“Too many cooks spoil the broth”
Michael Aldrich is a partner at Hogan Lovells law firm in Mongolia.
What is your impression about this legal reform forum?
Last year’s forum was a larger event with a larger invitation list and named a much wider scope of matters. The difference with this forum is that the focus is slightly different. On one hand we are speaking about international standards of doing business suitability to addressing the problems within Mongolia or to be able to facilitate the conduction of business in Mongolia. It is more so geared to business issues. How can we make the banking sector more efficient? How can we change the laws dealing with our arbitration in order to help and be able to resolve disputes more rapidly?
So the focus is more on businesses. It’s more on the practical side of things, less so on courts, and less so on the ideas about passing laws in order to deal with higher justice issues. But more so to looking at how a law can facilitate business in order to encourage economic growth.
What would you say about the legal environment of Mongolia?
I disagree with many people who paint it very negatively. My view point is that looking at the law fairly, what you see is a legal system that aspires to promote the freedom to contract and very much memorializes certain rights such as the rights to compensation in event of expropriation. Fundamentally, the basis of the legal system is something that is much closer to that which exists in the west than China, Vietnam or Indonesia.
At the same time, there is a tendency to think that all we have to do is enact a law and that law will solve the problem. I think that perhaps that is in some ways a reflection of traditional Mongolian thinking. Mongolians have always embraced the idea of a code of behavior. If you promulgate a new part of a code, people would follow. But the problem is, in this complex age, many times when you are looking at things as complex projects as the creation of new electricity, heating and power stations—these things are fairly complex. What we need is more than just simply supporting the idea, but to take those concepts and bring them towards implementation.
You have a great legal concept, but if you can’t take the law and be able to fashion it into a contract that people understand, then there really isn’t that much advancement.
How can we enforce the laws so that everyone complies with them?
I think it is important to encourage Parliament to not only think of the laws, but also think about the contracts that will be used to implement the laws. For example, there is a concession law that was enacted about two years ago. Prior to its enactment, the focus was exclusively on the issue of how do we draft this law, and what do we provide for it. But once you have the law, no one knows how to apply. There were a series of private sector attempts at a concession agreement that were pretty underwhelming. My thought was, fine you can speak about the law but why didn’t Parliament authorise people to focus on preparing a concession agreement that would comply with Mongolian law, would be written in a way that is compliant with international standards, and be regarded as an equally balanced document—something that could be then used internationally, the international community could feel comfortable with, and the Mongolian community could feel comfortable with.
That does not happen many times because in my opinion people think when you get to the tedium of actually writing contracts that it is not as exciting. That can be boring, but that is really where the heart of the action actually is in order to be able to implement the concept of a law and then in turn be able to develop the economy.
What is a good model for implementing a law in developing small countries like Mongolia?
I think the system here is a reflection of both the greatest strengths and occasional weaknesses. Mongolia made it its transition to democracy, so, therefore, Parliament is very responsive (some people might say reactive) to popular sentiment. That is fine. That is one of the attributes of democracy, and that is very good.
Though, at times this leads to Parliament reacting very rapidly to an issue and enacting a law without really considering all the consequences. What other countries will do is [different from] the process used here, which usually involves a working group. The problem with working groups is that it‘s everyone’s responsible, but no one’s really responsible. You have drafting done in a patriotic fashion, and, at times, no one or two people taking responsibility for the final version of the law.
We would have to move away from the working group concept because I find that it generally tends to slow any project down, whether it’s looking at investment in a power plant or drafting a law. “Too many cooks spoil the soup” is the old phrase. I think that is what happens here. But also what I think is needed here is enhanced appreciation of legislative drafting. By that I mean the specific style by which one writes a law.
When a lawyer tries to write a contract, if it doesn’t really have the substance, the technical aspects, to make it as enforceable as the parties wish it to be, when there is a dispute it winds up being unworkable because you can’t interpret it as a contract. When you write a law, there is a similar process. You have to go forward and draft the law in accordance with a particular style of writing, with a particular anticipation of definitions to make the law as specific and definite as possible, to remove vagueness, and to make sure that the law addresses precisely the social or economic problem that parliament thinks its remedying.
The current strategic investment law is an extremely broad document, and I’m not sure if its breadth necessarily addresses the particular concern that Parliament had when it had been considering it. And then that creates confusion.
In other jurisdictions you will find a more finely honed process of how to write a draft law. You usually don’t find a group of people doing it, but one or two people who are drafting it in response to a specific legislative objective. From there it often comes down to a process of being able to have consultations with the public, the business sector (which may be involved), private individuals, and sometimes scholars.
But ultimately, if it is to be a commercial law, the whole focus needs to assist people in business with their decision making process. They are sitting down thinking out a particular business plan. What they need to do is to say to themselves, what does this law tell me I should do. If I understand that, then I can make a decision whether I should pursue this business activity. That is the essential purpose of a law. That is what a properly drafted law must do. There are times where that is not achieved here, as well as other jurisdictions.
What do you think about Mongolian policymakers making laws in their own interest, as they often are running their own business behind the scenes?
I do know that a conflict of interest law has been passed. I don’t believe that it has been drafted as strictly as it is ought to be. Quite simply, there is this regrettable tendency of people to pursue laws not for the public good but for personal their own personal advancement, or the advancement of family members. One aspect of all of this is this has to become something that is wildly, sociably unacceptable. Anyone who would aspire to be a politician in other jurisdictions would disqualify himself with that behavior. Firstly, there needs to be a social change in people’s thinking here. The other side of it is there needs to be much stricter laws.
The current version of conflict of interest of law speaks about one individual. Well, what if you pass a law and it supports your family or someone else. That is outside the scope of the law. Someone gets away with that.
What is your opinion on the foreign investment law?
One of the problems is that usually Mongolian Parliament is very reactive to certain events. There have been laws in the past that were enacted where, for environmental concerns, a law was passed, but it was too broad. We were seeing same thing with the strategic investment law. It is a response to Chalco. (The Alumnium Corp. of China)
That reactive fashion is not a good way of being able to implement laws. But rather, it’s better trying to be able to have a thought-out policy that is implemented over time. Most people say the strategic investment law has been considered now for over two or three years. But come on, we all know what triggered it: the reaction to Chalco. I share the concerns about potential Chinese aggression through economic penetration in Mongolia. I lived in China for 18 years. I understand that is a realistic concern. But it is far better to have the discipline to think out broader policies and have the implementation of those plans in the abstract than just reacting to one problem and passing something that is too broad.
It sends a very mixed message to the international community. In the one hand, “please invest to Mongolia”.
For the most part, it has been small investors that have been attracted here. We started to see large investors (Rio Tinto and Ivanhoe are the obvious examples) and there are others looking very seriously at the Mongolian market.
It’s not just mining companies, but companies that support what mining companies do, whether it is building power stations or supplying local motives or construction. Our own client list consists of quite a few Fortune 20 companies, but the problem now is that this law seems to have taken away the red carpet. The law has a lot of vagueness, and foreign investors anywhere don’t like uncertainty. If your law can’t say what the process is to comply with and the law has severe penalties you would actually feel uncomfortable about investing a lot in a particular country. I do worry that sometimes people (worry ) foreigners are coming here.
People think in some ways that more wealth has materliased then the case actually holds. And obviously there is concern over what will be the future direction of the country. You are looking at people who have lived a traditional nomadic life being compelled to accept a sedentary existence. The challenges that involves, in terms of really changing your role as someone who supports a family and all these new developments that didn’t exist in the past, has a lot of confusion and concern. All that is understandable, but in terms of calmly and passionately discussing describing the circumstances, people do not have an exaggerated view of foreign colonisation of Mongolia.
What do you think about the current corruption law of this country?
I think it is very insufficient. But even if the law was more strenuous, it is a question of enforcement. More importantly, before enforcement is the question of having this accepted as a forbidden social vice. Society shaming people for being corrupted is the first step in terms of creating a mechanism of enforcement and a will to draft laws seeking enforcement.
In some ways it is a question of instilling a certain sense of ethics and integrity in society. It is an issue that starts off with education in order to be able to encourage people to take a viewpoint that is tied to integrity with their studies. I heard there were people who were taking the Mongolian lawyer exam last year and they were openly cheating. That is something that just couldn’t happen in other parts of the world. That would be socially unacceptable, a lawyer starting his career by cheating to get qualified. It’s a need to be able to create that social sense, that ethical aspect, in order to be able to give the will to the governmental system to implement anti corruption laws.
As a lawyer, what ideas for amendments to laws that should be made first do you have?
The ones I would look to first would be very narrow things that impact my clients. But there are certain ambiguities in the revised company law that should be fixed. I feel that there are certain administrative procedures that need to be implemented. For example, there are various types of collateral that the law envisions there is a registration process. The state authorities haven’t implemented the process for those types of collateral. This would be a very easy way to enhance lenders’ comfort in issuing loans to Mongolian companies to fix these things. So the things that are at the forefront in mind are usually pretty mundane things that relate to business but also slow down business.
What is your impression about this legal reform forum?
Last year’s forum was a larger event with a larger invitation list and named a much wider scope of matters. The difference with this forum is that the focus is slightly different. On one hand we are speaking about international standards of doing business suitability to addressing the problems within Mongolia or to be able to facilitate the conduction of business in Mongolia. It is more so geared to business issues. How can we make the banking sector more efficient? How can we change the laws dealing with our arbitration in order to help and be able to resolve disputes more rapidly?
So the focus is more on businesses. It’s more on the practical side of things, less so on courts, and less so on the ideas about passing laws in order to deal with higher justice issues. But more so to looking at how a law can facilitate business in order to encourage economic growth.
What would you say about the legal environment of Mongolia?
I disagree with many people who paint it very negatively. My view point is that looking at the law fairly, what you see is a legal system that aspires to promote the freedom to contract and very much memorializes certain rights such as the rights to compensation in event of expropriation. Fundamentally, the basis of the legal system is something that is much closer to that which exists in the west than China, Vietnam or Indonesia.
At the same time, there is a tendency to think that all we have to do is enact a law and that law will solve the problem. I think that perhaps that is in some ways a reflection of traditional Mongolian thinking. Mongolians have always embraced the idea of a code of behavior. If you promulgate a new part of a code, people would follow. But the problem is, in this complex age, many times when you are looking at things as complex projects as the creation of new electricity, heating and power stations—these things are fairly complex. What we need is more than just simply supporting the idea, but to take those concepts and bring them towards implementation.
You have a great legal concept, but if you can’t take the law and be able to fashion it into a contract that people understand, then there really isn’t that much advancement.
How can we enforce the laws so that everyone complies with them?
I think it is important to encourage Parliament to not only think of the laws, but also think about the contracts that will be used to implement the laws. For example, there is a concession law that was enacted about two years ago. Prior to its enactment, the focus was exclusively on the issue of how do we draft this law, and what do we provide for it. But once you have the law, no one knows how to apply. There were a series of private sector attempts at a concession agreement that were pretty underwhelming. My thought was, fine you can speak about the law but why didn’t Parliament authorise people to focus on preparing a concession agreement that would comply with Mongolian law, would be written in a way that is compliant with international standards, and be regarded as an equally balanced document—something that could be then used internationally, the international community could feel comfortable with, and the Mongolian community could feel comfortable with.
That does not happen many times because in my opinion people think when you get to the tedium of actually writing contracts that it is not as exciting. That can be boring, but that is really where the heart of the action actually is in order to be able to implement the concept of a law and then in turn be able to develop the economy.
What is a good model for implementing a law in developing small countries like Mongolia?
I think the system here is a reflection of both the greatest strengths and occasional weaknesses. Mongolia made it its transition to democracy, so, therefore, Parliament is very responsive (some people might say reactive) to popular sentiment. That is fine. That is one of the attributes of democracy, and that is very good.
Though, at times this leads to Parliament reacting very rapidly to an issue and enacting a law without really considering all the consequences. What other countries will do is [different from] the process used here, which usually involves a working group. The problem with working groups is that it‘s everyone’s responsible, but no one’s really responsible. You have drafting done in a patriotic fashion, and, at times, no one or two people taking responsibility for the final version of the law.
We would have to move away from the working group concept because I find that it generally tends to slow any project down, whether it’s looking at investment in a power plant or drafting a law. “Too many cooks spoil the soup” is the old phrase. I think that is what happens here. But also what I think is needed here is enhanced appreciation of legislative drafting. By that I mean the specific style by which one writes a law.
When a lawyer tries to write a contract, if it doesn’t really have the substance, the technical aspects, to make it as enforceable as the parties wish it to be, when there is a dispute it winds up being unworkable because you can’t interpret it as a contract. When you write a law, there is a similar process. You have to go forward and draft the law in accordance with a particular style of writing, with a particular anticipation of definitions to make the law as specific and definite as possible, to remove vagueness, and to make sure that the law addresses precisely the social or economic problem that parliament thinks its remedying.
The current strategic investment law is an extremely broad document, and I’m not sure if its breadth necessarily addresses the particular concern that Parliament had when it had been considering it. And then that creates confusion.
In other jurisdictions you will find a more finely honed process of how to write a draft law. You usually don’t find a group of people doing it, but one or two people who are drafting it in response to a specific legislative objective. From there it often comes down to a process of being able to have consultations with the public, the business sector (which may be involved), private individuals, and sometimes scholars.
But ultimately, if it is to be a commercial law, the whole focus needs to assist people in business with their decision making process. They are sitting down thinking out a particular business plan. What they need to do is to say to themselves, what does this law tell me I should do. If I understand that, then I can make a decision whether I should pursue this business activity. That is the essential purpose of a law. That is what a properly drafted law must do. There are times where that is not achieved here, as well as other jurisdictions.
What do you think about Mongolian policymakers making laws in their own interest, as they often are running their own business behind the scenes?
I do know that a conflict of interest law has been passed. I don’t believe that it has been drafted as strictly as it is ought to be. Quite simply, there is this regrettable tendency of people to pursue laws not for the public good but for personal their own personal advancement, or the advancement of family members. One aspect of all of this is this has to become something that is wildly, sociably unacceptable. Anyone who would aspire to be a politician in other jurisdictions would disqualify himself with that behavior. Firstly, there needs to be a social change in people’s thinking here. The other side of it is there needs to be much stricter laws.
The current version of conflict of interest of law speaks about one individual. Well, what if you pass a law and it supports your family or someone else. That is outside the scope of the law. Someone gets away with that.
What is your opinion on the foreign investment law?
One of the problems is that usually Mongolian Parliament is very reactive to certain events. There have been laws in the past that were enacted where, for environmental concerns, a law was passed, but it was too broad. We were seeing same thing with the strategic investment law. It is a response to Chalco. (The Alumnium Corp. of China)
That reactive fashion is not a good way of being able to implement laws. But rather, it’s better trying to be able to have a thought-out policy that is implemented over time. Most people say the strategic investment law has been considered now for over two or three years. But come on, we all know what triggered it: the reaction to Chalco. I share the concerns about potential Chinese aggression through economic penetration in Mongolia. I lived in China for 18 years. I understand that is a realistic concern. But it is far better to have the discipline to think out broader policies and have the implementation of those plans in the abstract than just reacting to one problem and passing something that is too broad.
It sends a very mixed message to the international community. In the one hand, “please invest to Mongolia”.
On the other hand, “you have to comply with laws, which is not clear, and if you don’t there are very severe penalties”. The idea is not bad but the environment requires more refinement and sophistication. If the purpose of the law is to prevent Chinese investment, but not say so, there are other ways a law could be facially neutral but would slowdown Chinese investment. For example, proof of Chinese government approval in a foreign investment project in Mongolia is a requirement in Chinese law that is never gotten. People just go forward with the projects here without getting their own internal approvals. If you require that to be presented and they don’t have that, that stops the flow of foreign investment.
Although Mongolia is one of the biggest mining destinations in the world, are we still dealing with small investors? Are big investors still watching and waiting before entering Mongolia?
Although Mongolia is one of the biggest mining destinations in the world, are we still dealing with small investors? Are big investors still watching and waiting before entering Mongolia?
For the most part, it has been small investors that have been attracted here. We started to see large investors (Rio Tinto and Ivanhoe are the obvious examples) and there are others looking very seriously at the Mongolian market.
It’s not just mining companies, but companies that support what mining companies do, whether it is building power stations or supplying local motives or construction. Our own client list consists of quite a few Fortune 20 companies, but the problem now is that this law seems to have taken away the red carpet. The law has a lot of vagueness, and foreign investors anywhere don’t like uncertainty. If your law can’t say what the process is to comply with and the law has severe penalties you would actually feel uncomfortable about investing a lot in a particular country. I do worry that sometimes people (worry ) foreigners are coming here.
It’s true that they are, but it hasn’t reached a stage of extraordinary development. There are a number of mines coming together, but we are still not at a stage where the volume of foreign participation has already produced a lot of wealth.
Until the capital comes in to get those minerals and metals out of the ground, those things are just rocks. That’s dirt in the ground of absolutely no value. To say, well we are going to make it more difficult to get foreigners investors to get this wealth, then how does one get at it? If it remains something unextracted, it remains valueless. How do you materialise that value?
Until the capital comes in to get those minerals and metals out of the ground, those things are just rocks. That’s dirt in the ground of absolutely no value. To say, well we are going to make it more difficult to get foreigners investors to get this wealth, then how does one get at it? If it remains something unextracted, it remains valueless. How do you materialise that value?
People think in some ways that more wealth has materliased then the case actually holds. And obviously there is concern over what will be the future direction of the country. You are looking at people who have lived a traditional nomadic life being compelled to accept a sedentary existence. The challenges that involves, in terms of really changing your role as someone who supports a family and all these new developments that didn’t exist in the past, has a lot of confusion and concern. All that is understandable, but in terms of calmly and passionately discussing describing the circumstances, people do not have an exaggerated view of foreign colonisation of Mongolia.
What do you think about the current corruption law of this country?
I think it is very insufficient. But even if the law was more strenuous, it is a question of enforcement. More importantly, before enforcement is the question of having this accepted as a forbidden social vice. Society shaming people for being corrupted is the first step in terms of creating a mechanism of enforcement and a will to draft laws seeking enforcement.
In some ways it is a question of instilling a certain sense of ethics and integrity in society. It is an issue that starts off with education in order to be able to encourage people to take a viewpoint that is tied to integrity with their studies. I heard there were people who were taking the Mongolian lawyer exam last year and they were openly cheating. That is something that just couldn’t happen in other parts of the world. That would be socially unacceptable, a lawyer starting his career by cheating to get qualified. It’s a need to be able to create that social sense, that ethical aspect, in order to be able to give the will to the governmental system to implement anti corruption laws.
As a lawyer, what ideas for amendments to laws that should be made first do you have?
The ones I would look to first would be very narrow things that impact my clients. But there are certain ambiguities in the revised company law that should be fixed. I feel that there are certain administrative procedures that need to be implemented. For example, there are various types of collateral that the law envisions there is a registration process. The state authorities haven’t implemented the process for those types of collateral. This would be a very easy way to enhance lenders’ comfort in issuing loans to Mongolian companies to fix these things. So the things that are at the forefront in mind are usually pretty mundane things that relate to business but also slow down business.
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