Introduction

The case of Beijing Shougang Mining Investment Company, Ltd. et al. v. Mongolia (11 F.4th 144) before the United States Court of Appeals for the Second Circuit, decided on August 26, 2021, marks a significant development in the landscape of international investment arbitration. This comprehensive commentary delves into the intricacies of the case, examining the background, legal issues, judicial reasoning, and the broader implications for future arbitrations under bilateral investment treaties (BITs).

Summary of the Judgment

The appellants, comprising Beijing Shougang Mining Investment Company, Ltd., China Heilongjiang International Economic & Technical Cooperative Corporation, and Qinhuangdaoshi Qinlong International Industrial Company Ltd., sought to overturn an arbitral award issued under a BIT between Mongolia and the People's Republic of China (PRC). They challenged the tribunal's jurisdiction, arguing that arbitrability of their investment claims should be independently reviewed by the court rather than deferred to the arbitral tribunal. The Second Circuit affirmed the district court's decision, holding that the parties had clearly and unmistakably agreed to submit arbitrability issues to the arbitral tribunal during the arbitration process itself, thereby negating the need for de novo judicial review.

Analysis

Precedents Cited

The judgment extensively references several key cases that have shaped the framework for arbitrability and judicial review in arbitration contexts:

• FIRST OPTIONS OF CHICAGO, INC. v. KAPLAN - Established that clear and unmistakable evidence is required to delegate arbitrability issues to tribunals.
• Schneider v. Kingdom of Thailand - Clarified the application of deference in reviewing arbitral decisions on arbitrability.
• Contec Corp. v. Remote Sol. Co., Ltd. - Highlighted the role of incorporated arbitral rules in determining parties' intent.
• REPUBLIC OF ECUADOR v. CHEVRON CORP. - Demonstrated how adoption of specific arbitration rules can evidence intent to delegate arbitrability.
• HOWSAM v. DEAN WITTER REYNOLDS, INC. and Granite Rock Co. v. Int'l Brotherhood of Teamsters - Addressed the judicial determination of arbitrability absent explicit delegation.

These precedents collectively underscore the necessity of explicit agreements or clear evidence indicating parties' intent to delegate arbitrability decisions to arbitral tribunals.

Legal Reasoning

The court's legal reasoning hinged on interpreting whether the parties had, either explicitly or implicitly, agreed to allow the arbitral tribunal to decide on arbitrability issues. Although the BIT did not contain explicit provisions delegating arbitrability to the tribunal, the court found that the parties had effectively consented to such delegation through their conduct and procedural agreements during the arbitration process.

The arbitration was structured in two phases, with the first phase addressing jurisdictional and liability issues. This procedural arrangement, coupled with the appellants' active participation and arguments regarding arbitrability within the arbitration framework, provided clear and unmistakable evidence of their intent to submit these issues to the tribunal. Consequently, the court held that de novo judicial review was unnecessary and affirmed the arbitral award with deference.

Impact

This judgment has profound implications for future arbitration under BITs and similar treaties. It reinforces the principle that parties can, through their actions and procedural agreements during arbitration, delegate complex legal determinations, such as arbitrability, to arbitral tribunals even in the absence of explicit contractual provisions. This enhances the efficiency of arbitration proceedings by potentially reducing judicial intervention points and underscores the importance of parties' conduct in shaping arbitration agreements and processes.

Moreover, the decision provides clarity on how courts interpret implicit delegations of arbitrability, offering a framework for arbitrators and litigants to structure their arbitration agreements proactively to manage jurisdictional disputes effectively.

Complex Concepts Simplified

Arbitrability

Arbitrability refers to the suitability of a dispute for resolution through arbitration rather than through litigation in courts. It involves determining whether an arbitration agreement covers the specific issues in dispute.

De Novo Review

De novo review is a standard of appellate review where the reviewing court considers the matter anew, giving no deference to the lower court's conclusions. In arbitration contexts, de novo review would mean the court independently assesses the arbitral tribunal's decisions on jurisdictional issues.

Bilaterial Investment Treaty (BIT)

A Bilateral Investment Treaty (BIT) is an agreement between two countries that establishes the terms and conditions for private investment by nationals and companies of one state in the other state. BITs typically include provisions for dispute resolution mechanisms, including arbitration.

New York Convention

The New York Convention, formally known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, is a key international treaty that facilitates the recognition and enforcement of arbitral awards across member countries.

Conclusion

The Second Circuit's affirmation in Beijing Shougang Mining Inv. Co. v. Mongolia solidifies the judiciary's stance on upholding parties' intent to delegate arbitrability issues to arbitral tribunals within the framework of BITs. By recognizing procedural agreements made during arbitration as indicative of such intent, the court promotes streamlined arbitration processes and respect for arbitral jurisdiction. This decision not only clarifies the application of existing precedents but also sets a precedent for how indirect agreements and conduct can influence arbitration clauses, thereby shaping the future dynamics of international investment arbitration.

Legal practitioners and parties engaged in international investment disputes can draw valuable lessons from this case on the importance of clearly structuring arbitration agreements and being mindful of procedural conduct that may implicitly delegate critical jurisdictional decisions to arbitration forums.