The recent decision of an emergency arbitrator in Mohammed Munshi v The State of Mongolia demonstrates the careful exercise that must be undertaken by a tribunal presented with an imprisoned claimant who seeks release by way of provisional measures. The outcome in this case (that it was not necessary or proportionate to order the claimant’s release) contrasts with a number of other recent cases in which provisional measures to prevent the detention of a claimant have been ordered with the aim of preserving the integrity of arbitral proceedings.

Mongolian authorities detain Mr Munshi

Mr Munshi is the founder, shareholder and ex-Chairman of Gobi Coal & Energy Ltd (Gobi Coal). Gobi Coal was established to explore coal-mining opportunities in Mongolia. Mr Munshi’s recent tribulations, outlined below, stem from a USD 10 million loan made by Gobi Coal to a Mongolian based company, Baz Group. After the loan defaulted, Gobi Coal commenced arbitration in Hong Kong against the CEO of the Baz Group, Mr Jargalsaikhan Baz, which Gobi Coal would eventually win in 2016.

In early 2015, Mr Munshi travelled to Mongolia to meet Mr Baz’s brother, Mr Chuluunbaatar Baz, to discuss the dispute, where he was arrested on arrival. Mr Munshi was eventually released, but alleges that he was not permitted to leave Mongolia unless he made payments or transferred assets to Mr Chuluunbaatar Baz. Mr Munshi remained in Mongolia for two years when, in July 2017, he was tried for fraud and convicted to 11 years in prison.

Mr Munshi was moved to a strict security prison in January 2018, which he says was triggered by a threatened Energy Charter Treaty (ECT) claim under Stockholm Chamber of Commerce (SCC) Rules against Mongolia related to measures that damaged the share value of Gobi Coal. Mr Munshi’s family and counsel have voiced concerns (in the media and in the proceedings discussed below) over his treatment in prison, including as to restrictions on his access to medical care, mail (one parcel every 60 days), telephone calls (one five minute call every 60 days) and visitors (one short visit every 90 days and one longer visit every 120 days).

Emergency arbitrator declines to order Mr Munshi’s release

On 19 January 2018, Mr Munshi made an application under the SCC Rules for interim relief by an emergency arbitrator. Mr Bernardo Cremades was appointed within 12 days of the application and issued an award five days later. Mongolia did not participate in the proceedings. The principal relief sought by Mr Munshi was for his release from detention and to be allowed to leave Mongolia until the tribunal could decide the issue, although he agreed to check-in with Australian authorities and turn himself in if required to do so in due course. He argued that his release was necessary to allow the orderly conduct of the impending arbitration, as it was impossible to assist in the preparation of his case.

In an award dated 5 February 2018, Mr Cremades expressed his concerns over the conditions of Mr Munshi’s detention. However, in examining the requirements for interim relief (irreparable harm, necessity, urgency and proportionality), he found that the claimant’s application fell short. Although there was the potential for serious risk to life and health that constituted “irreparable harm”, Mr Cremades was not satisfied that the claimant’s fundamental rights in the procedural running of the arbitration extended to interference with the justice system of a sovereign state. An order requiring Mr Munshi’s release would “go beyond that which is strictly necessary” to allow him to advance his claim against Mongolia, as it was not “necessary” for Mr Munshi to be released in order to proceed with his claim. Mr Cremades also found an absence of “proportionality”, as the interference with Mongolia’s justice system and police power by releasing a person that has been tried and convicted would place a considerable burden on Mongolia.

Mr Cremades did, however, award the claimant interim measures under his inherent powers, notwithstanding that this relief had not been sought. Mr Cremades ordered Mongolia to allow Mr Munshi reasonable access to counsel without interference, in order that he could commence and progress his claim. Such relief was “urgent”, “necessary” and “proportionate”, as the preservation of the integrity of the future arbitral process required that the claimant be given reasonable access to counsel. Although Mr Cremades did not consider whether a lack of access would cause “irreparable harm”, clearly the denial of access to counsel can cause harm that cannot be compensated by monetary damages.

Similar requests for provisional measures

The use of provisional measures to preserve the integrity of arbitral proceedings in the context of criminal proceedings has been addressed in a number of well known cases, which promote a high threshold before a tribunal will interfere with criminal proceedings. For example, tribunals have ordered:

  • Turkey to refrain from intercepting privileged communications and conducting surveillance on the claimant’s counsel (Libananco Holding v Turkey).
  • The suspension of criminal proceedings to prevent the claimants’ access to documents being impeded and witnesses deterred (Quiborax v Bolivia).
  • The deferral of criminal proceedings that were being used to collect evidence for use in the arbitration (Lao Holdings v Lao).

Where local criminal proceedings have led to or will result in the imprisonment of a claimant/key representative, a tribunal that is asked to intervene in the detention must balance competing priorities. On the one hand is the need to ensure that a claimant can fully participate in proceedings, while on the other is the inclination not to interfere with an undisputed element of state sovereignty. In this respect, the tribunal in Quiborax noted that, “the international protection granted to investors does not exempt suspected criminals from prosecution by virtue of their being investors”. The tipping of this balance towards upholding the integrity of arbitral proceedings has been considered in three recent cases in the context of requests for extradition.

In Nova Group v Romania (which was relied on by Mr Munshi), the tribunal recommended that Romania withdraw its requests for extradition of Mr Adamescu, the key representative and witness for the claimant, until a final award. The tribunal found that Mr Adamescu’s extradition and imprisonment in Romania would be incompatible with his role in the arbitration, as he was required to correspond and meet with counsel and potential witnesses. In a complex, investor-state arbitration, this needs to occur frequently, on short notice, for extended periods of time and in person. The tribunal did not, however, order Romania to suspend its criminal proceedings, as such relief would only be granted in cases of exceptional necessity and urgency.

In two similar cases, the tribunal deployed similar reasoning. In Hydro v Albania, the tribunal ordered that Albania suspend extradition proceedings against two of the claimants until a final award. The tribunal had grave concerns over the ability of the claimants to fully participate in the arbitration from an Albanian prison, which would impact the integrity of the arbitration. In Pugachev v Russia, the tribunal (which included Mr Cremades) ordered Russia to take all actions to suspend an extradition request to France, as the imprisonment of Mr Pugachev in France/Russia would substantially prevent him from participating in the arbitration. The tribunal was not, however, willing to restrict Russia’s ability to pursue criminal proceedings.

The tension arising from these cases

The case of Mohammed Munshi falls more naturally into the category of cases that address tribunal intervention in criminal proceedings than those that address tribunal intervention in requests for extradition. Mr Cremades therefore distinguished the extradition cases, specifically Nova Group, as involving a “narrower and more limited” interference with the sovereignty of the state. One can see why this might be the case; an order for the release of an individual who is already in the custody of state authorities may involve a greater interference with the state’s judicial and police powers than an order for the temporary withdrawal of an extradition request. In this respect, Mr Cremades distinguished Mr Munshi’s position from that of Mr Adamescu (the protagonist in Nova Group) by noting that Mr Munshi had already been convicted and sentenced while Mr Adamescu had not.

Nevertheless, it is not clear that the balance of “necessity” and “proportionality” should always come out on the side of the state where a claimant is languishing in a state prison following conviction. The cases of Nova Group, Hydro and Pugachev rightly question whether the integrity of arbitral proceedings can be maintained while a claimant is confined to prison and prevented from engaging with counsel. The fact of conviction is relevant in undertaking the balancing exercise required in applications for provisional measures, but the existence of a conviction alone should not be conclusive where an imprisoned claimant is totally deprived of his ability to pursue a claim by the unreasonable actions of a state. The need for tribunal interference should depend on the specific circumstances of the case, including evidence of mala fides by the state in pursuing the conviction and the nature of the detention.

Conclusion

In the case of Mr Munshi, the sympathetic emergency arbitrator sought to preserve the integrity of the arbitral process by making a narrower order than that requested, in circumstances where the parties’ positions had not been fully briefed and the application had been expedited and without Mongolia’s participation. The fully constituted tribunal in this matter may need to decide in due course whether the integrity of the proceedings can continue to be maintained if the alleged isolation and ill treatment of Mr Munshi continues, particularly if counsel is able to demonstrate a clearer connection between the alleged improper actions of Mongolia and Mr Munshi’s international claims. For now, as Mr Cremades noted, the most appropriate recourse open to Mr Munshi may be to diplomatic means of protection, and thus his temporary “get out of jail free” card remains in limbo.

This article first appeared on the Practical Law Arbitration Blog on April 30 2018.