Milbank LLP secured a significant victory before the US Supreme Court on behalf of the Government of Mongolia. On June 27, 2022, the Supreme Court denied certiorari requested in a petition brought by Chinese state-owned entities, and supported by amici, seeking to set aside an arbitral award that had been rendered in favor of Mongolia in 2017.
In the underlying arbitration, which lasted seven years, the Chinese claimants had challenged Mongolia’s revocation of a license to mine one of the largest iron ore deposits in the mineral-rich country, claiming that such revocation constituted an impermissible expropriation under the bilateral investment treaty between Mongolia and China. In an unprecedented move, the arbitral tribunal, which was led by then-President of the International Court of Justice Peter Tomka, agreed with the positions advanced by Milbank that Mongolia’s consent to arbitrate in the treaty covers disputes limited to questions of determination of the amount of damages owed for a proclaimed expropriation, and not whether measures taken by the country constitute an expropriation. The arbitral tribunal thus declined to hear the merits of the Chinese entities’ arbitration claims. In so ruling, the award parted ways with multiple precedents in which identical or similar language had been construed to vest tribunals with jurisdiction to adjudicate claims of treaty violations.
In late 2017, the Chinese entities filed a motion to vacate the award before the District Court for the Southern District of New York (SDNY), arguing that the tribunal was not competent to decide whether their claims were “arbitrable” and that it had wrongfully declined jurisdiction, by reference to several arbitral precedents that had reached the opposite conclusion. On that basis, the Chinese entities petitioned the SDNY to vacate the award and compel arbitration of their claims on the merits. In 2019, Judge Ramos vindicated Mongolia’s positions by agreeing that the Chinese entities had waived any argument that the tribunal was not competent to decide whether their claims were arbitrable, having “vigorously” prosecuted their claims for seven years, including through extensive pleadings regarding the scope of consent to arbitrate in the treaty. The Court of Appeals for the Second Circuit confirmed Judge Ramos’s ruling, notably finding that the Chinese entities’ conduct throughout the arbitration “confirms, and in no way casts doubt on, their intent … to submit arbitrability issues to the arbitral tribunal.”
The Chinese entities then petitioned the Supreme Court, arguing that the Second Circuit had operated a “de facto reversal” of Supreme Court precedent laid in First Options of Chicago, Inc. v. Kaplan insofar as the “question of arbitrability” (that is, whether the tribunal is competent to hear a dispute on its merits) is, by default, for the courts to decide. While the odds of any given petition for certiorari are statistically slim, this petition proved much different in that many prominent scholars and arbitration practitioners, notably led by Professor George Bermann of Columbia Law School, forcefully advocated in support of the petition, both through amicus curiae briefs and a lobbying campaign with the legal press aimed at rallying the arbitration community to the petitioners' cause.
Asked by the Court to file an opposition to the petition, Mongolia argued that not only did the Second Circuit correctly assess that the facts undoubtedly established the Chinese entities' intention to give the arbitral tribunal the power to determine the arbitrability question, but also that there never even was a question of arbitrability in the sense in which US law uses that term. That is because contrary to the typical arbitration arising under a contract where the parties elect or not to displace the authority to adjudicate a dispute from a court to an arbitral tribunal, this arbitration, which arose out of the treaty between Mongolia and China, never could have presented such a choice: either the treaty creates a cause of action that can be arbitrated, or the treaty does not create a claim at all. By denying the petition, the Supreme Court vindicated Mongolia’s positions and effectively put an end to a 12-year legal battle during which Milbank defended Mongolia.
The Milbank team included Global Litigation & Arbitration partner Dan Perry and special counsel Kamel Aitelaj.
June 30, 2022
