BILATERAL TREATY MAY BE SOLUTION TO MONGOLIAN STALEMATE
July 17 (allens.com.au) In brief: Partner David Wenger (view CV) and Senior Associates Anthony Lepere and John Koshy look at a major resources company's significant announcement that it has filed a notice of investment dispute on the Mongolian Government under the bilateral investment treaty between Singapore and Mongolia.
HOW DOES IT AFFECT YOU?
A recent announcement by SouthGobi Resources Limited illustrates the possibility of relying upon a bilateral investment treaty as a means of dispute resolution in Mongolia.
Foreign investors should carefully consider the structure of their proposed investments in Mongolia, given the possible availability of bilateral investment treaties.
THE ANNOUNCEMENT
SouthGobi Resources announced to the Toronto and Hong Kong Stock Exchanges on 11 July 2012 that SGQ Coal Investment Pte. Ltd (SGQ) has filed a notice of investment dispute on the Mongolian Government under the bilateral investment treaty between Singapore and Mongolia. SGQ is a wholly owned, Singapore incorporated subsidiary of SouthGobi Resources that owns SouthGobi Resources' Mongolian operating subsidiary, SouthGobi Sands LLC.
In the announcement, SouthGobi Resources noted that:
· its management has determined that it has exhausted all other possible means to resolve an ongoing investment dispute between SouthGobi Sands and the Mongolian authorities;
· the notice of investment dispute consists of, but is not limited to, the failure by the Mineral Resources Authority of Mongolia to execute the pre-mining agreements associated with certain exploration licenses that include the area known as Zag Suujand certain areas associated with the broader Soumber Deposit;
· the notice of investment dispute triggers the dispute resolution process under which the Mongolian Government has a six-month period from the date of receipt of the notice to satisfactorily resolve the dispute through negotiations; and
· if negotiations between SouthGobi Resources and the Mongolian Government are not successful, then SouthGobi Resources will be entitled to commence conciliation/arbitration proceedings under the auspices of the International Centre for Settlement of Investment Disputes.
BACKGROUND
Foreign investment in Mongolia
We recently reported that the Mongolian Government has moved to regulate foreign investment in sectors of the economy of strategic national importance. There are also specific provisions that apply where the foreign investor is a state-owned entity. Those provisions are contained in the Law on Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (theLaw). The Law establishes a generally applicable regulatory regime under which foreign investment in Mongolia might be refused on national interest grounds.
Bilateral investment treaties
A bilateral investment treaty (BIT) is an agreement between two states under which each undertakes to promote and protect investments made in its territory by people and companies from the other state. BITs generally promote the following key rights and principles:
· neither contracting state will expropriate, nationalise, or otherwise take over, investments made by nationals of the other state in its territory;
· the right to fair and equitable treatment for investors, which imposes a corresponding obligation on contracting states to:
o maintain a stable legal and regulatory framework;
o respect the legitimate expectations of investors; and
o deal with investors on a consistent and transparent basis;
· each contracting state shall ensure that investors from the other state are subject to treatment no less favourable than that which it accords to investors from any third state; and
· the right to require contracting states to observe obligations entered into.
Bilateral investment treaties in Mongolia
Mongolia has concluded 43 BITs, of which some 37 have come into force. Mongolia concluded a BIT with Singapore on 24 July 1995, and the treaty came into force on 7 January 1996.
Article 1 of the Mongolia-Singapore BIT defines 'investment' to include 'business concessions conferred by law or under contract, including any concession to search for, cultivate, extract or exploit natural resources'. Article 2(1) provides that the Mongolia-Singapore BIT shall apply to investment in the territory of Mongolia made by companies incorporated in Singapore. Accordingly, the activities and operations of SouthGobi Sands may fall within the scope of the Mongolia-Singapore BIT, and the incorporation of SGQ in Singapore may confer standing on SouthGobi Resources to rely upon the Mongolia-Singapore BIT.
As with most BITs, the substantive rights under the Mongolia-Singapore BIT are complemented by a procedural right to enforce them through a system of international arbitration supported by the World Bank.
The substantive rights under the Mongolia-Singapore BIT reflect the key rights and principles typically seen in most BITs. In respect of expropriation, the Mongolia-Singapore BIT provides protection against expropriation or nationalisation of an investment except where such measures are taken:
· for any purpose authorised by law;
· on a non-discriminatory basis;
· according to its laws; and
· in exchange for compensation.
Such compensation shall, subject to the laws of the contracting states, reflect the value immediately before expropriation and shall be effectively realisable and made without unreasonable delay.
FUTURE DEVELOPMENTS
We will continue to monitor future developments in this area. If SouthGobi Resources and the Mongolian Government cannot reach a mutually acceptable resolution to their dispute within six months, or if the Mongolian Government refuses to negotiate with SouthGobi Resources, then either party may submit the dispute for conciliation or arbitration by the International Centre for Settlement of Investment Disputes. The centre was established by theConvention on the Settlement of Investment Disputes between theStates and Nationals of Other States, which came into effect in Washington on 18 March 1965. Both Singapore and Mongolia are signatories to this convention. While the details of conciliation or arbitration proceedings are likely to be confidential, the commencement of such proceedings would probably be disclosed and would, in itself, be a significant development.
HOW DOES IT AFFECT YOU?
A recent announcement by SouthGobi Resources Limited illustrates the possibility of relying upon a bilateral investment treaty as a means of dispute resolution in Mongolia.
Foreign investors should carefully consider the structure of their proposed investments in Mongolia, given the possible availability of bilateral investment treaties.
THE ANNOUNCEMENT
SouthGobi Resources announced to the Toronto and Hong Kong Stock Exchanges on 11 July 2012 that SGQ Coal Investment Pte. Ltd (SGQ) has filed a notice of investment dispute on the Mongolian Government under the bilateral investment treaty between Singapore and Mongolia. SGQ is a wholly owned, Singapore incorporated subsidiary of SouthGobi Resources that owns SouthGobi Resources' Mongolian operating subsidiary, SouthGobi Sands LLC.
In the announcement, SouthGobi Resources noted that:
· its management has determined that it has exhausted all other possible means to resolve an ongoing investment dispute between SouthGobi Sands and the Mongolian authorities;
· the notice of investment dispute consists of, but is not limited to, the failure by the Mineral Resources Authority of Mongolia to execute the pre-mining agreements associated with certain exploration licenses that include the area known as Zag Suujand certain areas associated with the broader Soumber Deposit;
· the notice of investment dispute triggers the dispute resolution process under which the Mongolian Government has a six-month period from the date of receipt of the notice to satisfactorily resolve the dispute through negotiations; and
· if negotiations between SouthGobi Resources and the Mongolian Government are not successful, then SouthGobi Resources will be entitled to commence conciliation/arbitration proceedings under the auspices of the International Centre for Settlement of Investment Disputes.
BACKGROUND
Foreign investment in Mongolia
We recently reported that the Mongolian Government has moved to regulate foreign investment in sectors of the economy of strategic national importance. There are also specific provisions that apply where the foreign investor is a state-owned entity. Those provisions are contained in the Law on Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (theLaw). The Law establishes a generally applicable regulatory regime under which foreign investment in Mongolia might be refused on national interest grounds.
Bilateral investment treaties
A bilateral investment treaty (BIT) is an agreement between two states under which each undertakes to promote and protect investments made in its territory by people and companies from the other state. BITs generally promote the following key rights and principles:
· neither contracting state will expropriate, nationalise, or otherwise take over, investments made by nationals of the other state in its territory;
· the right to fair and equitable treatment for investors, which imposes a corresponding obligation on contracting states to:
o maintain a stable legal and regulatory framework;
o respect the legitimate expectations of investors; and
o deal with investors on a consistent and transparent basis;
· each contracting state shall ensure that investors from the other state are subject to treatment no less favourable than that which it accords to investors from any third state; and
· the right to require contracting states to observe obligations entered into.
Bilateral investment treaties in Mongolia
Mongolia has concluded 43 BITs, of which some 37 have come into force. Mongolia concluded a BIT with Singapore on 24 July 1995, and the treaty came into force on 7 January 1996.
Article 1 of the Mongolia-Singapore BIT defines 'investment' to include 'business concessions conferred by law or under contract, including any concession to search for, cultivate, extract or exploit natural resources'. Article 2(1) provides that the Mongolia-Singapore BIT shall apply to investment in the territory of Mongolia made by companies incorporated in Singapore. Accordingly, the activities and operations of SouthGobi Sands may fall within the scope of the Mongolia-Singapore BIT, and the incorporation of SGQ in Singapore may confer standing on SouthGobi Resources to rely upon the Mongolia-Singapore BIT.
As with most BITs, the substantive rights under the Mongolia-Singapore BIT are complemented by a procedural right to enforce them through a system of international arbitration supported by the World Bank.
The substantive rights under the Mongolia-Singapore BIT reflect the key rights and principles typically seen in most BITs. In respect of expropriation, the Mongolia-Singapore BIT provides protection against expropriation or nationalisation of an investment except where such measures are taken:
· for any purpose authorised by law;
· on a non-discriminatory basis;
· according to its laws; and
· in exchange for compensation.
Such compensation shall, subject to the laws of the contracting states, reflect the value immediately before expropriation and shall be effectively realisable and made without unreasonable delay.
FUTURE DEVELOPMENTS
We will continue to monitor future developments in this area. If SouthGobi Resources and the Mongolian Government cannot reach a mutually acceptable resolution to their dispute within six months, or if the Mongolian Government refuses to negotiate with SouthGobi Resources, then either party may submit the dispute for conciliation or arbitration by the International Centre for Settlement of Investment Disputes. The centre was established by theConvention on the Settlement of Investment Disputes between theStates and Nationals of Other States, which came into effect in Washington on 18 March 1965. Both Singapore and Mongolia are signatories to this convention. While the details of conciliation or arbitration proceedings are likely to be confidential, the commencement of such proceedings would probably be disclosed and would, in itself, be a significant development.
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