongolia of the mining and mineral exploitation licenses held by the Claimants regarding the Dornod uranium project located in the northeast of Mongolia. More particularly, the Claimants alleged that Mongolia deprived them of their investments by a series of acts, including, inter alia, suspension of the mining licenses notice in 2009 followed by the permanent invalidation notices of the licenses in 2010.[28]

In its Award on the Merits, as one of the first steps of its assessment, the arbitral tribunal composed of Prof. David Williams (president), the Hon. L. Yves Frontier and Prof. Bernard Hanotiau analyzed Articles 8.2 and 8.3 of the Foreign Investment Law applicable at that time, which provided as follows:

(2) Foreign investment within the territory of Mongolia shall not be lawfully expropriated.

(3) Investments of foreign investors may be expropriated only for public purposes or interests and only in accordance with due process of law on a non-discriminatory basis and on payment of full compensation.

The tribunal considered that Article 8(2), as written in the Mongolian language, embodies the concept of “khuraakh” which refers to “a situation in which the law authorizes the State to deprive an owner of its property due to the property owner’s breaches of law, or its use of the property that endangers the interest of third parties.”[29] By contrast, Article 8(3) embodies the concept of “daichlakh” which relates to a situation of “a taking of property or other invalidation of property rights by the State under circumstances where the action is necessary in order to satisfy an important public need.”[30] The tribunal emphasized that both khuraakh and daichlakh can be legal or illegal. Given the fact that the official justification of the Mongolian authorities for the measures taken was the Claimants’ alleged breaches of the law, the tribunal concluded that these measures must be analyzed as a khuraakh.[31]

After the analysis of the Respondent’s arguments, the tribunal concluded that Claimants had not committed any breaches of the Mongolian law that would justify the measures taken[32] and held that Mongolia breached its obligations under Article 8.2 of the Foreign Investment Law and, consequently, the umbrella clause in Article 10(1) of the Energy Charter Treaty. In addition, the tribunal found that the evidence on record suggested the measures taken were in fact driven by Mongolia’s intent to develop a future collaboration with a Russian company, RosAtom, over the Dornod deposit project.[33] The tribunal awarded USD 80 million as compensation to the Claimants, plus interest and a part of their costs.

Zuzana Vysudilova, Aceris Law LLC

[1] “Arbitration of Mongolia is celebrating the 90^th anniversary of its establishment”, published on the official website of Mongolian National Chamber of Commerce and Industry, 19 October 2020.

[2] A. Dashdorj, “Arbitration in Mongolia”, Journal of International Arbitration (2003), Vol. 20, Issue 4, p. 421.

[3] S. Demberel, “Mongolia”, in Arbitration Law and Practice in Asia (2020), p. 437.

[4] A. Dashdorj, “Arbitration in Mongolia”, Journal of International Arbitration (2003), Vol. 20, Issue 4, p. 421.

[5] O. Boltenko, “The Protection of Foreign Investment in Mongolia: A Bumpy Ride to Overseas Mining Operators?” in R. Weeramantry, J. Choong (eds), Asian Dispute Review, Hong Kong International Arbitration Centre (HKIAC), 2019, Vol. 21, Issue 2, pp. 64-65.

[6] Z. Batsukh, “Mongolian International and National Arbitration Center at the Mongolian National Chamber of Commerce and Industry (MINAC)”, World Arbitration Reported, 2^nd ed.

[7] S. Demberel, “Mongolia”, in Arbitration Law and Practice in Asia (2020), p. 438.

[8] Database of Mongolia’s bilateral investment treaties available at https://investmentpolicy.unctad.org/international-investment-agreements/countries/139/mongolia (last accessed on 17 March 2021).

[9] Law of Mongolia on Regulation of Foreign Investment in Business Entities Operating in Strategically Important Sectors, unofficial translation, Hogan Lovells.

[10] See, e.g., L. Hook, “Mongolia eyes new foreign investment law”, The Financial Times, 2 May 2012; “Mongolia passes watered-down foreign investment law”, Reuters, 18 May 2012.

[11] See, e.g., T. Edwards, “Mongolia to scrap controversial foreign investment law – official”, Reuters, 23 August 2013; S. Diana, “With new law, Mongolia opens to investors”, DLA Piper publication, 21 November 2013.

[12] Delos Guide to Arbitration Places, “Mongolia”, 2020, point 2.5.

[13] List of Contracting States and their Reservations or Declaration available at https://www.newyorkconvention.org/countries (last accessed on 19 March 2021).

[14] “Foreign direct investment statistics”, published on the official website of Mongolian National Chamber of Commerce and Industry, 10 March 2020.

[15] R. Chen, “Mongolia’s Foreign Direct Investment Since 2005”, Mongolian Properties, blog, 31 July 2018.

[16] WM Mining Company, LLC v. Mongolia, ICSID Case No. ARB/21/8.

[17] J. Hepburn, “US Mining firm files claim against Mongolia”, IAReporter, 5 March 2021.

[18] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, paras. 298-299.

[19] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, paras. 301-302.

[20] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, para. 331.

[21] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, para. 331.

[22] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, para. 332.

[23] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, para. 334.

[24] Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Mongolia, Ad hoc arbitration, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, para. 364.

[25] Beijing Shougang and others v. Mongolia, PCA Case No. 2010-20, Request for Arbitration dated 12 February 2010, para. 55.

[26] Beijing Shougang and others v. Mongolia, PCA Case No. 2010-20, Award dated 30 June 2017, para. 448.

[27] Beijing Shougang and others v. Mongolia, PCA Case No. 2010-20, Award dated 30 June 2017, para. 452.

[28] Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on the Merits, 2 March 2015, paras. 43-98.

[29] Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on the Merits, 2 March 2015, para. 314.

[30] Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on the Merits, 2 March 2015, para. 314.

[31] Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on the Merits, 2 March 2015, paras. 315-317.

[32] Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on the Merits, 2 March 2015, paras. 318-366.

[33] Khan Resources Inc., Khan Resources B.V., and CAUC Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on the Merits, 2 March 2015, paras. 341-342.