Last week was quite a turbulent week for Oyu Tolgoi. The First Instance Administrative Court in the Capital City decided a case related to Dubai Agreement and Parliament issued a resolution with regard to steps to be taken related to Oyu Tolgoi investment agreements.

On November 18, the court decided that the decrees former Prime Minister Ch.Saikhanbileg issued with regard to Oyu Tolgoi in 2015 was “explicitly unlawful” and therefore it is invalid.

The following is analysis on how the court made the decision and the consequences it will have.

Claimant Darkhan Mongol Nogoon Negdel NGO

Darkhan Mongol Nogoon Negdel NGO, which made the complaint regarding the Oyu Tolgoi underground project agreement (or Dubai agreement) was founded by citizen of Mongolia D.Dashnyam on August 1, 2014. D.Dashnyam is still the only member, founder, and board of director of the NGO. It’s only activity area was and still is “to promote and organize training and seminars to guarantee national security”.

What could be the object of the claim?

According to the law, NGOs can submit claims to administrative courts on “environment, child right, public health and to protect public property” related issued.

According to Article 18 of the Law on Administrative Litigation, the following three are the requirements for such claimants: (1) it must be an entity eligible to represent public interest other than those entitled for certain powers under laws; (2) claimant’s demand(s) must match the entity’s objective of the organization specified in their charter; and (3) it must have had stable operation in accordance with the objectives specified in the charter for at least last three years. I assume one of the biggest debatable subjects is the purpose of the NGO’s operation and whether it complies with its charter to run an activity to protect public property. It’s debatable whether an NGO established to promote and organize training and seminars to guarantee national security has the right to submit claims the one regarding the Dubai agreement.

Legal grounds for deeming the prime minister’s decrees as ‘explicitly unlawful administrative act’

According to a statement on admincourt.gov.mn, the official web site of the First Instance Administrative Court in the Capital City, dated November 18, 2019, the court declared four decrees of the prime as “explicitly unlawful administrative act”. The legal grounds to consider administrative acts as “explicitly unlawful” are regulated in Article 47 of the General Administrative Law. Those are: (i) has obvious contextual error; (ii) if it is not clear which organization approved that act; (iii) the administrative organization issued an act with respect to a matter which is not within their function; (iv) it’s unclear that who will execute the act; (v) it demands to execute illegal act or inaction; and (vi) there is no legal grounds to overpower the legal rights and interests of citizen(s) or legal entity(s).

In the November 21 Parliament session, Chief Cabinet Secretary and lawmaker L.Oyun-Erdene said, “The [former] prime minister should have issued a government resolution instead of Prime Ministerial Decree No. 99 in 2015 to appoint authorized representatives to sign [the Dubai agreement]. He also should have collected opinions from relevant ministries to establish a working group on the relevant matter.”

Based on this explanation, the legal ground for the court decision is highly likely to be Article 47.1.3 of the General Administrative Law, which states “the administrative organization issued an act with respect to a matter which is not within their function.”

If we look at the Supreme Court’s decisions, it explained this article as “a decision and/or act executed by implementing a power that is not given to the organization/ body under the law”.

However, the chief Cabinet secretary mentioned in his speech that the fact that the former prime minister should have issued a government resolution instead of a prime ministerial decree and collected opinions from ministries is a common practice. Therefore, the method of interpreting the law the court used to arrive at their decision is significant. The court can use a linguistic method to explain regulations based on the direct meanings of each word, a systematical method to explain regulations based on its logical connection to other relevant rules and laws, or a purpose-based method which takes account of the purpose of the law to interpret it.

Consequences of the court decision

This decision will not have direct effect on the Dubai agreement for the following reasons:

1. The court decision hasn’t become effective yet.

In case the claimant and defendant to the case or a third party who was involved in the case haven’t appealed on the decision within 14 days after the court decision is issued in writing and handed it over to the parties, the court decision will become effective. It’s clear that the NGO which made the claim will not appeal because its demand was fulfilled in full. Therefore, if the government or a third party whose rights and/or legal interests (for example Oyu Tolgoi or parties to Dubai agreement) will be impacted haven’t appealed on this decision within 14 days, the decision will become effective.

2. Terms related to dispute settlement that parties to the Dubai agreement agreed upon is the only binding regulation with respect to the dispute settlement for disputes arising out of the Dubai agreement.

Some people argue that the Dubai agreement is not an agreement. However, to define whether or not the document is an agreement we must look at (i) what kinds of matters the document is regulating (For example, does it state rights and obligations or responsibilities and liabilities?), and (ii) the ways to interpret that document (which laws or other rules are applicable to interpret the document).

According to the Dubai agreement, the parties to the Dubai agreement have agreed that the document is stating rights, obligations and responsibilities based on the shareholders’ agreement of Oyu Tolgoi LLC. Furthermore, it’s also stipulated in the document that laws of Mongolia shall be applicable to interpret regulations of the document.

According to the Civil Code of Mongolia, when interpreting regulations and/or certain provisions of a legal document, the context shall prevail over titles. In other words, the Dubai agreement is a part of the shareholders’ agreement of Oyu Tolgoi LLC by stating rights, obligations and responsibilities of the parties related to the shareholders’ agreement. Therefore, it could be considered as an amendment to the agreement.

Accordingly, parties to the shareholders’ agreement of OyuTolgoi LLC have agreed that disputes related to the validity of the agreement shall be settled via Arbitration in London and the applicable rules to the dispute shall be the Arbitration Rules of the United Nations Commission on International Trade Law.

Therefore, the decision of the First Instance Administrative Court in the Capital City dated November 18, 2019 could be a legal ground to start the next dispute, but it does not have any direct effect on the Dubai agreement. The fact that a court of Mongolia has stated persons who signed on the document representing the government of Mongolia did not have legitimate authorization could become a cause for the government of Mongolia to bear liabilities.