WASHINGTON, DC May 5, 2011 – The international law firm Milbank, Tweed, Hadley & McCloy, LLP, led by partner Michael Nolan, successfully defeated a $1 billion claim brought by Mongolia's second largest gold miner pursuant to a bilateral treaty between Mongolia and Russia. The investors asserted that a 68% windfall profit tax on gold sale proceeds above $500 per ounce violated international law. The Tribunal agreed with Mongolia that, in the absence of an agreement between the foreign investor and the host state, the foreign investor did not have a reasonable expectation that the host state would not pass a windfall profits tax, even one appreciably higher than imposed by other countries.
"The decision highlights that mining investors must structure their investments carefully and consider the adequacy of safeguards available to protect against the risk of adverse change in the legal regime," said Michael Nolan.
The treaty between Mongolia and Russia protects investors against expropriation without payment of compensation and guarantees that investments are treated fairly and equitably by the host state. The Tribunal reasoned that many countries sought to participate in rising commodities prices through tax measures and investors should therefore expect such measures in developing economies. This victory for Mongolia is Milbank's second high profile decision in the last six months, demonstrating the firm's expertise in the growing field of investor-state arbitration.
Additional Milbank attorneys representing Mongolia include Teddy Baldwin and Frederic Sourgens.