China Heilongjiang International Economic & Technical Cooperative Corp., Beijing Shougang Mining Investment Company Ltd., and Qinhuangdaoshi Qinlong International Industrial Co. Ltd. v. Mongolia

At a glance

Parties

China Heilongjiang International Economic & Technical Cooperative Corp., Beijing Shougang Mining Investment Company Ltd. and Qinhuangdaoshi Qinlong International Industrial Co. Ltd. (China) v. Mongolia

Case no.

PCA Case No. 2010-20; S.D.N.Y. 17 Civ. 7436 (ER); 2d Cir. No. 19-4191

Forum and rules

Ad hoc arbitration under Article 8 of the Treaty, administered by the PCA. The Tribunal could take the ICSID Arbitration Rules as guidance. Seat: New York.

Treaty

China–Mongolia BIT, signed 26 August 1991

Tribunal

Judge Peter Tomka (President, from 26 January 2014), Dr. Yas Banifatemi, Mr. Mark Clodfelter. Donald Francis Donovan was the first President; he resigned on 6 February 2013.

Court

U.S. District Court for the Southern District of New York (Judge Edgardo Ramos); U.S. Court of Appeals for the Second Circuit (Chief Judge Livingston, Judges Chin and Bianco)

Sector

Mining (iron ore)

Outcome

Award of 30 June 2017: the Tribunal declined jurisdiction over the expropriation claims and over Mongolia's counterclaims. The S.D.N.Y. confirmed the award on 19 November 2019, and the Second Circuit affirmed on 26 August 2021.

Amount

Claimants valued their investment at about USD 30 million by the end of 2005. Mongolia counterclaimed damages of over USD 100 million. Nothing was awarded. Each side bears its own legal costs. The common costs of US$477,782.25 were split equally (US$238,891.13 each). Mongolia was ordered to pay the PCA US$45,367.57.

The dispute

The three Chinese companies held 70 percent of Tumurtei Khuder LLC, a Mongolian joint venture with BLT LLC. Through it they held Mining Licence No. 939A over the Tumurtei iron ore deposit in Selenge aimag. In 2006 Mongolian inspection bodies and working groups reported many breaches, including unlicensed blasting, export of unprocessed ore below market price, and failures on environmental duties and on repayment of state exploration costs. On 8 September 2006 the Department of Geology and Mining Cadastre revoked the licence (Resolution No. 902). Tumurtei Khuder challenged the revocation up to the Supreme Court of Mongolia and lost, and the licence passed to the state-owned Darkhan Metallurgical Plant. The Claimants alleged unlawful expropriation under Article 4(1) of the Treaty. They sought return of the licence or full compensation. Mongolia objected that the arbitration clause in Article 8(3) covers only disputes over the amount of compensation. It also argued that the state-owned Claimants were not "investors", that the investment was obtained by fraud and embezzlement, and that the fork-in-the-road clause applied. On the merits it relied on police powers, and it counterclaimed for fraudulent misrepresentation.

Key holdings

1. Objection ratione personae rejected. The definition of 'investor' in Article 1(2) does not distinguish by type of organisation, ownership or control. Direct or indirect ownership by the Chinese State of Beijing Shougang and China Heilongjiang is irrelevant, and the record does not show that they acted as government instrumentalities. Award ¶¶ 412–422
2. Article 8(2) gives the host State's courts broad jurisdiction over all investment disputes. Article 8(3) gives an ad hoc arbitral tribunal a much narrower jurisdiction: only a 'dispute involving the amount of compensation for expropriation'. Claims under Articles 3, 5 and 9 can go only to the host State's courts. Award ¶¶ 434–437
3. Read together with Article 4(2), the phrase covers only disputes over whether the compensation equals the value of the expropriated investment 'at the time when expropriation is proclaimed'. The narrow reading does not deprive the clause of effet utile. Arbitration remains available where an expropriation has been formally proclaimed, or declared by a court or administrative body, and only the amount is disputed. The Tribunal disagreed with Tza Yap Shum and with the Singapore Court of Appeal in Sanum. Award ¶¶ 442–451
4. The Tribunal lacks jurisdiction ratione materiae over the claim that the Claimants' investments were expropriated. It therefore did not decide Mongolia's other objections, the merits, or the counterclaims. Award ¶¶ 452–454
5. Costs follow Article 8(8) of the Treaty, which binds the Tribunal. Each party bears the cost of its own appointed arbitrator and its own representation. The fees of the Chairmen, the PCA and the secretary, and the other costs (US$477,782.25), are shared equally. Award ¶¶ 464–476
6. The S.D.N.Y. found that the Treaty itself, including Article 8(5) ('The tribunal shall determine its own procedure'), does not clearly delegate arbitrability to the arbitrators. The Claimants' conduct did: they started the arbitration, argued for jurisdiction and took part for seven years without objecting. On deferential review the award draws its essence from the Treaty, so the court confirmed it and denied vacatur. S.D.N.Y. Opinion & Order, pp. 6–10
7. The Second Circuit affirmed. The parties' agreement, recorded in Procedural Order No. 1, that the first phase would cover jurisdiction and liability is clear and unmistakable evidence that they submitted arbitrability to the tribunal; the Claimants' later conduct confirms it. The arbitrators did not exceed their powers under FAA § 10(a)(4). Mongolia had not refused to arbitrate, so there was no ground to compel arbitration. 2d Cir. Opinion, pp. 22–43

Procedural history

1. 12 February 2010Claimants serve the Request for Arbitration under the Treaty and appoint Dr. Yas Banifatemi.
2. 10 August 2010ICSID Secretary-General Meg Kinnear appoints Donald Francis Donovan as Presiding Arbitrator under Article 8(4) of the Treaty.
3. 2 November 2010Procedural Order No. 1: New York designated as the seat, the PCA appointed as administrator, and the proceedings split into a jurisdiction and liability phase and, if needed, a quantum phase.
4. 6 February 2013Procedural Order No. 6 adjourns the hearing after Mongolia objected to a disclosure by Mr. Donovan, who resigns the same day.
5. 26 January 2014Judge Peter Tomka, invited jointly by the parties, accepts office as Presiding Arbitrator. On 13 October 2014 Procedural Order No. 7 dismisses Mongolia's Request for Discontinuance.
6. 14–18 September 2015Hearing on jurisdiction, claims and counterclaims at the Peace Palace, The Hague.
7. 30 June 2017Award: the Tribunal declines jurisdiction ratione materiae over the claims and counterclaims.
8. 28 September 2017Claimants petition the S.D.N.Y. to vacate the award and compel arbitration.
9. 19 November 2019S.D.N.Y. denies the petition and grants Mongolia's cross-petition to confirm the award.
10. 26 August 2021The Second Circuit affirms.

Tribunal, counsel and experts

Decided by

• Peter Tomka President — appointed by the parties jointly (replaced Donald Francis Donovan; accepted office 26 January 2014)
• Yas Banifatemi Co-arbitrator — appointed by the claimant
• Mark Clodfelter Co-arbitrator — appointed by the respondent
• Donald Francis Donovan President — appointed by the institution (appointed by ICSID Secretary-General; resigned 6 February 2013 after a disclosure objected to by Mongolia)
• Edgardo Ramos Judge, U.S. District Court for the Southern District of New York
• Debra Ann Livingston Judge, U.S. Court of Appeals for the Second Circuit

For the claimant

Freshfields Bruckhaus Deringer · 20 Essex Street Chambers · The Lauterpacht Centre for International Law, Cambridge University · Provenzano Granne & Bader LLP

For the respondent

Milbank, Tweed, Hadley & McCloy LLP · Ministry of Justice of Mongolia · Permanent Mission of Mongolia to the United Nations

Experts

Anthea Roberts (respondent) · Natsagdorj Taivan (respondent) · Tsevegjav Darijav (respondent) · R Zorigt (respondent)

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Keywords

• China–Mongolia BIT
• Tumurtei
• iron ore
• mining licence revocation
• expropriation
• amount of compensation for expropriation
• Article 8(3)
• narrow arbitration clause
• jurisdiction ratione materiae
• state-owned enterprise as investor
• fork in the road
• Sanum
• Tza Yap Shum
• counterclaims
• arbitrability
• clear and unmistakable evidence
• vacatur
• Federal Arbitration Act

Summary generated with AI from the published documents — refer to the award for the authoritative text.