Commercial Law MN

Posted on October 18, 2007. Filed under: MN News |

by Mandakhbat@yahoo.com

Commercial law team: http://www.bayarlaw.mn/monlaw_reg.php

SOME LEGAL AND PRACTICAL ISSUES OF INTERNATIONAL

COMMERCIAL ARBITRATION IN MONGOLIA

Introduction

In the brochure of Mongolian National Arbitration provides: ‘Mongolia is one of the preferred countries for international arbitration. A number of reasons may account for this success: the only arbitration institution in Mongolia, potential arbitrators, well-developing legal system, openness of mind to the different values, cultures and perceptions of foreign parties coming to arbitrate in Mongolia.’1 Is Mongolia really one of the preferred countries for international arbitration? In order to answer this question need to know Mongolian legal system, legal traditions and legislation on arbitration.

With the rare mining boom in the 21st century Mongolia is very attractive country for foreign investment in the world. Even some world recognized media magnets such as BBC, NBC are talking about ‘Mongolian magic’. Almost all world mining giants are working in Mongolia. The mining sector of Mongolia is not only economic sector which attracts foreign investment and foreign companies.

In the address to the Members of the Mongolian government and National Parliament, Chief Executive, Copper group of Rio Tinto noted on 13 December, 2006: ‘Foreign Investors in Mongolia need for legal rules and institutions that recognize contractual obligations. This includes judicial system that recognizes the rule of law, is devoid of corruption, and which preserves the sanctity of contract. Also of importance to foreign investors is the ability to settle disputes through an independent and impartial forum, such as international arbitration.’2 Like Rio Tinto, many foreign investors working in Mongolia want modern and fair Mongolian legislation on Arbitration. In this paper I will argue that Mongolian Parliament State Great Khural created such legislative framework.

However, even Mongolian Government in many contracts with the foreign investors stated that the disputes arisen from the contract will be decided by the international commercial arbitration in foreign countries (not by Mongolian Arbitration!!!), usually in London. Why the government does not trust Mongolian arbitrators or foreign investors do not trust them? In this paper I am going to explore some practical and legal aspects of international commercial arbitration in Mongolia and find an answer to question about popularity of Mongolian Arbitration. As Mongolia is civil law system country, the main source of law on arbitration is statutory. I will explore the legal aspects of international commercial arbitration of Mongolia through his past and present statutory, rules of Mongolian National Arbitration, UNCITRAL Model Law and other Mongolian laws.

Mongolian National Arbitration annually receives about 20 disputes. As the confidentiality of arbitration procedure, arbitral awards of Mongolian National Arbitration are not available for public. However, in this paper some arbitral awards will be openly analyzed and facts will be given. The practice of court’s intervention is crucially important for the practical aspects of international commercial arbitration in Mongolia. The court’s decisions are open for public, but the decisions of the court are not binding as in common law system countries.

In my view, the future of the development of the Mongolian arbitration mostly will depend on popularity of arbitration between local business entities.

PART I. MONGOLIAN LEGAL SYTEM AND HISTORY OF MONGOLIAN ARBITRATION

Traditions and changes of law in Mongolia

Sources of Mongolian Law

Mongolian courts system

The History of Mongolian National Arbitration’

The Mongolian Chamber of Commerce and Industry has been established in 2 July, 1960 named by ‘The Chamber of Commerce’, consisting from Chairman, foreign trade arbiter and secretary. During the period of 1940-1960 industry, transport, communication and science has developed on the state based property. Therefore these fields were needed support and help.

By the resolutions N295/194 of Central committee of Mongolian People’s Revolutionary Party and Ministerial Soviet of Mongolian People’s Republic from 02 July,1960 was established the Chamber of Commerce under Ministry of Foreign Trade. But this organization has very limited resources, even the organization did not have own budget and account. The Rules of the Arbitration Commission were approved in 1962 and the department of arbitration was named the Foreign Trade Arbitration Commission/Court (FTAC).3 The first arbitral case was decided by the arbitration commission in 1967. The first case which was decided by arbitration was a dispute between Czechoslovakian company ‘CentroTex’ and concern ‘Mongol export’ on the quality of Mongolian cashmere.4

The FTAC framework for the resolution of disputes, which has arisen from economic, scientific and technical cooperation between the member states of the Council for Mutual Economic Assistance (COMECON), was adopted by the COMECON members in Moscow on May 26, 1972.5

Only in 14 February 1989, by the resolutions N10/17 of Political Bureau of Central Committee of MPRP and Ministerial Soviet of MPR Trade Chamber was reorganized as Mongolian Chamber of Commerce and Industry. From 1992-1995 the Foreign Trade arbitration Court decided 54 disputes (9, 12, 9 and 24).

Foreign Trade Arbitration Law

Before 1990, when Mongolia was a socialist state, arbitration was compulsory and disputes between public and private parties had to be resolved by arbitration.6 After 1990 the arbitration became as an alternative dispute resolution mechanism.

In 1995, the State Great Khural (Parliament of Mongolia) has adopted the Foreign Trade Arbitration Law and Law on Chamber of Commerce and Industry. This Foreign Trade Arbitration Law has regulated only foreign trade, which requires that at least one of the parties must be a foreigner. After 1995 Foreign Trade Arbitration Court has decided cases arisen from foreign economic agreement or disputes between founders of foreign investment company. It is an international commercial arbitration which conducts arbitrations concerning international trade where at least one party is not Mongolian.

Foreign Trade Arbitration Court (1989-2003)

Foreign Trade Arbitration Court is attached to the Mongolian National Chamber of Commerce and Industry and is an independent legal entity. On February 26, 1996 the Rules of the FTAC were approved by the council of the MNCCI. These rules regulate some matters which are not governed by legislation.

Year The number of cases The amount of sum (USD)
1992 9 531,000$
1993 13 2,006,000$
1994 8 478.000$
1995 24 2,900,000$
1996 26 2,900,000$
1997 38 2,600,000$
1998 22 3,400,000$
1999 24 4,400,000$

During 1992 and 1999 the nationality of claimants were 40% Russia, 25% Mongolia, 12% China, Japan, Korea, United Kingdom, Estonia, Bulgaria, Germany, Hungary, Vietnam, Singapore and Czech republic 1-3%. The nationality of defendants was Mongolia 73%, Russia 13%, China 7%, Korea 5%, Germany, Hungary, USA and Japan 1-2%.7

Foreign Trade Arbitration Court initiated an annual trilateral conference among Mongolian Arbitration, China International Economic and Trade Arbitration Commission and International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry, and organized their first meeting in Mongolia in 2000.

Representatives of seven arbitration Institutions from China, Russia, Mongolia, Republic of Korea (Korean Commercial Arbitration Board), Democratic People’s Republic of Korea (Korean International Trade Arbitration Committee), Japan (The Japan Commercial Arbitration Association) and Kazakhstan (Kazakhstan International Arbitration) signed the Harbin Declaration on Strengthening Cooperation in International Commercial Arbitration on October 28, 2005. The Harbin Conference was an enlargement of previous annual conference among arbitration institutions of Mongolia, Russia and China.

Mongolia also supported the initiative of Australian Centre of international Commercial Arbitration to form an Asia-Pacific Arbitration Conference.

In 2003, when Foreign Trade Arbitration law replaced by the law on Arbitration based on Model Law, the Foreign Trade Arbitration Court was renamed as Mongolian National Arbitration.

The Mongolian National Arbitration (2003- until present)

The Mongolian National Arbitration is non- governmental and non-profit nature empowered to carry out its operations in the field of private dispute settlement. Purpose and functions of Mongolian National Arbitration are:

– to promote and develop private dispute settlement mechanisms such as

arbitration and mediation in Mongolia;

  • to supervise and monitor activities of branch arbitration centers;
  • to administer arbitration and mediation conducted under Rules of Arbitration

and Rules of mediation of Mongolian National Arbitration;

  • to do research and survey on arbitration and mediation, to organize a training

course and seminars;

  • to promulgate arbitration and mediation;
  • to establish the stimulating relationship and cooperation with arbitration

institutions worldwide;

  • to keep confidentiality of arbitral proceedings and to administer arbitration

impartially, neutrally, fairly and promptly.8

Mongolian National Arbitration has its braches in the regions-aimags. Now there are 21 branch arbitration centers in the regions empowered to settle domestic disputes. Mongolian National Arbitration is composed of Chairman, Secretary General, arbitrators and staff. Chairman and Secretary General and arbitrators are appointed by the Council of Mongolian National Chamber of Commerce and Industry triennially.

Main functions of the Mongolian National Arbitration are the following: arbitration; mediation; legal consultation; international cooperation; research and survey; training; publication and information distribution.

Mongolian National Arbitration cooperates with not only arbitration related organizations. In July 2004 Mongolian National Arbitration made a cooperation agreement with the Intellectual property Agency of Mongolia to build up the professional system of dispute resolution system of intellectual property such as license, patent, technology and franchising agreements or other agreements related to intellectual property. Mongolian National Arbitration and Supreme Court of Mongolia have agreed to make cooperation agreement in order to harmonize the policies of two organizations, to exchange the information and news, to provide the courts with necessary information and to support the arbitration.

PART II. FOREIGN TRADE ARBITRATION LAW (1995) AND LAW ON ARBITRATION (2003)

The legislation on Arbitration

Legislation on Arbitration of Mongolia consists from following domestic legislation: The Constitution (1992), The Civil Code (2002), The Civil Procedure Code (2002), Law on Arbitration (2003) and Law on Court Enforcement (2002) of Mongolia and regulations adopted in coordination with the law on arbitration.

The Article 2(1) Foreign Trade Arbitration Law did not name The Civil procedure Code and Law on Court enforcement, because the provisions related to recognition and enforcement of arbitral award were not in those laws for that period.

International Treaties: New York Convention on Recognition and Enforcement of Foreign Arbitral Award (1958); Washington Convention on the settlement of investment disputes between States and nationals of other States (1965); Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Resulting from Relations of Economic and Scientific-Technical Cooperation; Mongolian and Chinese General Delivery Conditions between Foreign Trade Organizations.

International treaties that Mongolia is party to, will prevail in the event of any conflicts with the national legislation.

As of 1998, Mongolia has signed trade agreements with 78 countries around the world and became a member of the World Trade Organization in 1997. Foreign investors enjoy a legal protection guaranteed and regulate by the laws of Mongolia as well as by international treaties to which Mongolia is a signatory.9

Mongolia has joined the Washington Convention of 1965 on the Settlement of Investment disputes between the State and nationals of another State in 1996 and the Seoul Convention of 1985 on establishing the Multilateral Investment Guarantee Agency in 1999.

Also, Mongolia is a full member of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group, since January 1999 and investors has full possibility to be involved in the risk insurance of MIGA of the World Bank and settle disputes by International Center for Settlement of Investment Disputes (ICSID), the organization established within the framework of the Convention on Settlement of International Investment Dispute. As well as Foreign investors are suggested to submit to the National arbitration court, under Mongolian National Chamber of Commerce, and settle the dispute which is arisen during their activity. The decision of the Mongolian Arbitration court will be fully implemented in 130 countries since Mongolia is a party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Award.

However, in Mongolia the implementation and enforcement of International treaties and agreements is very problematic in practice. As of today Mongolia is a member of around 200 multilateral treaties adopted by the international community. However, the accession to international treaties is only the first step. The work of bringing the internal legislation in line with provisions of such international instruments is still to be done. As mentioned above, under the Constitution of Mongolia the international treaties to which Mongolia is a party has the same force as domestic legislation. According to domestic legislation, official translation of international treaties is required for law-enforcement official officials like judges and prosecutors in order to apply such treaties. Translation of an international treaty becomes official only after it publishing in the “State Information” bulletin, the state official publication. But, only few International treaties have been printed in this bulletin in 2005. It is very good solution to provide the enforcement of international treaties condition that is important for dispute resolution issues and developing proper contract.

Jurisdiction

Since 2003, the difference between domestic and international arbitration is not relevant under the Law on Arbitration (2003).

According to article 6 FTA Law, FTA Court has jurisdiction to resolve the following disputes:

  1. disputes arising from international economic contracts and transactions

between nationals and/or legal entities of Mongolia and foreign nationals and/or juridical persons, as well as disputes preceding contract formation;

  1. disputes between national and foreign founders of an economic entity with foreign investments, that operates in Mongolia;
  2. disputes between foreign legal entities.

These limited provisions on jurisdiction of arbitration have been replaced by Law on

Arbitration. According to the Article 6 Law on Arbitration, any dispute that the parties agree to resolve by arbitration in accordance with Article 13 (2) of the Civil Procedure Code is termed an arbitrability dispute. All disputes under the jurisdiction of the court and in accordance with Article 13 (3) of the Civil procedure Code and other laws will be termed a non-arbitral dispute.

Civil Procedure Code of Mongolia

13 (2) Disputes between citizens and legal entities shall be resolved by an arbiter if it is provided by law or international treaty to which Mongolia is a party or the litigants have agreed so.

13 (3) if the parties have not provided in their agreement to resolve disputes by an arbiter, or have not agreed on the matter and the inter-governmental agreements do not provide to resolve disputes by an arbiter, the claim shall be resolved by Court.

Judge of Supreme Court of Mongolia Mr. Dorjgotov noted: ‘The main criteria for arbitrability in Mongolia is a agreement between parties on arbitration.’10 The Law on Arbitration does not specifically deal with the subjective arbitrability or objective arbitrability. Under the law on arbitration, the disputes, which are specified to be resolved by the court or other competent organization are inarbitrable. Therefore, the disputes concerning a trademark, a patent or an anti-trust are usually resolved by the state court. However, the law does not prohibit the disputes of intellectual property to be referred to arbitration. Even the article 5(6) Law on Arbitration especially provides: ‘institutional arbitration can conduct arbitration procedure in any disputes stated in Article 6 and in particular disputes such as intellectual and foreign trade arbitration.’

Equal treatment of parties

Both laws supported the principle of equal treatment. According to article 11 Foreign Trade Arbitration Law, the arbitral proceedings shall be held observing the principle of equality and non-discrimination by nationality, language, race, sex, social origin and status, wealth, occupation held, position, religious conviction, opinions, education or other status, type of ownership, power, membership, status and nationality of economic entities and organizations.

Article 22 Law on Arbitration 2003 provides: ‘The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.’ This is the just copy of article 18 Model Law.

Institutional Arbitration

Institutional arbitration means arbitration body established to carry out institutional arbitration. Article 3(2) Foreign Trade Arbitration Law directly stated that foreign trade arbitration will work under National Chamber. It seems that there was a very good lobby from Chamber to members of parliament.

Article 5 (1) Law on Arbitration allows institutional and ad hoc arbitration. Article (2)5 states: ‘Chamber of commerce and industry and other non-governmental organizations and their associations protecting the producers and customers may set up institutional arbitration at its organization.’

Ad hoc arbitration, which formerly was not allowed by the Foreign Trade Arbitration Law, is now permitted by the Law on Arbitration. Ad hoc arbitration shall be set up by the parties in written. Institutional and ad hoc arbitration has same rights in arbitration procedure.

Arbitrators and qualification

Foreign Trade Arbitration law does not lay down any specific qualifications for arbitrators. However, FTAC Rules 1996 provided that arbitrators must be educated in law, economics or any other profession which is relevant for settling disputes referred to in the Rules; they must also be experienced in the field of dispute settlement and be at least thirty-five years of age.11 Arbitrators are bound by the principles of impartiality and independence and must abide by the Ethical Code of Arbitrators. The Ethical Code of Arbitrators has been approved by the Council of MNCCI on June 12, 2000.

The council of MNCCI appoints the panel of arbitrators of the Mongolian National Arbitration for a term of three years. There are separate panels in the Mongolian National Arbitration and each branch. The inclusion of arbitrators in the panel list is not restricted and parties have the right to select an arbitrator from the lists of the Mongolian National Arbitration and its branches. Every arbitrator must be, and remain, independent, impartial and fair.

Depending on the circumstances of the dispute parties could agree on special requirements of arbitrator (to name special profession, or to define the experience by the years of working in the field, etc).12 Parties could define the language knowledge, professional requirement and nationality of arbitrator.

Conduct of Arbitral Proceedings

The parties should be treated with equality and each party is given a full opportunity to present its case. Subject to the provisions of the Law on Arbitration, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. The parties are free to agree on the place of arbitration. Unless otherwise agreed by the parties, the arbitral tribunal may meet at any place it considers appropriate for consultation among the arbitrators; for hearing witnesses, experts or the parties; or for the inspection of goods, property, or documents.

Subject to any contrary agreement by the parties, the arbitral tribunal decides whether to hold oral hearings and hear oral arguments, or whether the proceedings will be conducted on the basis of documents and other materials. Unless the parties have agreed that no hearings will be held, the arbitral tribunal holds such hearings at an appropriate stage of the proceedings as requested by the parties. They should be given sufficient advance notice of any hearing and meeting for the purposes of inspecting goods, property or documents. All statements, documents or other information supplied to the arbitral tribunal by one party must be communicated to the other. Also, any export report or evidentiary documents on which the arbitral tribunal may rely on making its decisions should be communicated to the parties.

The requests of the parties and of the representatives thereof on the submission of new evidence and on other issues related to the proceedings should be decided by the arbitral tribunal immediately after hearing the opinions of the other participants.

The hearing starts with the presentation of the report on the content of the case by the speaker of the hearings.13 The presiding arbitrator may ask whether the claimant supports its statement of claim, whether the defendant agrees with the claim and whether the parties are willing to conclude an amicable agreement. The arbitral tribunal hears the witnesses and experts and carefully studies the written or other evidence. The parties may ask questions from witnesses and experts with the permission of the presiding arbitrator.

The claimant and third party participating on his side and their representatives should submit and prove a statement of claim and its grounds. If the defendant and the third party participating on his side and their representatives do not agree with the claim, they should submit a statement of defense with evidence. The parties may exchange questions and answers during which arbitral tribunal may put forward any questions at any time.

After carefully examining all evidence in the case and hearing the statements and explanations of the participants, the arbitral tribunal should conduct deliberation, make awards, announce the content of the decision and declare the hearing closed. While conducting the private consultations, the arbitral tribunal conducts the sessions in private and keeps the confidentiality of the consulting room.

Language of proceedings

Mongolian language shall be used in arbitral proceedings. If the parties agreed otherwise other language can be used in arbitral proceedings. Almost every arbitrator of the Panel of arbitrators of Mongolian National Arbitration has fluent Russian. However, most investment or other agreements with foreign companies are made in English. These parties choose English as language of arbitration proceedings.

This agreement or determination, unless otherwise specified therein, shall apply to any written

statement by a party, any hearing and any award, decision or other communication by the arbitral tribunal. The arbitral tribunal may order that any documentary evidence shall be accompanied by a translation into the language or languages agreed upon by the parties or determined by the arbitral tribunal.

If one of the parties does not know the language of arbitration, or is unable to communicate with the language and if the parties need the professional assistance, they may get assistance from the related persons (translator, interpreter, lawyer and representative). The parties pay the costs of assistance directly to the assisting person or to arbitral tribunal.

Decision and Arbitrators

In arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal should be made by a majority of its members. However, the question of procedure may be decided by a presiding arbitrator if so authorized by the parties or all members of the arbitral tribunal. The award is made in writing and must be signed by the arbitrator or arbitrators. In arbitral proceedings with more than one arbitrator, the signatures of the majority of all members of the arbitral tribunal are necessary. The award must state the names of the arbitral tribunal or sole arbitrator, the place of arbitration and its date, and the legal reasons for the arbitral award. The arbitral award is considered final and binding on all parties. The arbitral award must then be delivered to each party.

Arbitration Costs

In business the principle ‘Time is gold’ very important, even the arbitration cost is higher than courts’.14 Both FTA Law and Law on Arbitration have regulated the arbitration costs. FTA law had a special chapter (Chapter IV) on arbitration costs. The Article 41 Law on Arbitration regulates issues related to the arbitration costs.

The arbitration cost consists of basic and additional costs. According to the Article 35(3) the rate of basic costs shall be fixed by the Minister of Finance upon the proposal of the Chairman of Arbitration. According to the Article 41(1), 41(2), the arbitral tribunal shall allocate the costs of arbitration regarding the dispute and time of arbitral proceedings, and also determine the actual cost of arbitration by means of an arbitral award. By the decree No.06 of the Council of MNCCI determined the arbitration fees on 14 December, 2005.

Basic costs include the arbitrators’ honorarium and arbitration fees paid according to the amount of the claim. The parties must pay the arbitration costs in accordance with the Rules of Arbitration Costs of Mongolian National Arbitration. Additional costs include that incurred during the proceedings: transportation, accommodation and daily allowance of an expert; the costs of inspection; all costs incurred if the place of the hearing is other than the location of the arbitration tribunal.

The Law on Arbitration allows for arbitral tribunals to take the advance payment

from the parties. According to the Article 41(7), the arbitral tribunal shall determine the advance costs of arbitral proceedings and if the parties fail to pay within agreed time, the arbitral tribunal may postpone or terminate the arbitral proceedings. It shows the importance of arbitration cost issues.

Recognition and Enforcement

The procedure of recognizing and enforcing foreign arbitral award regulated in accordance with the 1958 New York Convention on Recognition and enforcement of Foreign Arbitral Award and Chapter eight of the Law on Arbitration. Mongolia ratified the New York Convention in 1995.

The Foreign Trade Arbitration Law does not say anything about the court intervention in arbitration. It can be said that the court was never involved in the arbitration. The arbitral award was directly executed by a court enforcement organization. The Law was silent on the issue of interim and conservatory measures. Therefore, the arbitrators were not allowed to issue such orders. Moreover, there were no regulations allowing the parties to submit a request for an interim order before the court.

The parties are bound to execute the arbitral award voluntarily in due time as stated in the arbitral award. If the arbitral award has no stated time for its execution, the parties should execute the award without delay. If the relevant party fails to execute the award, the award should be executed in accordance to legislation and international convention. As a result, the 1958 New York Convention, to which Mongolia therefore is a party, assumes special significance for most foreign investors and gives arbitration a far more prominent role than it would otherwise have in a normal investment climate.

The court of Appeal has a right to refuse to recognize and enforce the arbitral award under the following grounds:

  1. if there is circumstance stated in article 40(2) of the law on arbitration

(setting aside as exclusive recourse against arbitral award);

  1. the arbitral award is not valid or challenged or withdrawn by the court of place

of arbitration.

Article 40(2) Law on Arbitration is the copy of the Article 34(2) Model law with the exception about the public policy. Public policy of Mongolia is the Common Interest and national security of Mongolia (Article 40.2.6 Law on Arbitration).

Since the ratification of New York Convention the arbitral awards of Mongolian arbitrations were possible to be recognized and enforced in other countries. For example, in 1997 the Mongolian company ‘A’ made an agreement with the American company ‘J’ on service of American tourists in Mongolia. However, the American company not only executes its duties, but also made an agreement with another company and sent tourist to that company. By the arbitration clause in the agreement the Mongolian company ‘A’ applied to Mongolian Foreign Trade Arbitration Court with the claim for lose of incomes in summer moths and the preparation for incoming tourists. According to the award the American company was need to pay Mongolian company. The arbitral award of Foreign Trade Arbitration Court of Mongolia was recognized and enforced in the United States, and Mongolian company received money. Like this, arbitral awards of Mongolian Arbitration were recognized and enforced in other foreign countries, particularly in The Republic of Korea, Germany, Russian Federation, USA and People’s Republic of China.

PART III. LAW ON ARBITRATION OF MONOGLIA (2003) AND THE UNCITRAL MODEL LAW (1985)

Major characteristics of the new Law on Arbitration of Mongolia (2003) are presented hereafter:

  1. the new law follows how the internationally accepted principle of territoriality. The law is

applied if the place of arbitration is in Mongolia;

  1. the difference between domestic and international arbitration is not relevant under this law;
  2. contractual and non-contractual disputes may be resolved by the arbitration unless the

parties agreed or the law stated otherwise. The new law does not restrict itself to international commercial arbitration, does it provide special rules for commercial disputes;

  1. according to this law the parties have to choose a institutional or ad hoc arbitration. In the

ad hoc arbitration if the parties fail to appoint the arbitrator, the Court of appeal will appoint the arbitrator. As for the institutional arbitration, this matter will be regulated by its rules;

  1. the parties are free to decide on any aspect of the arbitration procedure, either

in their arbitration agreement or by choosing rules of an arbitration institution. If the parties fail to agree on this, the arbitral tribunal will conduct the arbitration in such a manner as it concerns appropriate;

  1. the parties can submit proposals to the arbitral tribunal or the courts to carry

out interim measures of protection

  1. the language of arbitration can be either Mongolian or other foreign language;
  2. the arbitral tribunal may request from the courts to take assistance in taking evidence or

other judicial acts;

  1. a recourse against an arbitral awards and enforcement is only available on the basis of very

limited grounds well known from New York Convention of 1958.

The drafter of the Mongolian law on arbitration, the officer of The Ministry of Justice and Home affairs of Mongolia, E.Ganbat stated that: ‘The Law on arbitration generally based on the UNCITRAL Model Law. According to the other laws and special circumstances of Mongolia we mainly considered three issues: 1) Only non-governmental organizations may set up institutional arbitration as its organization. 2) According to the other laws, some public servants, for example, judges, prosecutors, detectives, etc., can not conduct other work which is not related to the legal duties, except teaching or research. So, we made article 15 (2) which lists persons who prohibited to work as arbitrators. 3) In the draft law on arbitration courts specified for purposes of Article 6 of Model Law were courts of first instance, but parliament changed it to Courts of Appeal.’15

Institutional Arbitration under NGO

Chamber of Commerce and Industry and other non-governmental organizations and their association protecting the producers and customers may set up institutional arbitration at its organization. Institutional arbitration in Mongolia can work only under the NGO, which means that arbitration is non-profit organization by the Law on Non-Governmental Organization 1998.

Arbitrators

Article (2)15 Law on arbitration lists persons who can not work as an arbitrator. They are following persons: Member of Constitutional Court, Judge, Prosecutor, Case registrar, detective, officer of court enforcement, advocator or notary who had served to any of the parties and other officials who are prohibited to conduct other work which are not related to the legal duties.

Enforcement and Court intervention

The court intervention in arbitration is limited by the Model law principles. The court of appeal is a competent court. As in Part I mentioned, Courts of Appeal are the courts of Aimag and Capital City Ulaanbaatar.

The functions referred to in articles 15(5)-15(7) appointment of arbitrators, 17(4) challenge procedure, 18(2) termination of authority (mandate) of arbitrator, 20(6) competence of arbitral tribunal to rule on its jurisdiction and 13 interim measures, 33 court assistance in taking evidence, 40 application for setting aside as exclusive recourse against arbitral tribunal, 42 recognition and enforcement, 43 refusing recognition and enforcement of arbitral award, shall be performed by the Court of Appeal of the place of arbitration depending on where the arbitration takes place and the functions referred to in article 12 shall be preformed by the primary court.

The arbitral tribunal has the same power as the model law in ordering interim and conservatory measures. If the measure is not implemented with, the party may submit its request to the competent court.

The assistance of the court is particularly important when the claim of one of the parties to arbitration must be secured or the evidence is taken. An assistance of court is always needed when an interim order is to be directed to a third party, as the arbitration has the contractual nature and the arbitration agreement could not affect the third parties. Therefore, the new law follows the ruling of Model Law in this regard.

Setting aside as exclusive recourse of arbitral award

The setting aside is the only remedy against arbitral award that may be requested from the competent court. The grounds for setting aside are similar to the grounds in the Model Law. The only difference is that these grounds for setting aside may be proved by either the requesting party or a court.

The court of appeal, when asked to set aside an award, may, where appropriate if requested so by a party, suspend the setting aside proceedings for a period of time. It will determine the time in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take other such action. If the arbitral tribunal fails to correct it, the court of appeal shall withdraw its decision and decide the request.

From the statistic in first 9 months in 2004-2005, some parties gave applications for setting aside as exclusive recourse against arbitral award to Courts of Appeal. 62.5% of the applicants considered that there was no arbitration agreement, 37.5% of the applicants said there was procedural mistake, 12,5% of applicants noted the arbitrator had a conflict of interests.

Arbitration agreement

The law on Arbitration accepted the Model law definition of arbitration agreement. The only

difference of the new law is that if the parties made standard clause of contract they shall make an arbitration agreement after a dispute arises. The Article 11 (1) Law on Arbitration states: Arbitration agreement (not depending on the contract’s form and characters) is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

In arbitral practice, particularly at the hearings of Mongolian National Commercial Arbitration the question of validity and scope of arbitration agreement has been considered many times.16

In order to exclude this problem the institutional arbitration have a model arbitration clause for

advise. The Mongolian National Arbitration Court have a following model arbitration clause:
“All disputes arising out of or in connection with this contract or related to its

violation, termination or nullity shall be finally settled in the Mongolian National Arbitration Court at the Mongolian National Chamber of Commerce and Industry in Mongolia under its Rules on Arbitration in Mongolia.”

Parties make arbitration clause when it’s included as one of the provision in main contract. Arbitration agreement is an agreement between parties on arbitration; this document is separate from the main contract. Arbitration agreement usually broadly explains the whole conditions and procedure of arbitration. Also, parties can go to arbitration after the dispute arisen between them. This agreement named in English as ‘submission agreement’.17

The main purpose of arbitration agreement is that the parties agree on the following three things:

  1. refuse to go court;
  2. arbitration institute as an independent person will decide a case;
  3. arbitral award is valid and enforceable.18

Mongolia accepted the conception of separability (or autonomy) of the arbitration clause. The Article 11(5) states: ‘Arbitration agreement, which is integral part of the contract, shall stay valid not depending on whether the contract made between parties is valid.’

Mongolia also accepted the conception of ‘competence-competence’, which means to define own jurisdiction. According to the article 20 (1), the arbitral tribunal may rule on its own jurisdiction as stated in article 6 Law on Arbitration. But our country accepted this principle with some limitation. By the claim of one of the parties the Court of Appeal could decide whether the arbitral tribunal properly defined his jurisdiction.

In cases of wrong and uncertain name and address of arbitration institute and unclear scope of arbitration agreement, the right of arbitral tribunal to explain the arbitration agreement or to define some questions (particularly, applicable law and procedural rules) which parties did not agreed will be considered.19 If we use the principle of competence-competence, the answer will be very clear to this.

Judge’s knowledge of these principles is crucially important to determine the jurisdiction of arbitration and court.20

Practice of Court intervention in arbitration

First case. An arbitral award No.01 2003 of Darkhan-Uul Aimag Branch of MNCCI has been set aside by the Court of Darkhan-Uul Aimag. However, the Supreme court recognized the following breach of law has been made by the aimaig’s Court in deciding the ‘ZarubejStroi’ Russian company’s application:

  1. According to the Article 40 Law on Arbitration the application for setting aside as

exclusive recourse against arbitral award can be made on the ground of article 40(2). But the Court made arbitral award invalid, based not on the article 40 (2).

  1. The breach of article 26 (4) can not be a reason for invalidating the arbitral award.

Non-translation of some documents from Russian to Mongolian can not be reason for the decision. The article 26(4) notes: the arbitral tribunal may order that any documentary evidence shall be accompanied by a translation into the language or languages agreed upon by the parties or determined by the arbitral tribunal.

However, the non-translation of the agreement between parties into Mongolian effect the defendant’s right to make a explanation on the application, evidence and other documents (unable to present the case).

  1. The claimant Russian company ‘ZarubejStroi’ stated its not jurisdiction of arbitration,

but the claimant participated in the arbitral proceedings. Therefore, it can not be a non-arbitral jurisdiction. 21 This is the first case where court participated in arbitration, thereof its have a practical importance.

Second case. Defendant gave an application for setting aside as exclusive recourse against

arbitral award No.07 2004 of Mongolian National Arbitration of MNCCI to the Court of Capital City Ulaanbaatar. The advocate of defendant argued on the following reasons: 1) Unable to present enough evidence: 2) unable to present the case 3) the composition of the arbitral procedure was not in accordance with the agreement of the parties. Based on article 8(1), 40(1), 40 (2.2), 40(2.5) Law on Arbitration the Court of Capital city Ulaanbaatar dismissed the application by the decree No.26 2004 of the Court of Capital city Ulaanbaatar.

Third case. The Mongolian-Poland joint company ‘P’ had a construction contract

with the Mongolian company ‘E’. The arbitral tribunal decided to pay Mongolian company ‘E’ to pay 9,8 million tugriks to Mongolian-Poland joint company for construction works. The defendant Mongolian company ‘E’ gave an application for setting aside as exclusive recourse against arbitral award based on the following: 1) No arbitration agreement, did not see an evidence, did not accept the position for arbitration; 2) Presiding arbitrator did not say us about the challenge of arbitrator, there were breaches of article 18(1.19), 19(1), 15(4), 40(2.2); 3) Presiding arbitrator did not introduce counter claim in the hearing, quickly did a arbitral meeting even we could not let some witnesses; 4) arbitral tribunal added 600 thousand tugriks, even the claimant did not change the claim requirements; 5) the composition of the arbitral procedure was not in accordance with the agreement of the parties. The court of Capital city Ulaanbaatar dismissed the application for setting aside as exclusive recourse against arbitral award by the decree No.31 2004.

Fourth case. The claimant ‘G’ and defendant ‘M’ company made a sales contract. In the application for setting aside as exclusive recourse against arbitral award the claimant stated: ‘In the sales contract parties we agreed to use the law of the time when the contract is made. However, the arbitration used Civil Law 2002.’ The Court of Capital City Ulaanbaatar dismissed the application by the decree No. 41 2004.

From above-mentioned court’s practices we can conclude that:

  1. If party do not like the arbitral award, the party give an application for setting aside as exclusive

recourse against arbitral award on lack of reasons. Therefore, it is important to improve the knowledge of advocates about legislation on arbitration and organize some training for them.

  1. Even court was aware that there is enough evidence to make invalid the arbitral award, the

court seems to check the award ‘formally’. We need to prevent from such mistaken practice that courts just dismiss the application for setting aside as exclusive recourse against arbitral award.

  1. Necessity to improve the knowledge, experience and ability of arbitrators to use

the legislation.22

The US Department of State noted in his 2005 investment climate statement – Mongolia: ‘Although arbitration is widely accepted among business people and elements of the government, support for binding international arbitration has not penetrated local Mongolian agencies responsible for executing judgments. In the two cases, the Mongolian-state-owned copper mine lost two international arbitral cases. The awards were certified and recognized as valid and enforceable by Mongolian courts. But the local bailiff’s office has consistently failed to execute the collection orders.’23 Unfortunately, these negative statements are true and government bodies must correct their mistakes.

PART IV. THE MONGOLIAN GOVERNMENT AS A PARTY TO INTERNATIONAL COMMERCIAL ARBITRATION AND FOREIGN COURT

Alstom Power Italia SpA, Alstom SpA (Italy) v Mongolia

An Italian investor in a Mongolian energy project has mounted a claim at the Washington-based International Centre for Settlement of Investment Disputes (ICSID) for damages under the Italy-Mongolia bilateral investment treaty (BIT) and the Energy Charter Treaty. French power company Alstom has settled its international arbitration with Mongolia. In 2004, Alstom filed a suit at the World Bank’s arbitration facility, alleging that Mongolia was in breach of commitments under the Energy Charter Treaty and a separate investment protection treaty between Mongolia and Italy. The arbitration was one of the first to have invoked the foreign investments protections found in the Energy Charter Treaty.

Alstom’s tussle with Mongolian Government arose out of a contract for the refurbishment of a thermal electric station in Ulaanbaatar. The French company and local authorities disagreed over work to be done at the plant. By settling their dispute early 2006, the parties avoided a jurisdictional hearing slated in February 2006. The terms of settlement have nor been released.

Counsel: Lovells (A.R. Marshall & J. Reynolds), James Crawford SC & Simon Olleson v. Milbank, Tweed, Hadley & McCloy LLP (M. D. Nolan & E. Baldwin)
Case registered: 18.03.2004
Forum & reference: ICSID Case n°. ARB/04/10
Arbitrators: Marc Lalonde (chair); Jan Paulsson; Sir Anthony Mason
Subject matter: Thermal energy project. Dispute relating to boiler rehabilitation.
Status of proceeding: Settlement agreed by the parties and proceeding discontinued at their request. (Order taking note of the discontinuance pursuant to Arbitration Rule 43(1) issued by the Tribunal on 13.03.2006)
Claim: Information not publicly available
Award: N/A24

Marubeni Hong Kong and South China Ltd. v The Mongolian Government (2004)

However, it was not a dispute in arbitration: the case shows Mongolian people and the Government that The Government can be called to foreign court or international arbitration. The proceedings were issued in August 2001. David Steel J granted permission to serve out of the jurisdiction on 21 November 2001. An application by the Mongolian Government challenging the jurisdiction was dismissed on 2 August 2002 by Aikens J (2002). From the beginning (2001) of the case to the reach of the decision of England and Wales High Court (Commercial Court) Mongolian public concerned about the possible payment of 19 million dollar by the Government.

In Marubeni the claim is brought by a Hong Kong company (“MHK”) that carries on business as an import/export and general trading company. It is a wholly owned subsidiary of Marubeni Corporation (“Marubeni”) a Japanese company with its principal place of business in Japan. The defendant is the Mongolian Government acting through its Ministry of Finance (“MMOF”).25

The claim is made on a letter dated 11 May 1996 (“the MMOF Letter” or “the guarantee”), which was addressed to MHK and signed by the Minister of Finance at the time, Mr Byambajav. On about 29 March 1996 MHK entered into a Deferred Payment Sales Contract (the “DPS1 Contract”) with Buyan Holding Company Limited (“Buyan”), a Mongolian company. Pursuant to the DPS 1 Contract Buyan agreed to buy and the claimant agreed to sell machinery, equipment and materials for a cashmere processing plant. The purchase price was US$18,811,670. The first installment of the price was to be paid within 60 days of the signature of the DPS 1 Contract, and the remaining amount was to be paid in 12 equal semi-annual installments. The first of these was due on 19 October 1998. Pursuant to Article 7 of the DPS 1 Contract Buyan arranged the provision of the MMOF Letter dated 11 May 1996.

In the conclusion Creswell J noted: ‘This conclusion should not come as a surprise to any person experienced in the law and practice of domestic or international finance. A standard form bank guarantee will typically contain a number of provisions designed in an attempt to avoid the application of the rule in Holme v Brunskill. By way of example only I refer to the Standard Form Bank Guarantee set out at page 548 and following in Andrews and Millett. Alterations such as those found in the 1998 and 1999 Reschedulings would almost inevitably lead to the discharge of a surety from liability, unless the surety consented to the same. MHK recognised this but chose not to consult the defendant. One example of this is found in the internal Marubeni note of the meeting on 30 October 1997.’26 The Mongolian Government won this case, but the court accepted that the guarantee letter is valid.

Many Mongolian politicians, including acting and former ministers, members of parliament and top level government officials have been witnessed. The police investigation on possible corruption has started. The Mongolian representative group leading by Harvard graduate deputy-minister Mr.Munh-Orgil and his team of young lawyers graduated from top world law schools worked successfully.

Conclusion

Mongolian legislation on international commercial arbitration is comparatively good. The Law on arbitration 2003 based on the UNCITRAL Model Law, can be understood by every lawyer who aware of the Model Law. Like any other law of Mongolia, the law on arbitration faces a problem of implementation. So, Mongolia needs to work on the improvement of the practice of International Commercial Arbitration.

Court and court enforcement organizations must understand that arbitral awards of either Mongolian National Arbitration or Foreign Arbitration are final decisions, like decision of Mongolian court. Arbitral awards must be implemented in way of normal court decision.

One of the reasons of unpopularity of Mongolian arbitration is lack of experience in deciding domestic cases. The Law on Arbitration 2003 gives a chance for Mongolian National Arbitration to decide domestic disputes. As Mongolian National Arbitration decides more domestic disputes and show the Mongolian business community that arbitration is better than courts, the National Arbitration will be more attractive for settling the international commercial disputes.

The biggest problem of International Commercial Arbitration is still the knowledge of lawyers about the arbitration and international private law in general. Almost every journal article on Mongolian arbitration issue considers this problem. This also covers the arbitrators itself. Only one dispute was decided in the Mongolian Nation Arbitration based on the International Treaty (Vienna Convention). As mentioned above in the paper, some companies agreed that the language of proceeding in the Mongolian National Arbitration will be English. However, from the panel of Mongolian National Arbitration the selection of arbitrators will be not easy. Here I do not consider the Russian, but English is most common used language for International Commercial Arbitration.

Even Mongolia in his Constitution stated that International Treaties are part of domestic law, official translation and publication of some international treaties first time was printed only in 2005. If there is no such publication, courts does not have a competence to use them.

Not only as a member of the group of young arbitrators at the Mongolian National Arbitration, but also as a researcher I hope the Mongolian National Arbitration will be one of the attractive dispute resolution method for foreign investors working in Mongolia.

Bibliography

  1. Books/Articles/Reports

Narangerel Sodovsuren, Legal System of Mongolia, 2004 (in Mongolian and in English)

Narangerel Sodovsuren, Mongolian and World Legal Systems – comparative law, Ulaanbaatar, 2001.

Narangerel Sodovsuren, Introduction to the Mongolian Legal system, 2001.

Bayasgalan, G. Mongolia – Legal Systems of the World, A political, social and cultural encyclopedia. Volume III:M-R.., Edited by Herbert M. Kritzer., Santa Barbara. 2002

N.Orkhon, G.Bolortsetseg, Collection of legislation, regulating international commercial arbitration and international trade, 2006

N.Orkhon, G.Bolortsetseg, Collection of legislation, regulating arbitration, 2006

D.Maralgoo, E.Ganbat, ‘Arbitration: questions and answers’, 2004

D.Altantsetseg, D.Uyanga, Cases decided by Foreign Trade Arbitration of Mongolia (1992-1999), 2000

Altantsetseg Dashdorj, Arbitration in Mongolia, Journal of International Arbitration 20 (4) 2003.

Arbitration and Business law Journal, 01 2005

Arbitration and Business Law Journal, 03 2005

Arbitration and Business Law Journal, 01 2006

Arbitration rule, Mongolian National Arbitration, 2006

Panel of arbiters of Mongolian National Arbitration, 2006

The Brochure of Mongolian National Arbitration, 2006

Tuya Mayakuu, Some Legal Issues of Foreign Direct Investment in Mongolia, (Victoria University- Research paper), 2006.

  1. Case Law

Marubeni Hong Kong and South China Ltd. v The Mongolian Government (2004) EWHC 472

Alstom Power Italia SpA, Alstom SpA (Italy) v. Mongolia (2005)

  1. Legislation

The Constitution of Mongolia, 1992

Foreign Trade Arbitration Law, 1995

The Civil Law of Mongolia, 2002

Civil Procedural Law, 2002

Law on Arbitration, 2003

Law on the Chamber of Commerce and Industry, 1995

Law on Non-Governmental Organization, 1998

  1. Other sources

www.mongolchamber.mn

www.open-government.mn

www.mojha.gov.mn

http://www.state.gov/e/eeb/ifd/2005/42091.htm

www.encharter.org

www.bailii.org

http://www.austlii.edu.au
1 The Brochure of Mongolian National Arnitration, 2006, 3
2 http://www.riotinto.com/documents/ClaytonMongolia.pdf
3 Altantsetseg Dashdorj, Arbitration in Mongolia, Journal of International Arbitration 20 (4) 2003, 422
4 D.Maralgoo, E.Ganbat, ‘Arbitration: questions and answers’, 2004, 6
5 Altantsetseg Dashdorj, Arbitration in Mongolia, Journal of International Arbitration 20 (4) 2003, 422
6 Ibid, 422
7 The cases of Foreign Trade Arbitration Court of Mongolia (1992-1999), Ulaanbaatar 2000, 71
8 http://www.mongolchamber.mn
9 Tuya Mayakuu, Some Legal Issues of Foreign Direct Investment in Mongolia, (Victoria University- Research paper), 2006, 25
10 Dorjgotov, A, Arbitration and interim measures by court, Arbitration and business law 3 2005, 6
11 Altantsetseg Dashdorj, Arbitration in Mongolia, Journal of International Arbitration 20 (4) 2003, 422
12 Bayasgalan, G., Appointment of arbitrators: Some theoretical and practical problems, Arbitration and Business Law Journal 03 2005, 22
13 Arbitration rules, Appendix to Decree No.2 of the Council of the MNCCI on June 16, 2003.
14 Tsognyam, B., The Arbitration is better for you, Arbitration and Business Law Journal 01 2006, 28
15 Email from e_ganbat@yahoo.com on 01 June 2007, (in Mongolian)
16 Mendsaihan, T., Arbitrationa agreement and some legal problems, Arbitration and Business Law Journal 1 2006, 20
17 Ibid, 21
18 Ibid, 21
19 Maralgoo, D., The Competence of Arbitral Tribunal. Arbitration and Business Law 01 2005, 27
20 Dorjgotov, A, Arbitration and interim measures by court, Arbitration and business law 3 2005, 8
21 The case of No.53 2004 Decree of the Supreme Court of Mongolia.
22 Dorjgotov, A, Arbitration and interim measures by court, Arbitration and business law 3 2005, 15
23 http://www.state.gov/e/eeb/ifd/2005/42091.htm
24 http://www.encharter.org
25Marubeni Hong Kong and South China Ltd. v The Mongolian Government (2004) EWHC 472, 1
26 Marubeni Hong Kong and South China Ltd. v The Mongolian Government (2004) EWHC 472, 1

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