UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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Beijing Shougang Mining Investment Company plaintiffs, - against - Mongolia, defendant. |
Civil Action Number 17 CV 7436 |
PROVENZANO GRANNE & BADER LLP
43 West 43rd Street, Suite 197
New York, New York, 10036
+1.212.859.3516
attorneys for petitioners
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Petitioners Beijing Shougang Mining Investment Company Ltd., China
Heilongjiang International Economic & Technical Cooperative Corp., and
Qinhuangdaoshi Qinlong International Industrial Co. Ltd. (collectively,
“Petitioners”) respectfully petition this Court for an order: (1) vacating an arbitral
award rendered by an ad hoc tribunal (the “Tribunal") on June 30, 2017 (the
“Award”), which, among other things, declined to exercise jurisdiction over the
Petitioners' claims that Mongolia had expropriated their investments without
compensation in violation of the bilateral investment treaty (the “BIT” or the
"Treaty") between Mongolia and the People's Republic of China (“PRC”); and (2)
directing the parties to submit to arbitration Petitioners' claims under the BIT.
Petitioners are three companies organized under the laws of the PRC, which
invested in a joint venture with a Mongolian company to develop an iron ore mine
in Mongolia. Petitioners bring this petition because, when Mongolia unlawfully
expropriated their investment and they sought recourse through arbitration
pursuant to the BIT, the Tribunal erroneously declined to exercise jurisdiction. It
determined that the question of whether an expropriation had occurred was not
arbitrable. The Tribunal interpreted the Treaty, the purpose of which was to
provide incentives for investment from the PRC into Mongolia, to require that the
national courts of Mongolia first declare that other arms of the government of
Mongolia had expropriated the assets of Chinese investors; only then could there be
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arbitration, and the only arbitrable question would be the amount of compensation
for the taking.
Because the Treaty does not explicitly assign the question of arbitrability to the
Tribunal, this Court exercises de novo review of the Tribunal's decision to decline
jurisdiction over the expropriation claims. It is well settled that, unless the relevant
arbitration agreement (whether a contract or a treaty) clearly and unmistakably
commits the question of an arbitral tribunal's jurisdiction to that tribunal, the
arbitrability of a claim is a matter of law for a court to determine independently,
without deference to the arbitrators' decision.
Here, the question of whether Mongolia expropriated Petitioners' investment must
be submitted to arbitration. The contrary result reached by the Tribunal makes
little sense. Among the central purposes of BITs is to afford to investors the
certainty of access to an impartial tribunal other than the national courts of one of
the contracting states. The Award deprives Petitioners of one of the essential
benefits to which they were entitled. For that reason, together with the texts of the
relevant treaties, the clear majority of other tribunals have reached the contrary
conclusion under similar BITs. Indeed, every other tribunal to address this question
under PRC BITs has rejected the narrow interpretation adopted by this Tribunal.
It is for this Court to determine whether, under the BIT at issue, Petitioners are
entitled to have their expropriation claim decided by arbitration. Because the
Tribunal erroneously determined that the consideration of expropriation was
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outside its jurisdiction, leaving that question to the government of the very state
that Petitioners contend committed the expropriation, Petitioners seek an order
from this court vacating the Award and compelling Mongolia to proceed to
arbitration of their claims.
The underlying facts of the dispute are complex—the Award takes 153 pages to
decline to exercise jurisdiction over the essential question. Fortunately, they are
largely irrelevant to this petition. A great deal more detail is contained in the
Award, attached to the Declaration of Michael A. Granne, dated September 28, 2017
(the "Granne Decl.") as Exhibit A, and in the Petitioners' request for arbitration
(the "RFA"), attached to the Granne Declaration as Exhibit B. All references to
exhibits are to the exhibits to the Granne Declaration.
BLT LLC, a Mongolian company, held a license to exploit certain iron ore deposits
located in Mongolia (the “939A License"). At the time this license was obtained, the
price of iron ore was low and there was little interest in commercial development.
See Ex. B at ¶ 7. In 2002, the Petitioners formed a joint venture with BLT LLC
called Tumturei Ltd (“Tumturei”) to commercially develop these deposits,
collectively owning 70% of Tumturei. See id. at ¶ 10. The 939A License was duly
transferred from BLT LLC to Tumturei in 2005. See id. at ¶ 10. Iron ore production
commenced at the beginning of 2006, see id. at ¶ 15, and exports to the PRC began,
see id. at ¶ 17.
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In 2006, a new government took power in Mongolia. See id. at ¶ 15. Significantly,
with the then-higher price of iron ore, the new Mongolian government began efforts
to find a way to take back their now-valuable mining concession. See Ex. B at ¶¶ 16
– 21. Among other things, the executive director of Tumturei was jailed for about
two weeks, ostensibly on charges related to tax evasion. See id. at ¶ 20. Mongolia
ultimately revoked the license on a variety of grounds, none of which have merit,
determining that it properly belonged to a state-owned enterprise called the
Darkhan Metallurgical Plant (“Darkhan”). See id. at ¶¶ 22 – 44. BLT LLC and
Tumturei were unable to obtain relief through proceedings in Mongolia, see id. at ¶
45, and Tumturei's executive director continued to suffer from official harassment.
See id. at ¶ 46.
On February 12, 2010, the Petitioners served their RFA pursuant to the operative
BIT — the Agreement Between the Government of the Mongolian People's Republic
and the Government of the People's Republic of China Concerning the
Encouragement and Reciprocal Protection of Investments signed on 26 August 1991,
available at http://tfs.mofcom.gov.cn/aarticle/h/at/201002/20100206778627.html
An ad hoc tribunal was duly constituted, and the Permanent Court of Arbitration
was selected to administer the proceedings. A detailed summary of the procedural
history of the arbitration may be found in the Award. See Ex. A at ¶¶ 7 – 88. The
Award was rendered on June 30, 2017. See id. at p. 153.
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The Tribunal concluded (correctly) that the Petitioners are investors entitled to
invoke the protections of the Treaty. See id. at ¶¶ 404 – 22. However, the Tribunal
erroneously concluded that it lacked jurisdiction over the fundamental question of
whether Mongolia had expropriated Petitioners' investment. Instead, according to
the Tribunal, it could have jurisdiction only if Mongolia admitted that it had
expropriated the investment (for example, by a declaration from its courts to that
effect); in that theoretical event, the Tribunal would have jurisdiction only to
resolve any controversy over the amount of compensation Mongolia should pay. See
id. at ¶¶ 423 – 76.
Petitioners have therefore commenced this proceeding, pursuant to the FAA, to
vacate this erroneous decision and compel Mongolia to arbitrate its claims under
the Treaty.
The FSIA governs whether Mongolia, a foreign sovereign, is subject to suit in the
courts of the United States. 28 U.S.C. § 1330(a) provides that:
The district courts shall have original jurisdiction without
regard to amount in controversy of any nonjury civil
action against a foreign state . . . as to any claim for relief
in personam with respect to which the foreign state is not
entitled to immunity either under sections 1605 – 1607 of
this title or under any applicable international
agreement.
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Subject matter jurisdiction therefore exists so long as Mongolia is not entitled to
immunity under sections 1605 – 1607 of the FSIA.
Two separate provisions of the FSIA permit this Court to exercise jurisdiction over
Mongolia. First, 28 U.S.C. § 1605(a)(6) provides in relevant part that Mongolia is
not immune from suit in any case
in which the action is brought, either to enforce an
agreement made by the foreign state with or for the benefit
of a private party to submit to arbitration all or any
differences which have arisen or which may arise between
the parties with respect to a defined legal relationship,
whether contractual or not, concerning a subject matter
capable of settlement by arbitration under the laws of the
United States, or to confirm an award made pursuant to
such an agreement to arbitrate, if (A) the arbitration takes
place or is intended to take place in the United States . . . .
28 U.S.C.A. § 1605(a)(6) (emphasis added). In a BIT, the two states make an offer to
each other's nationals to arbitrate disputes. An investor accepts the offer by
commencing arbitration. See Ecuador v. Chevron Corp., 638 F.3d 384, 392 (2d Cir.
2011) (“Unlike the more typical scenario where the agreement to arbitrate is
contained in an agreement between the parties to the arbitration, here the BIT
merely creates a framework through which foreign investors, such as Chevron, can
initiate arbitration against parties to the Treaty. In the end, however, this proves to
be a distinction without a difference, since Ecuador, by signing the BIT, and
Chevron, by consenting to arbitration, have created a separate binding agreement
to arbitrate."); Jan Paulsson, Arbitration Without Privity, 10 ICSID Rev. – Foreign
Investment L.J. 232 (1995). The initial terms of the arbitration agreement between
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Petitioners and Mongolia were set out in Article 8 of the BIT and were augmented
by, inter alia, the agreement that New York would be the place of arbitration, see
Beijing Shougang Mining Investment Company Ltd., China Heilongjiang
International Economic & Technical Cooperative Corp., and Qinhuangdaoshi
Qinlong International Industrial Co. Ltd. v. Mongolia, Permanent Court of
Arbitration, Permanent Court of Arbitration, Procedural Order No. 1 (November 2,
2010), Granne Decl., Ex. C at ¶¶ 27-28.
Second, 28 U.S.C. § 1605(a)(1) permits this court to exercise jurisdiction in any case
"in which the foreign state has waived its immunity either explicitly or by
implication." As the Second Circuit has observed, the House Report that
accompanied FISA specifically listed three examples of an implied waiver—one of
which is agreeing to arbitrate in another country. See Cargill Int'l S.A. v. M/T
Pavel Dybenko, 991 F.2d 1012, 1017 (2d Cir. 1993) (citing H.R. Rep. No. 1487, 94th
Cong., 2d Sess., 18 (1976), reprinted in 1976 U.S.S.C.A.N. 6604, 6617). When a
foreign sovereign agrees to arbitration in the United States, it implicitly waives
immunity from the jurisdiction of United States courts. Maritime Ventures Int'l, Inc.
v. Caribbean Trading & Fidelity, Ltd., 689 F. Supp. 2d 1340, 1351 (S.D.N.Y. 1988);
see also Blue Ridge Investments LLC v. Argentina, 735 F.3d 72, 83-85 (2d Cir. 2013)
(applying both implied waiver and arbitration FSIA exceptions). At the outset of the
arbitral proceeding, the parties and the Tribunal discussed where the legal seat of
arbitration should be and Mongolia consented to New York as the seat. See Ex. C at
¶¶ 27-28. Jurisdiction is therefore proper in this Court.
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This Court has the power to vacate an arbitral award rendered in New York
pursuant to § 10 of the FAA, 9 U.S.C. § 10. Review of arbitral awards on the merits
under the FAA is normally deferential. The situation is entirely different, however,
when it comes to the question whether the dispute is arbitrable in the first place –
the question at hand here. “Question[] of arbitrability' is a term of art covering ...
disagreements about whether an arbitration clause ... applies to a particular type of
controversy.” Schneider v. Thailand, 688 F.3d 68, 71 (2d Cir. 2012) (citations
omitted). Here, the question is whether the arbitration clause in Article 8(3) of the
BIT applies to a particular type of controversy – namely a dispute over whether an
expropriation has occurred. It is thus a “question of arbitrability."
Courts must decide questions of arbitrability “independently" and without deference
to the arbitrators, unless there is “clear and unmistakable evidence" that the
parties agreed to submit the question of arbitrability to the arbitrators. See First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-44 (1995). There is no such
evidence here.
The language that governs the establishment and procedures of the tribunal is
found in Article 8 of the BIT. It provides for an ad hoc tribunal, see Ex. C at Art.
8(3), without a single reference to the power of that panel to decide arbitrability,
despite several paragraphs dedicated to the makeup and procedures that the
tribunal must follow, see id. at Art. 8(4) – (9). The presumption of an “independent"
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judicial determination of that question, therefore, is not overcome. See Kaplan, 514
U.S. at 943-44.
The Treaty in this case is distinguishable from many other BITs, which do commit
the question of arbitrability to the arbitrators. They do so, typically, by
incorporating arbitration rules that themselves explicitly give the arbitrators
authority to determine their own jurisdiction. See BG Group PLC v. Argentina, 134
S. Ct. 1198, 1210 (2014) (treaty permitting arbitration pursuant to rules of the
International Centre for Settlement of Investment Disputes (“ICSID") or
UNCITRAL); 2012 United States Model Bilateral Investment Treaty, art. 24(3),
available at https://www.state.gov/documents/organization/ 188371.pdf (ICSID and
UNCITRAL rules). The PRC and Mongolia had many options to choose from, had
they wanted to commit the question of arbitrability to the arbitrators; they chose
not to. Having left unmentioned the question of arbitrability, this Court reviews
the Award de novo with regards to findings related to arbitrability.
Dispute-resolution provisions giving the investor access to arbitration are a “critical
element" of modern BITs. BG Grp., 134 S. Ct. at 1206 (quoting K. Vandevelde,
Bilateral Investment Treaties: History, Policy & Interpretation 430–432 (2010)).
The Tribunal's decision to refuse jurisdiction effectively wrote that critical element
out of the Mongolia-PRC Treaty.
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Article 8 of the Treaty provides for settlement of disputes between either of the
sovereign signatories (i.e., Mongolia or the PRC) and an investor who is a national
of the other sovereign. Its text is typical of BITs concluded with various states by
the PRC during the period when the Mongolia-PRC BIT was concluded. The
Tribunal in this case adopted an extremely narrow construction, in which the only
matter that is arbitrable is the amount of compensation for an expropriation.
According to the Tribunal, only the allegedly offending state itself can determine
whether it expropriated property; if it denies having done so, the independent
tribunal established by the BIT can never come into existence. See Ex. A at ¶¶ 435
– 54. Thus, an investor is left in the perverse position that only if the state's
executive or legislature admits that it has expropriated the investment, or if the
state's own courts can be persuaded so to declare, can that investor then proceed to
international arbitration.
This interpretation defeats the purpose of investor-state arbitration and deprives
the investor of much of the benefit of the Treaty – a Treaty intended to provide
security to investors so as to entice them to invest in the host state, whose courts
the investor may (quite reasonably) not trust to be evenhanded in an dispute with a
foreign investor. The conclusion of other tribunals and courts, which have held that
such arbitration clauses give tribunals jurisdiction to determine, inter alia, whether
an expropriation has occurred and whether it was effected legally, is therefore the
correct one.
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Article 8(3) provides for arbitration if "a dispute involving the amount of
compensation for expropriation cannot be settled” through negotiations. As this is
an international treaty, it is interpreted according to rules set out in the
Vienna Convention on the Law of Treaties (the “Vienna Convention”), opened for
signature May 23, 1969, 1155 U.N.T.S. 331, reprinted in 8 I.L.M. 679, to which both
Mongolia and the PRC are party (although the United States is not). Fortunately,
we are not left to review the Vienna Convention without guidance; there are several
international judicial and arbitral decisions applying the Vienna Convention to
other treaties that similarly provide for arbitration of disputes “involving,” “relating
to,” or “concerning" the amount of compensation. The majority of these decisions
concerning the scope of such provisions have held that the scope of arbitration may
include the question whether an expropriation has occurred.
These cases include those that interpret other BITs concluded by the PRC. Indeed,
in Tza Yap Shum v. Republic of Peru, the tribunal interpreted a BIT that contains
the same operative language. The tribunal found that a narrow interpretation of
"involving the amount of compensation” would “invalidate” the arbitration clause.
Thus, the host state's consent to arbitration would be illusory, because the investor
could not actually have access to arbitration clause unless the host state agreed to
allow it. See Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, at ¶ 148,
available at https://www.italaw.com/sites/default/files/case-documents/ita0880.pdf
(Spanish original). This finding makes eminent sense as it would undermine a
central purpose of any BIT to so invalidate the arbitration clause. Leaving the
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availability of arbitration in the host state's hands, after a dispute has arisen,
would exacerbate the “central concern of investors who are averse to allowing the
host State to act as judge and party in measuring the monetary extent of its own
liability." Renta 4 S.V.S.A. et al v. Russian Federation, SCC Case No. V 024/2007,
Award on Preliminary Objections, ¶ 33 (2009), available at
https://www.italaw.com/sites/default/files/case-documents/ita0714.pdf; see also
Separate Opinion of Hon. Charles N. Brower, available at https://www.italaw.com/
sites/default/files/case-documents/ita0715.pdf (concurring in part and dissenting in
part). The decision of the Tza Yap Shum tribunal was upheld by an annulment
committee, which is the body that reviews applications to vacate awards in the
ICSID system. Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6,
Decision on Annulment, 12 February 2015, available at https://www.italaw.com/
sites/default/files/case-documents/italaw4371.pdf (English original).
The other case concerning the same language as the Treaty in this case – the
“involving" formulation – reached the same conclusion and was upheld in national
court. The arbitrators concluded that the clause made the existence of an
expropriation arbitrable. See Sanum Investments Ltd. v. Lao People's Democratic
Republic, PCA Case No. 2013-13, Award on Jurisdiction, ¶ 342 (Dec. 13, 2013),
available at https://www.italaw.com/sites/default/files/case-documents/
italaw3322.pdf. A first-instance court in Singapore disagreed, but the Court of
Appeal of Singapore reinstated the arbitrators' decision. Sanum Investments
Limited v. Lao People's Democratic Republic, [2016] SGCA 57, ¶ 147. Thus, where
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PRC BITs are concerned, it appears that all three tribunals (other than the
Tribunal in this case) preferred the broader interpretation; the ICSID annulment
(reviewing) committee did so as well; and so did the Singapore appellate court. This
Tribunal is thus an outlier with regard to PRC BITs, its only companion being the
Singaporean judge whose decision was reversed on appeal.
An even more recent award further supports a broad interpretation of the BIT's
language. In the PRC-Yemen BIT, under which the parties consented to arbitrate
"any dispute relating to the amount of compensation for expropriation,” the tribunal
found that, in the context of the BIT as a whole, a narrow interpretation limiting
arbitral jurisdiction to the amount of damages alone would contradict the treaty's
object and purpose. See Beijing Urban Construction Grp. Co. v. Yemen, ICSID Case
No. ARB/14/30, ¶¶ 78-87 (2017), available at www.italaw.com/sites/default/files/
case-documents/italaw8968.pdf. This was apparent to the tribunal because the host
state could unilaterally eliminate the investor's option to go to arbitration, simply
by contesting any element of the underlying question of whether an expropriation
had actually occurred. The tribunal therefore held that it had jurisdiction to
determine the ultimate question of the existence of an expropriation. See id. at ¶¶
78-87.
In other related contexts, similarly broad conclusions have been reached. In EMV v.
Czech Republic, the tribunal decided that, under a dispute-resolution clause
providing that in a treaty providing for arbitration for disputes “concerning
compensation due by virtue of Article 3 paragraphs (1) and (3) [pertaining to
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expropriation]," the questions of whether and how an expropriation had occurred
were arbitrable. The Czech Republic sought to vacate the award in the English
courts – which upheld the award (and its inherent decision on arbitrability), saying:
The word 'concerning', however, is broad. The word is not
linked to any particular aspect of 'compensation'.
‘Concerning' is similar to other common expressions in
arbitration clauses, for example 'relating to' and ‘arising
out of. Its ordinary meaning is to include every aspect of
its subject: in this case 'compensation due by virtue of
Paragraphs (1) and (3) of Article 3'. As a matter of
ordinary meaning this covers issues of entitlement as well
as quantification.
Czech Republic v. European Media Ventures SA [2007] EWHC 2851, ¶ 44 (English
Comm'l Court).1 The same holds true for “involving," at used in Article 8(3) of the
Treaty in the instant case.
In light of the plain language of the BIT, and the wealth of judicial and arbitral
authority and undeniable policy considerations in favor of the broad interpretation
of the relevant language, this Court should vacate the Award and hold that Article
8(3) supports the arbitrability of questions of whether expropriation occurred.
1 While there are occasional decisions going the other way, in the context of Russian ↩
and Eastern European treaties, see, e.g., Berschader v. Russian Federation (SCC
Case No 080/2004) Award, 21 April 2006, available at https://www.italaw.com/sites/
default/files/case-documents/ita0079_0.pdf; RosInvest UK Ltd v. Russian Federation
(SCC Case No V 079) Award on Jurisdiction, 5 October 2007, available at
https://www.italaw.com/sites/default/files/case-documents/ita0719.pdf, the weight of
authority, however, favors the broader interpretation of clauses of this nature and
the policy rationale, too, argues for breadth; the narrow interpretation essentially
deprives the clauses of any practical significance.
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This petition raises important issues concerning the interests of foreign nationals
and a foreign state; therefore, Petitioners respectfully request that the Court
schedule oral argument on this petition.
For all of the foregoing reasons, the Award should be vacated and the parties
compelled to arbitrate Petitioners' claims.
|
Dated: |
September 28, 2017 |
Respectfully Submitted,
Signature
Michael A. Granne (Partner-MG8877)
S. Christopher Provenzano (Partner)
J.J. Gass (Of Counsel)
PROVENZANO GRANNE & BADER LLP
43 West 43rd Street, Suite 197
New York, NY 10036
(212) 859-3516
Michael.
[email protected]