Beijing Shougang Mining Inv. Co. v. Mongolia

11 F.4th 144

BEIJING SHOUGANG MINING INV. CO., LTD., China Heilongjiang Int'l Econ. & Tech. Coop. Corp., Qinhuangdaoshi Qinlong Int'l Indus. Co. Ltd., Petitioners-Appellants,

v.MONGOLIA, Respondent-Appellee.

No. 19-4191

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: February 18, 2021

Decided: August 26, 2021

For Petitioners-Appellants: S. Christopher Provenzano (Michael A. Granne, J.J. Gass, on the brief), Provenzano Granne & Bader LLP, New York, NY.

For Respondent-Appellee: Michael Nolan (Kamel Aitelaj, on the brief), Milbank LLP, Washington, D.C.

Before: Livingston, Chief Judge, Chin, and Bianco, Circuit Judges.

Debra Ann Livingston, Chief Judge:

Beijing Shougang Mining Investment Company, Ltd., China Heilongjiang International Economic & Technical Cooperative Corporation, and Qinhuangdaoshi Qinlong International Industrial Company Ltd. (collectively, "Petitioners-Appellants") filed a petition in the U.S. District Court for the Southern District of New York in September 2017 seeking to set aside an arbitral award (the "Award") resulting from an arbitration initiated by Petitioners-Appellants against Respondent-Appellee Mongolia ("Mongolia") under the 1991 bilateral investment treaty (the "Treaty") between Mongolia and the People's Republic of China (the "PRC").¹ The subject of the arbitration was the alleged expropriation by Mongolia of certain investments made by Petitioners-Appellants prior to 2006 in an iron-ore mine located in a north-central province of Mongolia. After more than seven years of proceedings, an ad hoc arbitral tribunal constituted under the Treaty, and seated in New York, determined that it lacked jurisdiction over Petitioners-Appellants’ claims of expropriation, bringing the arbitration to a close. Shortly thereafter, Petitioners-Appellants proceeded to the Southern District, where they petitioned the district court to set aside the Award and to compel a return to arbitration. On November 19, 2019, the district court (Ramos, J. ) denied Petitioners-Appellants’ petition to vacate the Award and motion to compel arbitration, and granted Mongolia's cross-petition to confirm the Award.

On appeal, Petitioners-Appellants argue that Mongolia and Petitioners-Appellants themselves (collectively, the "Parties") did not "clearly and unmistakably" agree to submit issues of "arbitrability" to arbitration and, therefore, that the district court erred by failing to conduct a de novo review of the arbitral tribunal's decision on arbitrability. They further argue that the arbitrators exceeded their powers and that the district court should not have confirmed the Award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. IV, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 ("New York Convention"), and the Federal Arbitration Act ("FAA"), 9 U.S.C. § 201 et seq .

For the reasons stated below, we disagree. The arbitral agreement at issue in this case—a bilateral investment treaty between Mongolia and the PRC—does not itself contain a clear statement empowering arbitrators to decide issues of arbitrability. Nonetheless, we hold that Petitioners-Appellants indisputably put the issue of the arbitrability of their claims to the arbitral tribunal when they consented, along with Mongolia, to the arbitration proceeding in two phases, with a combined jurisdictional and liability phase and, if necessary, a quantum phase. In doing so, the Parties agreed to submit arguments as to the appropriate reach of the arbitrators’ jurisdiction over Petitioners-Appellants’ claims under the Treaty to the arbitral tribunal. The Parties reached such agreement, moreover, after it had already become clear that the key jurisdictional issue to be argued during the first phase was the scope of the arbitration clause provided in the Treaty, and whether that clause is limited to disputes about compensation, a question clearly implicating "arbitrability." Consequently, we hold that the record supplies "clear and unmistakable" evidence of the Parties’ intent to arbitrate issues of arbitrability.

In light of this determination, we decline independent review of the arbitral tribunal's determination as to the appropriate interpretation of Article 8(3) of the Treaty, and instead review the Award with deference. We conclude that the arbitrators did not exceed their powers in construing the scope of the arbitral agreement, and thus that the Award is not subject to vacatur under the New York Convention or the FAA. We also find no error in the district court's decision to deny Petitioners-Appellants’ request to compel arbitration on the merits. Accordingly, we AFFIRM the order of the district court.

BACKGROUND

I.

In 1991, Mongolia (then known as the "Mongolian People's Republic") and the PRC concluded a bilateral investment agreement concerning "the encouragement and reciprocal protection of investments."² J. App'x at 16. This agreement provides certain guarantees for the investors of each country when making investments in the other, including fair and equitable treatment and most favorable treatment for investments, restrictions on expropriation, and guarantees for the cross-border transfer of investments. Article 8 of the Treaty contains a dispute-resolution provision applicable to disputes between one of the sovereign states and investors from the other. Specifically, Article 8(3) provides that "[i]f a dispute involving the amount of compensation for expropriation cannot be settled within six months after resort to negotiations ..., it may be submitted at the request of either party to an ad hoc arbitral tribunal." Treaty art. 8(3).

Petitioners-Appellants are state-owned and private enterprises incorporated in the PRC. In 2002, Qinhuangdaoshi Qinlong International Industrial Company Ltd. ("Qinlong") formed a joint venture with a Mongolian partner to develop an iron-ore mine in north-central Mongolia. Beijing Shougang Mining Investment Company, Ltd. and China Heilongjiang International Economic & Technical Cooperative Corp. purchased equity in the joint venture from Qinlong in 2004, and the joint venture acquired the Mongolian partner's license to exploit iron ore at the mine in 2005.

Beginning in the early 2000s, Mongolia undertook a series of measures in relation to the joint venture's operations, ultimately leading to the revocation of the venture's extracting license in 2006. The joint venture thereafter sued in the Mongolian courts, appealing its case as far as the Supreme Court of Mongolia, where it ultimately lost. After a series of additional lawsuits against the Mongolian government, the license and land-use rights to the iron-ore deposit were granted to a Mongolian corporation.

In 2010, Petitioners-Appellants initiated arbitration against Mongolia under Article 8 of the Treaty, claiming that Mongolia had interfered with their investment in the mine, and that such interference amounted to expropriation. In their request for arbitration, served on Mongolia in February 2010, Petitioners-Appellants set out their claims under the Treaty as well as under Mongolia's foreign investment law,³ arguing that both sets of claims were subject to arbitral jurisdiction. In particular, Petitioners-Appellants maintained that jurisdiction under Article 8(3) was "not limited to an assessment of the compensation due for an expropriation," but instead, that the provision "g[ave] the Arbitral Tribunal jurisdiction to determine the existence of an expropriation under Article 4 of the Treaty and its lawfulness as well as any compensation due." J. App'x at 186. The Parties thereafter made their respective arbitrator appointments, and the International Centre for Settlement of Investment Disputes ("ICSID") appointed the president of the arbitral tribunal, in accordance with the procedures set out in the Treaty.

Shortly after the tribunal was constituted, the arbitrators called for a procedural meeting to discuss the organization of the arbitral proceedings. According to the terms of the Treaty, arbitrations under Article 8(3) are "ad hoc ," meaning that no arbitral institution is selected for administration of the arbitration, and that arrangements as to procedures must be made during the arbitration itself.⁴ Counsel for the Parties were present at that meeting, which was held by the tribunal on October 1, 2010 in New York. On November 2, 2010, the tribunal issued its "Procedural Order No. 1," which set out a number of key provisions of the arbitration, as well as recounted key aspects of the first procedural meeting and agreements reached at it. The procedural order began by recounting that the "parties confirmed that the Tribunal had been properly constituted" under the Treaty. J. App'x at 195. The order then indicated that, in the absence of any language in the Treaty specifying the juridical seat of the arbitration, the seat of the arbitration would be New York, New York, a designation to which both Parties consented. J. App'x at 198.

With respect to the rules governing the arbitration, the procedural order further recounted that Article 8(5) of the Treaty "authorizes the Tribunal to determine its own procedure" and that, at the same time, " ‘the Tribunal may, in the course of determination of procedure, take as guidance the [ICSID's] Arbitration Rules ....’ " J. App'x at 199. In relation to the issue of procedures, Petitioners-Appellants proposed, but Mongolia did not agree, that the tribunal should adopt the revised United Nations Commission on International Trade Law ("UNCITRAL") Arbitration Rules to govern the proceedings. The tribunal resolved this disagreement by explaining that, "given the statement in the Treaty that the tribunal may, if it thinks it appropriate, refer to the ICSID Rules as guidance on questions of procedure," it "s[aw] no reason" to adopt a set of institutional rules at the outset of the proceedings. J. App'x at 199. Instead, the tribunal noted that it "expect[ed] that should it be called...