Beijing Shougang Mining Investment Company, Ltd. v. Mongolia

Background

Three Chinese companies disputed Mongolia’s handling of an iron-ore mining investment. In 2002, Qinhuangdaoshi Qinlong International Industrial Company Ltd. formed a joint venture with a Mongolian partner to develop an iron-ore deposit. The other two Chinese companies bought equity in the venture in 2004. In 2005, the Mongolian partner transferred an iron-ore export license to the joint venture. Mongolian authorities later scrutinized the venture’s operations and revoked the license in September 2006.

The joint venture unsuccessfully challenged the loss of the license in Mongolian courts, including the Supreme Court of Mongolia. By 2009, the license and land-use rights had come to rest with a Mongolian state-owned metallurgy company. In February 2010, the Chinese companies began arbitration under Article 8 of the 1991 bilateral investment treaty between China and Mongolia. They alleged that Mongolia had expropriated their investment in violation of Article 4.

The arbitration lasted seven years. Mongolia challenged the tribunal’s authority over the companies’ claims and asserted counterclaims. The Chinese companies argued in their initial petition and later submissions that the tribunal had authority over their claims. At a procedural conference, the parties agreed to address authority and the merits together. The companies did not object to the tribunal deciding whether the dispute was arbitrable.

In June 2017, the tribunal decided that the Chinese companies had standing to bring a claim under the treaty but concluded that Article 8(3) limited arbitration to disputes involving the amount of compensation for expropriation. The tribunal interpreted that language as covering whether compensation already paid was adequate, rather than whether compensation was owed in the first place. It therefore rejected the companies’ claims and Mongolia’s counterclaims for lack of arbitral authority and closed the arbitration.

Issues and parties’ positions

The Chinese companies asked the district court to conduct an independent review of the tribunal’s decision about arbitrability, vacate the award, and compel the parties to return to arbitration for a decision on the merits. Mongolia asked the court to defer to the tribunal’s reasoning and confirm the award.

The court considered whether the parties had clearly and unmistakably agreed to have the arbitrators decide arbitrability. It also considered whether the award should be vacated under the Federal Arbitration Act or the New York Convention. The court noted that the treaty itself did not expressly assign arbitrability questions to the tribunal. Mongolia relied primarily on the Chinese companies’ conduct during the arbitration.

Court’s reasoning

Judge Edgardo Ramos held that the Chinese companies’ conduct was clear and unmistakable evidence that they had placed arbitrability before the tribunal. The companies initiated the arbitration, affirmatively argued for the tribunal’s authority from their first submission, developed those arguments in multiple filings, agreed to address jurisdiction and merits together, participated for seven years, and never objected to the tribunal deciding arbitrability. The court concluded that this conduct waived their later objection to the tribunal’s authority to decide that question.

Because the tribunal had authority to decide arbitrability, the court applied deferential review rather than independently deciding whether the tribunal had interpreted the treaty correctly. Under that standard, an award is upheld if it has at least a minimally plausible justification and is grounded in the parties’ agreement to arbitrate. The court found that the tribunal’s treaty-based reasoning was well beyond that threshold and drawn from the treaty’s text.

The court expressly stated that it was not deciding whether the arbitrators’ interpretation was correct. It held only that the award met the deferential standard for judicial review.

Disposition

The court denied the Chinese companies’ petition to vacate the award and confirm arbitration. It granted Mongolia’s cross-petition to confirm the award. The Clerk of Court was directed to close the case.