Chris Melville: Working as an English lawyer in Mongolia
Mongolian Economy magazine spoke with Chris Melville, the co-founder and managing partner at the law firm Melville & Erdenedalai LLP, about how we came to Mongolia and how they turned their law firm into one of the firms listed in Tier 1 of the Legal 500.
-Could you introduce yourself to our readers?
-Thank you for inviting me. My name is Chris Melville. I am the co-founder and managing partner at the law firm Melville & Erdenedalai LLP. I have been working in commercial law for almost 25 years, spending time in London, Moscow and Ulaanbaatar, where I have been living for over 9 years.
-Why did you decide to become a lawyer? Where did you study?
-My parents, who wanted me to have a professional qualification, influenced me the most in choosing a career as a lawyer, and of course, I was also enthusiastic about it. At university, I studied history, learning about political science, Japanese and Indian history at Pembroke College, Cambridge University, and achieved a double first-class degree in 1993. Then I studied law for two years.
Under the UK system, you can do a degree in fields other than law and then convert to a qualification in law which means you have to do an extra year of study. After that you have to do a mandatory course called the Legal Practice Course, and the next step is to work as a trainee lawyer for two years which is similar to the Mongolian system. I finally got my qualification in 1998. Overall, it took me around eight years from degree to final qualification. My dream as a kid was to be a professional footballer with Aberdeen FC, but I ended up having better skills writing documents than scoring goals.
-What brought you to Mongolia?
-I started my career with the international law firm Lovells in London in 1996. After becoming an English qualified lawyer in 1998, I moved to Lovells’ Moscow office as a junior associate and worked there for around three years. I ended up being heavily involved for clients in the so-called Russian ‘aluminum wars’, a very quick learning experience! In 2007, I left to join Hogan & Hartson, a US law firm, in London, continuing to work mainly for Russian clients. That was a busy and interesting time, we did a lot of work for Russian oligarchs, such as Mikhail Prokhorov’s Onexim Group. I worked on the first-ever Russian purchase of an NBA basketball team, the Brooklyn Nets, and a USD 7.2 billion deal with UC Rusal and Norilsk Nickel. I was the highest billing associate for Hogan in 2008 and became a partner of the firm in 2009.
As luck would have it, the firm merged with Lovells in 2010, became Hogan Lovells and I was back at the desk I had left in 2007. During 2012, when the Mongolian economy was rapidly growing, I was relocated to Hogan Lovells office in Mongolia just before the election. In 2017, Hogan Lovells made a strategic decision to close its office in Mongolia. My partner Erdenedalai and I decided to set up our own firm which is still associated with Hogan Lovells. We effectively bought out the Hogan Lovells business and continued it under M&E.
-How did your colleagues at Hogan Lovells LLP react when you told them you are starting your own firm in Mongolia?
-Generally, they were excited for me. Hogan Lovells is a massive law firm with over 45 offices and 2,500 lawyers, but on the other hand, it is a great experience to be your own boss. We are still in regular touch with Hogan Lovells’ lawyers and sometimes attend their regional training programs.
-Was it difficult for you to adapt to Mongolia?
-My Hogan colleagues thought my Moscow experience would mean that I fully understood Mongolia. Of course, I knew that wouldn’t be the case. Relocating to Mongolia was a whole new experience for me, and the market is significantly different from Russia. At first, I did not anticipate staying in Mongolia for ten years. When it became clear that I was going to be here long-term I began learning the Mongolian language. As I am married to a Mongolian, it makes my life in UB significantly easier. Even though she spent time studying and working in London when I was there, we met in Ulaanbaatar, at the suggestion of a mutual friend, at a party for Queen Elizabeth’s 50th jubilee. She had a big impact on my decision to open a law firm in Mongolia when other opportunities were available.
-What were the most demanding challenges in establishing a law firm in Mongolia?
-Opening a law firm was reasonably straightforward. One of the problems was that as a foreign investor, I had to make an initial investment of USD 100,000, in addition to focusing on the transition of Hogan Lovells’ business. The separation from Hogan Lovells was also a challenge, especially negotiations with some of the employees. Although my vision was to continue to work together with most of the lawyers, some of them decided to leave to start their own practice. That was the most difficult part of the process in terms of human resources.
As we were a new law firm, the first six months were tough, but gradually the business took off and operations stabilized. Even though it was difficult at the start, we were confident that we were going to do well. Right now we have a team of 11, two partners, two senior associates, one associate, a junior associate, two paralegals, two admin staff, and a summer intern.
-I know that, in Mongolia, not many regulations are published or translated into the English language. Was it difficult for you, at first, to find the necessary legal documents and give advice to your foreign clients who wanted to enter the Mongolian market?
-It’s still the case that many laws and regulations are not generally available in English, or if they are, the translation quality is sometimes poor. Over time, we have done internal translations of the key laws that we come across frequently, but also our entire team is fluent in English and able to advise foreign clients directly as needed.
-What did you do to scale your business?
-Our business is primarily based on foreign investment to Mongolia but now we are gradually increasing our Mongolian client base. It’s important to market your business properly in order to attract new clients. At the same time, it is vital to keep existing clients happy with high-quality services.
In terms of acquiring new clients, we try to develop a good relationship with major international law firms from countries that invest in Mongolia. Erdenedalai and I have made big efforts in that regard. We traveled to several countries to meet with a number of high-profile law firms, and we plan to do the same when travel restrictions are eased. Developing these relationships helps us with referrals for clients who want to enter the Mongolian market.
Another important area is to position ourselves in the legal rankings of publications that analyze the capabilities of law firms across the world such as The Legal 500, Chambers and Partners, International Financial Law Review, and Asia Law. If a foreign investor knows very little about the Mongolian legal environment, they will often look at these publications and that helps us to connect with new clients. So we try to position ourselves in the top ranking in all of those publications.
As the Mongolian market is small, law firms need to be generalists and flexible. Basically, we have to do a little bit of everything. I used to specialize in M&A and joint venture transactions, but these days I am also working on many banking and finance projects. For example, we regularly advise international institutions such as EBRD and IFC on loans to Mongolian companies. Currently, our practice is divided into four main areas: (i) corporate and commercial law, (ii) energy, infrastructure, and mining, (iii) banking and finance, and (iv) international arbitration. That covers a broad range of areas, but we do not do domestic litigation or intellectual property work for the time being.
-What legal services does Melville & Erdenedalai LLP offer that other firms in Mongolia cannot?
-I believe I am the only senior qualified English lawyer in Mongolia who is registered with the Ministry of Justice. English law is a very common choice for banking and finance transactions. As regards loans to Mongolian companies, we are able to do the whole facility agreement and issue a legal opinion on English law as well as Mongolian law.
That means choosing M&E can be more efficient and cheaper than using separate international and Mongolian law firms at the same time. That is one advantage we have, and we have done this for a number of different clients.
The other thing we try to do is regularly issue client briefings because serious information about Mongolia and Mongolian law in English are hard to come by. As our client base is mainly foreign investors we issue briefings in English but we also do some in Mongolian. For instance, we recently did one briefing about the risk of Mongolian counterparties being subject to fraud or scams which we have seen a few times from foreign investors.
-You mentioned a briefing on investment scams. What are the things to look out for when being approached by foreign investors?
-It’s a matter of doing proper due diligence. For example, if somebody is using a non-corporate email such as Gmail then this is an immediate red flag. At a minimum, you should search against people’s names to check whether they are credible or not. In cases where foreign companies use post-box addresses, you could do a google map search and it might turn out to be a condominium or apartment building or a one-person office. Especially if you are planning to do serious commercial transactions then you need to do this type of investigation and make sure your foreign counterparty is credible.
-Even though you are not involved in litigation, you do provide advisory services in relation to international arbitration right?
-Yes, we provide support in that area with respect to aspects of Mongolian law. There are not many international arbitrations, so we work on an ad hoc basis. Recently, we have supported Mongolian and foreign clients in two arbitration proceedings in Hong Kong. Our work is more advisory in nature and does not deal with the procedural aspects of arbitration. Even though we do not do court litigation work we try to build up relationships with advocates that we trust to assist us and support our clients.
-Which international arbitration centers are the most commonly used by foreign investors entering Mongolia? How often do foreign investors resolve their legal issues through Mongolian National Arbitration Court (MNAC)?
-There are three common ones: London (LCIA), Hong Kong (HKIAC), and Singapore (SIAC). Depending on where the investors come from, you may sometimes see parties resolving their issues through the International Arbitration Center in Tokyo. However, arbitration can be expensive in terms of fees. In fact, LCIA is more expensive than Hong Kong and Singapore. London is, of course, very strong and more suitable for high-profile cases. Recently, due to the perceived influence of China on Hong Kong’s judicial system, clients are moving towards favoring arbitration in Singapore.
As regards MINAC, when it comes to large investments, foreign investors are concerned about potential bias against them. But, for smaller matters, it is perfectly fine to resolve disputes through MINAC. There are also foreign-registered arbitrators on the MINAC’s list of arbitrators. It is certainly improving, and I think we will see more and more clients using MINAC in the future.
-Which type of alternative dispute resolution including negotiation, mediation, arbitration, and conciliation do you prefer?
-Personally, I am not a huge fan of disputes so I generally prefer negotiated solutions for most business issues. But, in Mongolia, there is a tendency to use the judicial system or even the police for business matters. It is not easy to negotiate in those types of situations.
The Mongolian court itself is an option to resolve issues, but it depends a lot on who your counterparties are, how politically strong they are, and how influential they are. That will inform foreign clients of the degree of risk involved in going to a Mongolian court.
-What type of advice have you given to the Government of Mongolia? Could you name a few examples?
-In the public domain, with the Ministry of Finance, we have done a number of sovereign bond transactions. Erdenedalai and I also advised the Government on the 315 MW Egiin Gol hydropower project during our time at Hogan. That is all I can disclose publicly on the work we have done for the Government.
-On average, how much time does it take to complete an advisory project?
-It depends on the nature of the work. If a client needs advice on Mongolian banking regulations then it could take a week, whereas large infrastructure projects can take several years.
-Previously, you have advised clients on loans to one of the largest banks, a major financial and industrial group, and a food and beverage manufacturer in Mongolia. Could you briefly explain what steps foreign investors have to go through in investing in Mongolia?
-In the banking and finance sector, bilateral lending is a fairly straightforward process, especially for IFIs like EBRD and IFC who know the market and potential borrowers well. Things get more involved when investors are looking at joint ventures particularly in more sensitive or strategic sectors such as mining, banking, or telecommunications. There are several key areas I would highlight for foreign investors. The most important is finding a reliable Mongolian partner that can provide support in terms of government relations, is financially stable, business-oriented and predictable. This involves doing a lot of due diligence, not only legal, and taking time to develop long-term relationships.
We have seen cases, especially during the boom years of 2011-12, when investors would come in without doing serious due diligence and prepare very one-sided complex legal agreements under foreign law that their Mongolian partners didn’t fully understand, inevitably resulting in disputes later on. While the Mongolian business community is much more sophisticated these days, it’s important for joint venture partners to be clear on the meaning of the contract, to make it balanced and in both parties’ interests.
Finally in regulated sectors, where developments can move quickly, it is important to be aware of the regulations and to develop good relationships with sector regulators to avoid the potential for unknowingly breaching the law.
-Let’s say I am an organic food producer in Mongolia and I approached Melville & Erdenedalai with an intention of exporting my products to Europe and other Asian countries in the region. How would you help me with that? Or what type of advisory services can I get?
-While we practice law in Mongolia and not in Europe and Asia, through our relationship with Hogan Lovells and having done many transactions involving other law firms or businesses across those regions we have a good network of contacts covering most countries. This means we are able to refer Mongolian companies to good advisers who can answer their questions and provide support. We have done this for several Mongolian groups who needed assistance in other countries.
-What are the common obstacles faced by foreign investors and corporations in entering the Mongolian market?
-There are two main obstacles. The first one is political and regulatory instability. The Government is generally open to discussing anything with investors, but historically the Prime Minister has been replaced every one and half years. If a newly appointed Prime Minister is a member of another political party, then there are root and branch changes to the civil service as well. Major changes to ministers, government agencies, and civil servants mean you have to build relationships all over again from scratch. Sometimes the Government’s policies are implemented quickly without necessarily considering unintended consequences. I hope that the recent amendments to the Constitution that extend the period of the presidency to six years will increase stability in Mongolia, and avoid the problem of having back to back Parliamentary and Presidential elections.
Another barrier is bureaucracy. As far as possible, public services should be available online in order to eliminate bureaucracy. During the pandemic, many people started working remotely. Having to notarize and apostille documents abroad to ensure that they are validly issued is difficult. Mongolia needs to keep up with the accelerating digital transformation and eliminate red tape. That has been an issue for investors but I think that the Government of Mongolia is making progress in that regard.
-How would you evaluate the judicial system and enforcement of the law in Mongolia?
-There is still some concern about its independence. One of the risks for investors is that Mongolian courts are not bound by precedent.
The Mongolian law still remains generically drafted in a number of areas so that means it is open to interpretation which gives rise to some risk and uncertainty in the outcome of court decisions.
It is not simply a problem of the judiciary itself. There are more underlying problems inherent in the whole structure. Obviously, the current Mongolian law is relatively young in the sense that it is less than 50 years old whereas English law has gone through hundreds of years of testing and experience until things became more detailed and precise. That is not to say that there are no disputes of course!
-How difficult it is to establish a foreign-invested bank, bank branches, or representative offices in Mongolia?
-Several foreign banks have established representative offices. In terms of branches, we know that the Bank of China tried to open some time ago. As the market is small, there is resistance from systemically important banks in allowing foreign banks to open, especially for retail customers. At the same time, foreign banks might be hesitant to enter a small market which means it might not be economically worthwhile to do so. Secondly, the Bank of Mongolia published a regulation that restricts foreign banks from operating in the retail sector, and foreign banks must comply with high capital requirements to enter the market.
-The recent amendment in the banking law requires banks to be reorganized as listed companies. However, banks consider it a challenging requirement. As a legal professional, do you see any problem in reorganizing banks as listed companies?
-Generally speaking, that is a sound idea. At the moment, it is not clear what percentage of shares need to be owned by the public or investors. Another major issue is the requirement for banks to ensure that their shareholders own less than 20 percent of Mongolian banks. I know some banks are wholly owned by Mongolian individuals so it might be challenging to ensure that investors will comply with the requirement. Also, as the Bank of Mongolia has very tight control over who can be shareholders of a Mongolian bank, in my view it will be extremely difficult for foreign listed companies to hold shares of Mongolian banks. I think this needs to be changed if Mongolia wants to attract major foreign investors into the banking sector.
-Your partner Erdenedalai Odkhuu participated as a judge at the competition held by the Faculty of Law, National University of Mongolia. How often do you collaborate with the National University of Mongolia?
-We run an internship program during the summertime. Also, we hire a fifth-year law student that needs to have practical experience, from September until January. Obviously, we want to expand the number of interns as much as possible. For now, we are limited to hiring one student in summer and one in winter.
-How long are you planning to stay in Mongolia?
-That is a really good question. As we recently started our law firm, I want to see the firm grow and become a strong competitor in the market. I absolutely want to make sure that M&E succeeds so I don’t plan on going anywhere for a long time yet.
-What do you want others to know about your law firm and you?
-Currently, we are an all-female team apart from myself and Erdenedalai which in some respects we are proud of. I think we have a very talented and hardworking group of people. As we are still associated with Hogan Lovells our lawyers have access to their training courses which is important for professional development and ambition.
In the past, our team has also done pro bono work or activities for a number of NGOs in Mongolia such as Save the Children, the Veloo Foundation, SmartAir and Lotus Children’s Centre. We think that corporate social responsibility is important and we are always open to providing pro bono support for causes that are beneficial to the community.