Preface

Dear Readers,

Anderson & Anderson LLP is an international law firm, based in the USA, founded in California in 1885.  Our attorneys have been active in Asia since 1963, in China for more than 35 years, and in Mongolia for over 15.  Our practice both inside and outside of Mongolia has included a diverse range of fields including IP law, including trademark, patent, and copyright registration and protection, mining law, including related taxation law, general domestic and international tax law, litigation and arbitration both in Mongolia and internationally, direct foreign investment, banking law and structured cross-boarder loans, mergers and acquisitions, derivative contracts, securities law, real-estate and property law, due diligence and contract work related to all of the above fields, initial and secondary public offerings and offerings of bonds on stock exchanges domestic and foreign, other securities-related transactions, as well as establishment of Mongolian subsidiaries and the franchising thereof.

Our clients come from a wide variety of backgrounds, including influential international organizations (both governmental and non-governmental), private banks and insurance companies, major media companies, foreign and domestic mining corporations, including wholly-owned subsidiaries, telecom and media firms, as well as manufacturers of construction equipment and the world’s largest soft-drink manufacturer.

We send you this newsletter, Mongolia Lex, as an accommodation and to keep you abreast of the latest topical changes in Mongolian law.  If there are other areas of Mongolian law you wish to be kept informed about, please do let us know.

Yours faithfully,
Anderson & Anderson LLP
Ulaanbaatar Office

THE Arbitration law in Mongolia 

By Batchimeg Batbayar (Attorney)
Anderson & Anderson LLP, Ulaanbaatar Office

 

1.Backround of Mongolian National Arbitration

Mongolia has one formal arbitration organization, which is called the Arbitration Court of the Mongolian Chamber of Commerce and Industry. There are also rules that permit enforceable ad hoc arbitration. The Mongolian National Arbitration Court was established under the “ Chamber of Commerce ” with one arbitrator on 2nd July, 1960, by Resolution 164/295 of the Central Committee of the Mongolian People’s Revolutionary Party and the Council of Ministers. [ The Arbitration and Business Law, National Arbitration Press; Ulaanbaatar, 2005, №01 (06) Translation from Mongolia to English.] The Arbitration Commission Charter was adopted in 1962, creating the Foreign Trade Arbitration Commission. The COMECON (Council for Mutual Economic Assistance) countries ratified the Convention on the Settlement by Arbitration of Civil Law Disputes Arising out of Relations between Countries Engaging in Economic Scientific and Technological Cooperation on the 26th of May, 1972 in Moscow. The arbitration courts of the COMECON member countries jointly worked out a draft agreement to resolve disputes under to the above convention, with each country establishing their own system separately.  Mongolia also followed this path, with the Head Hural of the Trade Chamber ratifying the treaty on 26th February, 1975, and amending the relevant regulations to conform thereto.  On 1st March, 1975, the Trade Chamber leadership commenced their new activities, as stipulated by the COMECON treaty. The Arbitration Commission was changed into the Arbitration Court by a resolution of the leadership of the Trade Chamber in 1986.

In 1991, the jurisdiction of the Arbitration Court was expanded to consider all commercial disputes involving foreign trade, regardless of nationality of disputants.

In 2003, a new Arbitration Law was adopted, changing the Foreign Trade Arbitration Court into the Mongolian National Arbitration Court, expanding its sphere of activities to include resolution of domestic and foreign business disputes through arbitration and mediation, and also to promote training and research in arbitration.
Mongolia was a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted in 1958 and more commonly known as the New York Convention), and in 1995 arbitration awards made within Mongolia became enforceable in the 156 or so other states and territories that have ratified the convention, and their awards became enforceable in Mongolia.
The Arbitration Court hears and settles disputes arising in the result of agreements, contracts and other civil relations between legal entities in the process of foreign trade, international economic, scientific-technological exchange and other activities.

2.Treaties and Laws related to Arbitration in Mongolia

 

 

Arbitration in Mongolia is regulated by the following treaties and laws:
1. International Conventions
    a) 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards;
    b) 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other states; and
    c) 1972 Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Arising out of Relations between Countries Engaging in Economic Scientific and Technological Cooperation.
2. Domestic Laws
    d) Arbitration Law, 2003;
    e) Civil Code, 2002;
    f) Civil Procedure Code, 2002; and
    g) Law on Court Enforcement.
If domestic arbitration law is inconsistent with an international treaty to which Mongolia is a party, then the international treaty will have priority.
 

3. Arbitration Law of Mongolia

The Foreign Trade Arbitration Court has been consistently increasing its functions and powers since the end of Communism in Mongolia, especially in that it has been hearing more cases and hiring more specialist staff, so the legislation relating to its functions has also required similar updating and enhancement. Therefore, the Foreign Trade Arbitration Law of Mongolia was adopted by Parliament (the State Great Hural) on 22nd January, 1995. Only one arbitration institution had previously functioned in Mongolia, specifically the Foreign Trade Arbitration Court. Since 1995 the Foreign Trade Arbitration Court has been working to solve disputes arising from foreign trade and economic transactions and also to settle disputes between foreign investment companies.
 
On 9th May, 2003, the State Great Hural adopted a new Arbitration Law of Mongolia. This new law has 8 Sections and 43 Articles. The purpose of this law is to regulate arbitration disputes related to material and nonmaterial property arising between legal entities. This law is based on the Model Law on International Commercial Arbitration adopted in 1985 by the United Nations Commission for International Trade Law (UNCITRAL)[  The UNCITRAL Modal law on International Commercial Arbitration was prepared by UNCITRAL and adopted by the United Nations Commission on International Trade Law on 21st  June 1985. In 2006 the Model Law was amended. The Model Law is not binding, but individual state may adopt the model law by incorporating it into their domestic law.] and has conformed to the principle and view of modern arbitration.  
 
This law is still in effect today. Most sections of the law followed the opinions of the International Trade Arbitration Law adopted by UNCITRAL. When the draft of the Arbitration Law of Mongolia was being prepared, adherence to UNICITRAL’s recommendations to expand procedures which solve disputes out of court were adopted.

3.1 Arbitration Agreement

“Arbitration Agreements” are defined in the law as a specific type of bargain concluded between parties with the purpose of settling a dispute over any matter, which arose or which may arise out of legal relations or other particular types of dispute, Arbitration Law, Article 11.1. Arbitration agreements are the main basis for conducting arbitral proceedings in Mongolia, and they are typically prepared in written form. Arbitration agreements generally consist of independent arbitration agreements signed by the parties concerned.  However, a letter, telegram, official note, fax or other similar document that expresses the parties’ willingness to conclude an arbitration agreement shall be considered as an arbitration agreement, as defined in the Arbitration Law, Article 11.3.
 
Moreover, if any document pertaining to the arbitration agreement is cited in the basic contract between the parties and this is specified in the contract as an inseparable part thereof, this shall be considered as an independent arbitration agreement between the parties concerned, Arbitration Law, Article 11.3.
 
If the parties choose to settle disputes by institutional arbitration, the name of the arbitration panel chosen must be entered correctly in the arbitration agreement. If the parties write the name of the permanent arbitration panel wrongly it may not be enforceable.  The parties can also establish their own panel by resort to ad hoc arbitration.

3.2 Arbitral Tribunal and Jurisdiction
 
Mongolian domestic law defines the types of disputes which can be solved by arbitration. For example, the 1995 Foreign Trade Arbitration Law, allowed that to some type of international disputes could be placed under the jurisdiction of arbitration.  However, the 2003 Arbitration Law, expanded the categories of disputes which could be subject to arbitration, and allowed certain contractual and non-contractual civil disputes to be resolved by arbitration. In this way, arbitration became a valid option for solving disputes which arose from international trade and economic relations, and certain Mongolian domestic civil disputes. In accordance with the Arbitration Law, Article 20.1, an arbitration tribunal shall decide whether the dispute is subject to the jurisdiction of arbitration.  The arbitration tribunal must first check whether the dispute is related to the types of disputes resolved by arbitration in Mongolia, and secondly whether the parties actually have an arbitration agreement.
 
If the parties negotiate an arbitration agreement about a dispute which may not be legally subject to arbitration, then the agreement may be declared invalid.  However, even if the parties lack an arbitration agreement, if the dispute is in one of the categories which may legally be resolved by arbitration, then the arbitration panel will hear the dispute anyway.

3.3 Institutional and Temporary Arbitration
 
By the 1995 Foreign Trade Arbitration Law, only international arbitration was regulated. Therefore, Mongolian domestic disputes were resolved by only in Mongolian courts. However, the new (2003) Arbitration Law established a unified framework which regulates international and domestic arbitration, and in this way it differs from the Model Law on International Commercial Arbitration. Arbitration in Mongolia may be either permanent or temporary (ad hoc). Temporary or Ad Hoc arbitration was not regulated by the previous law, but is now regulated by the 2003 law.  “Permanent” and “Temporary” are defined by the 2003 law and permanent arbitration is no longer limited to just one person.
  
The Chamber of Commerce & Industry and other nongovernmental organizations and associations protecting the rights and interests of producers and customers may set up an institutional arbitration center as its primary function. Governmental agencies, administration bodies and profit making legal persons are prohibited from establishing arbitration centers. Institutional arbitration centers are deemed as established when an organization permitted by this law decides to set up an institutional arbitration center and to establish both rules and a list of arbitrators. The organization and management of an institutional arbitration center are regulated by its internal statute.
 
An institutional arbitration center can conduct arbitration for any disputes mentioned in the Arbitration Law.  In particular arbitration of disputes regarding intellectual property and foreign trade is encouraged. Ad hoc arbitration shall be set up by parties by means of written agreement. Institutional and Ad hoc arbitration panels both have the same rights, Arbitration Law, Article5.

3.4 Challenge of Arbitrators

When a person is approached in connection with possible appointment as an arbitrator, he will be required disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence.  An arbitrator from the time of their appointment, throughout the arbitral proceedings must disclose such circumstances that may give rise to such doubts as soon as he or she becomes aware of them.  Either party may challenge an arbitrator appointed by themselves, or in whose appointment they participated, for reasons of which he becomes aware after the appointment of that arbitrator, Arbitration Law, Article 16.

 
3.5. Court Participation for Arbitral Proceedings
 
In accordance with the Foreign Trade Arbitration Law of 1995, there was no court involvement in arbitration activities, however the 2003 law provides that courts may participate in arbitral proceedings in some cases.  Parties who conclude arbitration agreements by implication chose to have their disputes resolved by arbitration only. This choice is made by parties who would rather not have disputes resolved in court.  In order to respect the parties’ arbitration agreement, courts will not participate in arbitral proceedings arising from matters covered in the parties’ contract. Also, the courts are completely barred from being involved in certain types of dispute, which are the exclusive domain of arbitration under Mongolian law.  However, if either party finds arbitration proceeding to be conducted unfairly, they may demand court assistance from a Court of Appeals.

In order to facilitate the establishment of complete conditions for quick, cheap, and fair arbitral proceedings, a Court may participate in following method an applicable one of the parties[ The National Arbitration Journal, Mongolian National Arbitration Press; Ulaanbaatar, 2004,
    Translation from Mongolia to English ]

    a) the Parties submitted a request to confirm their arbitral awards. Prior or during arbitral proceedings, parties may submit their request to a court of appeal to have measures taken confirming arbitral awards and a judge may take appropriate measures pursuant to Article 69 of the Law on Decision of Civil Cases upon such a request and this shall not be considered as violating the arbitration agreement, Arbitration Law, Article 13.1;
    b) either party submitted a request to the Court to appoint an arbitrator, if the parties do not agree to appoint an arbitrator themselves;
    c) either party may not submit a request to challenge an arbitrator, if the parties cannot resolve challenges to an arbitrator on their own;
    d) if the parties realize that the arbitration panel is abusing its power, they may abolish that panel and create a new one, Arbitration Law, Article 20.4;
    e) either party may submit a request to invalidate an arbitration award. A party may appeal to a higher level court than the place of arbitration proceedings in order to annul an arbitration award only on the grounds stipulated in Article 40.2 of this Law, Arbitration Law, Article 40.1; and
    f) A party may submit a request to have an arbitration award recognized and enforced. If either of the parties fails to implement the award, the other may appeal to a Court of Appeals pursuant to the procedures on enforcement of court decisions, Arbitration Law, Article 42.1.

3.6. Arbitration Costs

Arbitral tribunals set their costs of based on the nature of the dispute heard, the size of the arbitral award, and the time taken by the arbitral proceedings. Arbitration cost includes: arbitrators’ fees, expenses incurred to the arbitrator during arbitral proceedings and other unpaid costs.  Under the Arbitration Law, Article 31.2, also requires payment costs related to witnesses or other costs incurred by the arbitral tribunal during arbitration as well as an institutional arbitration fee. Unless the parties agree otherwise in advance, all of the aforementioned costs shall be paid by the respondent if the claimant’s claim is fully upheld and by the claimant if the claimant’s claim is dismissed. If only part of the claim is satisfied, then the costs shall be apportioned between the claimant and the respondent proportionate to the amount of the claim satisfied. If the actual cost is lower than the anticipated cost because a settlement is reached between the parties, the claimant withdraws their claim, or the respondent fully satisfies their claim, and there is only a sole arbitrator, the difference will be returned to the parties. Arbitral tribunals determine the advance costs, including fees for translators, expert witnesses, and other costs, of arbitral proceedings, and if the parties fail to pay these costs within the agreed timeframe, the arbitral tribunal may postpone or terminate the arbitral proceedings, Arbitration Law, Article 41.
 
 

Amount of Claim of Cases resolved by Arbitration  in Mongolia

3.7. Recognition and Enforcement of Arbitral Awards

There are difficulties regarding the recognition and enforcement of foreign arbitral awards in Mongolia. In some case the party who has lost the lawsuit may refuse to recognize an arbitral award. The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, ratified by a general meeting of the United Nations New York, is the main vehicle for enforcing arbitral awards at the international level. This convention established protections for the recognition and enforcement of arbitral awards which issued in states both participant and non-participant to the convention. Member countries have the duty to recognize and enforce arbitral awards, regardless of where they were made. However, this procedure may be adapted to the different laws of the participant countries.
 
Mongolia’s 2003 Arbitration Law stipulates that the procedure for the recognition and enforcement of foreign arbitral awards shall be in accordance with the 1958 New York Convention. However, the law does not apply to foreign arbitral awards generally, and it is unclear whether the law is intended to be applied to awards made in New York Convention member countries only, or is it intended to provide for relevant procedures. International Conventions are automatically part of Mongolian law.
 
Arbitral tribunals in Mongolia decide disputes in accordance with the rules of the law chosen by the parties as applicable to the substance of dispute, Arbitration Law, Article 34. For arbitral proceedings involving more than one arbitrator, arbitral decisions are made, unless otherwise agreed, by majority vote of arbitrators involved. Awards are presented in writing and signed by the arbitrator or arbitrators, Arbitration Law, Article 37. Awards must provide the names of the arbitral tribunal, the place of arbitration, the date, and the legal reasons for the arbitral award and, unless otherwise agreed to or settled by parties, arbitration costs, Arbitration Law, Article 37.[ Translated from the Arbitration Law.
]
 
Within 30 days of receipt of an award, unless otherwise agreed, a party may, with notice, request an arbitral tribunal to correct computational and clerical or typographical errors, Arbitration Law, Article 39. Parties are required to execute the arbitral award. If a party fails to execute the award, then the other party may submit a request to the Court of Appeals to enforce the award, Arbitration Law, Article 42. [ Translated from the Arbitration Law.]
 
In 2004 there was one case that touched on the recognition and enforcement of foreign arbitral awards in the 2004.  On 15th January, in Stockholm arbitral panel ruled in favor of a claim of US$3.3 million against Erdenet Mining Corporation, which is a Mongolian legal entity. Erdenet has not yet paid the money to the claimant.  Unfortunately, no proceedings for the recognition and enforcement of this award were ever conducted, to our knowledge.

Today there are many cases involving the recognition and enforcement of such foreign arbitral awards before the Mongolian Courts Decision Enforcement Authority, according to its staff. The Mongolian Courts Decision Enforcement Authority is handling enforcement of approximately 20 cases in this field over the course of 2008. Most of these cases involve payment execution. 

3.8. The Confidentiality of Arbitral Proceedings

Confidentiality is an important issue in international arbitration proceedings. The main issue of confidential for arbitral proceedings is a topic of conversation between researchers since Australia Court’s decision on Esso Resources Ltd. Plowman. Keeping confidential of the parties may be an advantage of arbitration.

Under the Arbitration Law of Mongolia, 2003 there are no rules with regards to confidentiality for parties and arbitrators involved in the arbitration proceedings, there were the issues of confidentiality regulated in the Foreign Trade Arbitration Law of Mongolia, 1995, article 13. Following issues of confidentiality: 

the Arbitration trial shall be conducted in open trial, Foreign Trade Arbitration Law of Mongolia, Article 13.1;

if the case evidence is related to the confidentiality of State, Organization, Citizens and either parties the Arbitration may be conducted in closed-door trial, Foreign Trade Arbitration Law of Mongolia, Article 13.2; and

arbitral tribunals and participants are obligated to keep the confidentiality of State, organizations and citizens in arbitration proceedings, Foreign Trade Arbitration Law of Mongolia, Article 13.3.

Except for the legal regulations on confidentiality of arbitration decisions, the arbitration tribunal may provide some information on arbitration decisions, but little statistical information, not provide the name of disputing parties.
The Arbitration Court heard approximately 60 cases in 2007, and according to its staff, this number is set to increase.
The Arbitration Court heard below cases between 1992 and 2005 years.
    – Disputes arising from Agreement for Transfer of Licenses
    – Disputes arising from Lease Agreement
    – Disputes arising from Agent Agreement
    – Disputes arising from Agreement for Sale and Purchase License
    – Disputes arising from Agreement for Hired Work
    – Disputes arising from Agreement for Execution of Construction
    – Disputes between Founders of Joint Venture Company
    – Disputes arising from  Lease Agreement for Real Estate
    – Disputes between Founders of Foreign Invested Joint Venture Company
    – Disputes arising from Transportation Agreement
    – Disputes arising from Loan Agreement
Because of the poor quality of its arbitrators, their lack of decent remuneration, and the tendency of the arbitrators to support the Mongolia party, there has been a substantial decrease in parties willingness to submit cases to the Mongolian National Arbitration Court. Ad hoc arbitration and arbitration out of Mongolian has become most common.

Number of cases resolved by Arbitration (1992-2006)

4. Ad Hoc Arbitration

Other than the Institutional Arbitration described above, ad hoc arbitration requires the parties to make their own arrangements for selection of arbitrators. Ad hoc proceedings can be more flexible, and faster than institutional proceedings.
 
Ad hoc arbitration was first specified in Mongolia in the 2003 Arbitration Law, however there are no very specific articles in that law governing its procedures or requirements. The provisions for ad hoc arbitration in the 2003 Arbitration Law read as follows:

 

 

Certain regulations also arise from the Mongolian National Arbitration Courts internal regulations, giving support to ad hoc arbitration.
 
The Mongolian National Arbitration Court can support to ad hoc arbitration through the following services:[ Translated from the Regulation on Giving Support from the Mongolian National Arbitration Court to Ad Hoc Arbitration, 2003.]

    a) to deliver and submit documents to the parties and arbitrators;
    b) to keep a record of the arbitration sessions and meeting;
    c) to provide translation services during arbitration sessions;
    d) to provide a location for the conduct of arbitration;
    e) to arrange a date and place for conducting arbitration meetings and to notify the parties of this information;
    f) to prepare lodging for arbitrators; and
    g) to calculate and keep track of the expenses of the ad hoc arbitration.

There is no requirement in law, that these services must be utilized.

4.1 Ad Hoc Arbitration Proceeding

According to the aforementioned regulation, the party who wishes to initate arbitration proceedings, the claimant, can submit a request to the Arbitration Court and will then notify the other party. The claimant will have to pay a fee of US$150 to the Arbitration Court. If the respondent wishes to file a counter-claim in response, they will also pay US$150 to the Arbitration Court. The ad hoc tribunal established by the parties themselves, can  correspond with the parties by arbitration.

4.2 Ad Hoc Arbitration Costs

The arbitration chairman of an ad hoc tribunal will determine in advance payment of arbitration expenses. Advance payment normally depends upon the amount of the claim. The parties may pay equal shares of advance payment. After receipt of advance payment, documents of the case are submitted to the arbitrators. The arbitration proceedings expense’s typically include arbitration administration costs, final payment for the arbitrators, travel expenses, food and lodging. Arbitrators may not receive their payment until the completion of proceedings, but must receive them within 30 days of that date. This of course can be varied by agreement between the parties.

Reference

    1. International Private Law, Justice National Centre Press; Ulaanbaatar, 2004. ISBN 99929-0-318-x
    2. The National Arbitration journals, Mongolian National Arbitration Press; Ulaanbaatar, 2004, №02( 05)
    3. The National Arbitration journals, Mongolian National Arbitration Press; Ulaanbaatar, 2004, №03( 05)
    4. The Arbitration and Business law, National Arbitration Press; Ulaanbaatar, 2005, №01( 06)
    5. The Arbitration and Business law, National Arbitration Press; Ulaanbaatar, 2005, №02( 07)
    6. The Arbitration law of Mongolia, 2003
    7. The Foreign Trade Arbitration law of Mongolia, 1995