Opposition Brief — Perusahaan Pertambangan Minyak Dan Gas Bumi Negara v. Karaha Bodas Co., L. L. C

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IN THE f | ‘*

Supreme Court of the United States pry » -

Ministry OF FINANCE OF THE REPUBLIC 5% Selbenieniienneceniannl

OF INDONESIA, :

Petitioner,

KARAHA Bopas Company, L.L.C.,

Respondent.

PERUSAHAAN PERTAMBANGAN MINYAK

Dan Gas Bumi NEGARA,

Petitioner,

KARAHA Bopas CompaNny, L.L.C.,

Respondent.

On PETITIONS FOR A WRIT OF CERTIORARI TO THE

UNITED STATES CouRT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION

CHRISTOPHER F. DUGAN

Counsel of Record

Scott M. FLICKER

JAMES E. BERGER

QuisaiRA A. WHITNEY

LaMIA R. MatTTa

PauL, HasTINGs, JANOFSKY

& WALKER LLP

1299 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 508-9500

Attorneys for Respondent

180575 ce

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

QUESTION PRESENTED

Whether the Court of Appeals erred in holding that funds

in bank accounts in New York, which a foreign judgment

debtor holds and possesses in its own name, which are under

its exclusive control, and which it has an undisputed statutory

right to retain, are, as a factual matter, “property in the United

States” for purposes of the Foreign Sovereign Immunities

Act and are therefore attachable under New York law.

STATEMENT PURSUANT TO RULE 29.6

Respondent, Karaha Bodas Company, L.L.C., has no

parent corporation and no publicly held company owns 10%

or more of its stock.

eels AEs i ip asses Braces nah tb

TABLE OF CONTENTS

“ Page

Question Presented ................ccccccece. i

Statement Pursuant to Rule 29.6 ............... il

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Table of Cited Authorities ..................... IV

a vi

Statutes and Rule Involved .................... ]

Counter-Statement .......................55., l

Reasons for Denying the Petition ............... 7

I. No Foreign Sovereign Immunity Question Is

ee ee i 7

II. The Second Circuit’s Decision Is In Harmony

With This Court’s Precedents And Those Of

i ys cys cag 12

Il]. There Is No Foreign Relations Issue ...... 14

RS 15

TABLE OF CITED AUTHORITIES

Page

Cases: 8

Alliance Bond Fund, Inc. v. Grupo Mexicano de

Desarrollo, S.A., 190 F.3d 16 (2d Cir. 1999) ... 9-10

Anglemyer v. Hamilton Co. Hosp., 58 F.3d 533

Gog: E.R r See es 1]

Connecticut Bank of Commerce v. Republic cf

Congo, 309 F.3d 240 (Sth Cir. 2002) .......... 12, 13

Fid. Partners, Inc. v. First Trust Co. of N.Y.,

58 F. Supp. 2d 55 (S.D.N.Y. 1999) ........... 12, 13

Gala Enterprises, Inc. v. Hewlett Packard Co.,

970 F. Supe. 212 (S.D.N.LY. Y997) occ cc scess 10

Green v. City of Hamilton Housing Auth., 937 F.2d

TOT Tee, TORE ooo bd ws auc ek aeeeess 12

Karaha Bodas Co. v. Perusahaan Pertambangan

Minyak Dan Gas Bumi Negara, 190 F. Supp. 2d

ee Se ere reer eer eres Ee 2

Leon v. Martinez, 84 N.Y.2d 83, 638 N.E.2d 511,

OES Fe. Fae FE PPE 65S a vin Vee we nee ves 10

Pope v. City of Clearwater, 767 F. Supp. 1147 = D.

2) Sree er en ee re ere rarer 12

‘

eA TLC RI AS AAA DEIR a ‘

Cited Authorities

Page

Richmark Corp. v. Timber Falling Consultants,

959 F.26 1408 (9th Cir. 1992)... cc ccsvccces 12, 13

The Kentucky Co. v. Hayes, 407 F.2d 1031 (6th Cir.

SUED -63528e4s¥burs Ae eG 12

Statutes:

Foreign Sovereign Immunities Act,

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De a RE 0.050555 eeaehet keene 6,9

IN. oe Gens NOD hb cane nledcuaveeusewen 1,10

& aot te bs reer sre ree rr a

Rules:

Re S| Pee er Peery re passim

ey: Ca Be AIA 12

TABLE OFAPPENDICES

Appendix A — Rule And Regulations Involved ...

Appendix B — Memorandum And Order Of The

United States District Court For The Southern

District Of Texas, Houston Division, Dated

ee Pe re ree

Appendix C — Temporary Restraining Order And

Order Of Contempt Of The United States District

Court For The Southern District Of Texas, Dated

April 9, 2002 And Entered April 11, 2002 .....

Appendix D — Order Granting Preliminary

Injunction Of The United States District Court For

The Southern District Of Texas, Houston Division,

Dated And Filed April 26, 2002 ..............

Appendix E — Order Of The United States Court

Of Appeals For The Fifth Circuit, Dated And Filed

foe errr rE oe pyr rere ge

Appendix F — Order Of The United States District

Court For The Southern District Of Texas,

Houston Division, Dated June 28, 2002 And

IE FU Fy NE 5 8 9451S OR

Appendix G — Memorandum And Order Of

The United States District Court For The

Southern District Of Texas, Houston Division,

Dated July 19, 2002 And Entered July 22, 2002

Page

12a

55a

62a

88a

89a

vil

Appendices

Appendix H — Memorandum And Order Of The

United States District Court For The Southern

District Of Texas, Houston Division, Dated

February 7, 2003 And Entered February 11, 2003

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Appendix I — Decision Of The High Court Of The

Hong Kong Special Administrative Region, Court

Of First Instance, Dated March 27, 2003 ......

Appendix J — Memorandum And Order Of The

United States District Court For The Southern

District Of Texas, Houston Division, Dated April

16, 2003 And Entered April 17, 2003 .........

Appendix K — Requests From The Republic Of

Indonesia For The U.S. State Department To

Intervene In The Karaha/Pertamina Dispute ....

Appendix L— Order Of The United States Court Of

Appeals For The Second Circuit Denying Petition

For Rehearing, Dated And Filed January 13, 2003

Page

102a

105a

150a

175a

Respondent Karaha Bodas Company, L.L.C. (“KBC’”)

respectfully submits this brief in opposition to the Petitions

_ for a Writ of Certiorari (the “Petitions”) filed on April 14,

2003 by Petitioner Perusahaan Pertambangan Minyak Dan

Gas Bumi Negara (“Pertamina”) and by Petitioner Ministry

of Finance of the Republic of Indonesia (the “Ministry”).

For the reasons that follow, KBC believes that the Second

Circuit’s decision was decided correctly, and that the Petitions

should be denied.

STATUTES AND RULE INVOLVED

In addition to the statutes identified by Petitioners, the

following statutes are pertinent to the correct resolution of

this case: Fed. R. Civ. P. 69; N.Y. C.P.L.R. § 5201;

N.Y. C.P.L.R. § 5222. The relevant provisions of each of these

statutes are reproduced at Resp. App. A, at la, 3a and 6a.

COUNTER-STATEMENT

This is a straightforward commercial case involving a

recalcitrant judgment debtor, Pertamina, which refuses to pay

the Swiss arbitration award rendered against it, refuses to

pay lawful judgments enforcing that award in the United

States, Hong Kong, and Singapore, and refuses to post any

appellate bonds.

As aresult of Pertamina’s breach of its geothermal energy

contracts with KBC, KBC initiated arbitration in Switzerland

in accordance with the underlying contracts. On December

18, 2000 the arbitration tribunal found that Pertamina had

breached the contracts, and it awarded KBC $261.1 million.

Pet. App., at 5a.' On February 1, 2001, Pertamina filed an

appeal with the Supreme Court of Switzerland, asserting that

Swiss law governed the arbitration. The Swiss Court rejected

the appeal because Pertamina failed to pay its filing fees in a

timely manner. See Resp. App. J, at 155a.

In early 2001, KBC began proceedings to enforce the

arbitration award in the United States District Court for

the Southern District of Texas (the “Houston Court”).

On December 4, 2001, the Houston Court confirmed the

arbitration award and entered a final judgment in the amount

of $261.1 million, with interest. See Karaha Bodas Co. v.

Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,

190 F. Supp. 2d 936 (S.D. Tex. 2001) (“Houston Judgment”),

Resp. App. B, at 12a. Pertamina appealed the Houston Court’s

decision to the United States Court of Appeals for the Fifth

Circuit, but it refused to post a supersedeas bond to stay

enforcement of the judgment.

After entry of the Houston Judgment and Pertamina’s

refusal to file a supersedeas bond, KBC began proceedings

in the United States District Court for the Southern District

of New York (the “District Court”) to execute upon the

Houston Judgment. Pet. App., at 38a, ff 2-3. On February

22, 2002, KBC registered the Houston Judgment in the

District Court. On the same date, the District Court, pursuant

to Rule 69(a) and Section 5222 of the New York Civil Practice

Law and Rules,” issued notices upon Bank of America and

1. As used herein, all citations to “Pet. App.” refer to the Petition

for Writ of Certiorari filed by the Ministry.

2. Rule 69(a) provides that “[t]he procedure on execution, in

proceedings supplementary to and in aid of a judgment, and in

proceedings on and in aid of execution shall be in accordance with

(Cont'd)

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several other banks in New York restraining the transfer or

disposition of funds contained in several trust accounts held

in Pertamina’s name. Jd., at 39a, J 3. As described by the

Court of Appeals in the judgment below, all proceeds of the

sale of liquefied natural gas through production sharing

contracts are channeled through trust accounts at banks in

New York. /d., at 8a-9a. Both Pertamina and the Ministry

then moved to quash the restraints by claiming that all of the

restrained funds belong not to Pertamina, but instead to the

Ministry and/or the Republic of Indonesia. /d., at { 4.

On April 26, 2002, the District Court ruled that a portion

of the restrained funds — known as the “Retention Fee” — is

Pertamina’s property and is therefore subject to attachment

under New York law (as applied by Rule 69(a)). Pet. App.,

at 38a-47a. As to the remaining funds, the District Court ruled

that they belong to the Indonesian Government and thus are

not subject to execution. /d., at 42a, J] 12-15.

At about the same time that KBC began execution in

New York, Pertamina changed its argument about the law

governing the arbitration. Before the Indonesian proceeding,

Pertamina had argued that because Switzerland was the legal —

situs of the arbitration, its law governed. Now, abandoning

its prior assertions, it argued that Indonesian law, not Swiss

law, governed the arbitration, and that Indonesian courts thus

had authority to annul the award. See Resp. App. J, at 155a.

(Cont’d)

the practice and procedure of the state in which the district court is

held[.]” Fed. R. Civ. P. 69(a). By effect of this rule, execution

procedures with respect to cases pending in New York federal courts

are governed by Article 52 of the New York Civil Practice Law and

Rules, and the service and effect of restraining notices are governed

by Section 5222 thereof. See N.Y. C.P.L.R. § 5222 (2000).

On March 14, 2002 Pertamina filed suit in Indonesia, asking

the court there to annul the arbitration award and to enjoin

KBC from enforcing the arbitration award anywhere in

the world, including Houston and New York. Pet. App., at

Sa & n.5.

In response to Pertamina’s attempt to oust the U.S. courts

of their jurisdiction, the Houston Court on March 29, 2002

issued a temporary restraining order enjoining Pertamina

from seeking the Indonesian injunction. Resp. App. C, at 57a.

Pertamina “knowingly” refused to comply with the order,

and on April 9, 2002, the Houston Court held Pertamina in

contempt as a result of its noncompliance with the order.

Id., at 59a. Immediately thereafter, the Houston Court found

that under the Convention on Recognition and Enforcement

of Foreign Arbitral Awards, the Indonesian Court had no

jurisdiction to annul the award. Accordingly, on April 26,

2003, the Houston Court entered a preliminary injunction

against Pertamina, ordering it to stop prosecuting the

Indonesia action. Resp. App. D, at 62a. Pertamina appealed

the preliminary injunction, but on May 17, 2002, the Fifth

Circuit summarily refused any emergency relief. Resp. App.

E, at 88a. Despite the Houston Court’s preliminary injunction,

the Fifth Circuit’s denial of emergency relief, and subsequent

Houston Court orders on June 28, 2002 and July 19, 2002

directing Pertamina to discontinue its prosecution of the

Indonesian proceeding, see Resp. App. F & G, at 89a-91a,

Pertamina continued the action. On August 27, 2002

the Indonesian Court purportedly annulled the arbitration

award. As aresult of Pertamina’s defiance of the injunction,

on April 24, 2002, KBC filed a second motion for contempt

with the Houston Court. See Resp. App. G, at 93a. This

second contempt motion has been deferred pending the Fifth

Circuit’s resolution of Pertamina’s appeal of the Houston

Court’s preliminary injunction. See Resp. App. H, at 104a.

Simultaneous with KBC’s action in New York to execute

upon the Houston Judgment, KBC began award enforcement

proceedings in Hong Kong, Singapore, and Canada.

On March 15, 2002 the High Court of the Special

Administrative Region of Hong Kong, Court of First Instance

(the “Hong Kong Court’), entered a judgment confirming

the arbitration award. Resp. App. I, at 105a. Pertamina moved

to set aside the Hong Kong Court’s judgment, in part because

of the purported Indonesian annulment, and the case was tried

in early 2003. On March 27, 2003 the Hong Kong Court

denied Pertamina’s set-aside motion. Just as the Houston

Court had done, the Hong Kong court concluded that

Pertamina had changed its argument about the law governing

the arbitration at the “eleventh hour,” and it unequivocally

and emphatically rejected Pertamina’s contention that the

Indonesian Court had jurisdiction to annul the arbitration

award. See id.

On December 3, 2002 after the Indonesian Court

purported to annul the arbitration award, Pertamina moved

_ the Houston Court to vacate its prior judgment enforcing the

award. On April 17, 2003 the Houston Court denied

Pertamina’s motion, finding again, and just as the Hong Kong

Court had, that the Indonesian Court had no jurisdiction to

annul the award. Resp. App. J, at 169a.

Meanwhile, at the same time Pertamina was seeking to

annul the award in Indonesia, it and the Ministry appealed to

the Second Circuit the decision of the New York District

Court allowing KBC to attach the Retention Fee. Following

oral argument, the Court of Appeals affirmed the District

Court’s order in all respects on December 10, 2002. Pet. App.,

at 2a. In doing so, the Court of Appeals conducted a two-

part analysis of the District Court’s order. First, the Court of

Appeals considered Pertamina’s and the Ministry’s arguments

concerning the applicability of the FSIA, properly concluding

that because Pertamina had contractually waived its sovereign

immunity and had engaged in commerce in New York, it

was not entitled to immunity from attachment under the FSIA.

Pet. App., at 17a. With respect to the Ministry’s independent

FSIA claims, the Court of Appeals concluded that because

none of the Ministry’s funds were subject to attachment under

the District Court’s order, its sovereign immunity claims were

not properly before the Court. /d., n.12. With respect to funds

not immune from execution (i.e., Pertamina’s funds), the

Court of Appeals — in accordance with black-letter procedural

principles set forth in 28 U.S.C. § 1606 (where no immunity

exists, a foreign sovereign is “liable in the same manner

and to the same extent as a private individual”) and Rule

69(a) of the Federal Rules of Civil Procedure — held that

Pertamina’s funds are subject to execution under New York

law.

Having determined that any funds in the New York trust

accounts that belonged to Pertamina (and not the Ministry)

are not subject to immunity, the Court of Appeals next

reviewed the District Court’s analysis of the ownership of

the restrained funds, concluding that the District Court’s

analysis was correct. The Court of Appeals first conducted a

choice of law analysis and concluded that the ownership of

the restrained funds was properly determined by reference

to Indonesian law. It found that under Indonesian law

Pertamina has an exclusive interest in its Retention Fee, while

the Government has an exclusive interest in the remainder.

Accordingly, it affirmed the District Court’s ruling that KBC

can attach the Retention Fee. See Pet. App., at 37a.

The Second Circuit’s decision was not a final disposition.

It remanded the case to the District Court, and further

proceedings are ongoing.’

Pertamina moved for rehearing in the Court of Appeals;

that motion was denied. Pet. App., at 48a. These Petitions

followed.

REASONS FOR DENYING THE PETITION

I. NO FOREIGN SOVEREIGN IMMUNITY

QUESTION IS PRESENT

This case turns on two relatively simple questions: who

owns the New York bank deposits, and whether the deposits

are “property in the United States.” If Pertamina owns some

portion of the deposits, there is no FSIA issue because

Pertamina does not contest that it has waived its immunity

and that the funds in New York were used in commerce.

If the Government of Indonesia owns the funds, then KBC

has no right to attach the property because KBC is not a

judgment creditor of the Government. And because KBC has

no right to attach the Government’s property, it is irrelevant

that such property is immune from attachment.

As to the location of the funds, neither court saw any

reason to question that the property to be attached is in New

York. The deposits are at New York banks, Pertamina has

3. Three motions are currently pending before the District Court:

(1) KBC’s Motion for Execution or Turnover of 5% of Net Operating

Income, (2) Pertamina’s Motion to Stay Execution, and (3) the

Ministry’s Motion to Vacate Immediately Restraining Notices on LNG

Revenues Held to Belong to the Government of Indonesia. Each of

these motions has been preliminarily set down by the District Court

for oral argument on May 23, 2003.

an undisputed statutory right to the Retention Fee, and it

presently possesses and controls the deposits. Under those

circumstances, it is clear that the attached property is “in the

United States.”

In determining ownership of the New York deposits, both

the District Court and the Court of Appeals looked to

Indonesian law. The relevant Indonesian law states:

Article 5(1) The retention (fee) received by

Pertamina with regard to the Production Sharing

Contract shall be 5% (five percent) of the Net

Operating Income of the relevant Production

Sharing Contract.

(2) The difference between portions received by

Pertamina according to each Production Sharing

Contract and the retention (fee) received by

Pertamina as intended in paragraph (1) of this

Article shall be the Government’s portion.

Government Regulation of the Republic of Indonesia Number

41 of 1982, Art. 5.

The Court of Appeals interpreted this Indonesian decree

in accordance with its express terms:

This provision, by using the possessive

“Government’s,” mandates that all of the disputed

funds, with the exception of the five percent that

constitutes Pertamina’s Retention, belong to the

Republic of Indonesia.

* * *

9 .

Pertamina also argues that it has no right to the

Retention, or, at a minimum, no right to eighty

an percent of the Retention. We disagree. While

Pertamina may be under an obligation to transfer

the Retention to the Ministry’s account in New

York, this fact does not alter the extant ailocation

of ownership interests. Pertamina has not

identified any Indonesian statute or regulation that

grants the Republic of Indonesia ownership rights

in the Retention.

Pet. App., at 32a, 36a.

Thus, applying Indonesian law, the Second Circuit

concluded that Pertamina has an exclusive ownership interest

in the portion of the deposits held in its name in New York

that constitute the Retention Fee, and that the Republic has

no ownership interest whatsoever in the Retention Fee.

Indeed, neither Pertamina nor the Ministry appeals the Court

of Appeals’ decision that Pertamina has an exclusive statutory

right to the Retention Fee.

Following the mandate of the FSIA, the Second Circuit

looked to New York attachment law:

The FSIA states that when a foreign state is not

protected by sovereign immunity, “the foreign

state shall be liable in the same manner and to the

same extent as a private individual under like

circumstances.” 28 U.S.C. § 1606. In attachment

actions involving foreign states, federal courts

thus apply Fed. R. Civ. 69(a), which requires the

application of local state procedures. See Alliance

Bond Fund, Inc. v. Grupo Mexicano de

Desarrollo, S.A., 190 F.3d 16, 20 (2d Cir. 1999)

(applying Rule 69(a), and hence New York law,

in an FSIA action).

Pet. App., at 17a-18a. The relevant New York provision states

that:

Property against which a money judgment may

be enforced. A money judgment may be enforced

against any property which could be assigned or

transferred, whether it consists of a present or

future right or interest and whether or not it is

vested, unless it is exempt from application to the

satisfaction of the judgment.

N.Y. C.P.L.R. § 5201(b) (emphasis supplied)

The Second Circuit then found that:

[U]nder New York law, a defendant has an interest

in... funds if any part of the money is within

the present or future control of the defendant.”

Gala Enterprises, Inc. v. Hewlett Packard Co., 970

F. Supp. 212, 217 (S.D.N.Y. 1997) (citation and

internal punctuation omitted); accord Leon v.

Martinez, 84 N.Y.2d 83, 88 n.1, 638 N.E.2d 511,

513 n.1, 614 N.Y.S.2d 972, 974 n.1 (1994)

(“An assignment may properly relate to a future

. right which is adequately identified. .. .”).

As property within Pertamina’s control, which

only Pertamina controls, the Retention is validly

subject to attachment.

Pet. App., at 22a. Thus, the Second Circuit concluded that

under New York law Pertamina’s ownership interest in the

New York deposits is subject to execution by KBC.

In reaching that conclusion, the Second Circuit implicitly

rejected Petitioners’ arguments that the attached property is

not “in” New York. In denying Petitioners’ motions for

rehearing, it again rejected those arguments. The Covrt of

Appeals then remanded the case for further proceedings.

Pertamina and the Ministry, citing the FSIA requirement

that property to be attached must be “in the United States,”

again argue that the attached property is not “in” the United

States because Pertamina takes final possession of its

Retention Fee in Indonesia.

It is difficult to credit this argument. Pertamina and the

Ministry confuse the location where Pertamina again receives

the Retention Fee with the present location of the attached

property. The attached property consists of funds that

Pertamina has an undisputed and exclusive statutory right to

retain, and that are on deposit in Pertamina’s name, subject

to its possession and control, at a bank branch located in

New York. The fact that in the future Pertamina may transfer

the Retention Fee to the Government, which then transfers it

back to Pertamina, simply does not affect whether Pertamina

has an existing, attachable interest in funds that are now,

quite literally, “in” New York. Because the attached property

is in New York, there is no FSIA question, and under New

York law, Pertamina’s interest in these funds is properly

attachable.

What we have here, to sum, is simply a factual

dispute. Numerous federal courts have ruled that the question

of a party’s interest in property is a question of fact.

See, e.g., Anglemyer v. Hamilton Co. Hosp., 58 F.3d 533,

537 (10th Cir. 1995) (whether contract creates a property

interest is a question of fact); Green v. City of Hamilton

Housing Auth., 937 F.2d 1561, 1563 (11th Cir. 1991) (denying

summary judgment based on question of fact with respect to

property interest); The Kentucky Co. v. Hayes, 407 F.2d 1031,

1035 (6th Cir. 1969) (extent of property interest is question

of fact); Pope v. City of Clearwater, 767 F. Supp. 1147, 1150

(M.D. Fla. 1991) (ruling that question of fact concerning

existence of property interest was required to be resolved).

Similarly, any holding as to the location of the funds was

factual. Because this case turns on the factual questions of

ownership of the New York deposits and their location,

certiorari would be improviderit. See Sup. Ct. R. 10 (petition

for certiorari is rarely granted when asserted error consists

of erroneous factual findings).

Il. THE SECOND CIRCUIT’S DECISION IS IN

HARMONY WITH THIS COURT’S PRECEDENTS

AND THOSE OF SISTER CIRCUITS

The Second Circuit’s judgment in this case is fully

consistent with this Court’s jurisprudence and the decisional

law of other circuits. The Ministry claims that the Second

Circuit decision conflicts with decisions from other circuits

holding that “if property lies outside the United States,

it remains absolutely immune from attachment and

execution.” Petition, at 20 (citing Richmark Corp. v. Timber

Falling Consultants, 959 F.2d 1468, 1477 (9th Cir. 1992);

Connecticut Bank of Commerce v. Republic of Congo, 309

F.3d 240, 260-61 (Sth Cir. 2002); Fid. Partners, Inc. v. First

Trust Co. of N.Y., 58 F. Supp. 2d 55, 61 (S.D.N.Y. 1999)).

There is no conflict with these decisions. Neither of the courts

below found that the property to be attached is located outside

of New York, because it is undisputed that deposits at issue,

and thus Pertamina’s interest, are in New York.

By contrast, in Richmark (a case principally involving

compliance by a sovereign entity with a federal court

discovery order), the court merely noted (in dictum) that the

FSIA “does not empower United States courts to levy on

assets outside the United States.” Richmark, 959 F.2d at 1477.

That principle is irrelevant here because the New York

deposits are, obviously, in the United States.

Connecticut Bank is equally inapposite. The Fifth Circuit

there vacated an order dismissing a garnishment action

against Texas oil companies that owed royalties and taxes to

the Republic of Congo. The court held that further factual

development was required to determine whether the funds

subject to the garnishment order were generated from and

used in connection with commerce in the United States.

Thus, the Fifth Circuit’s decision focused on the “generation

from and use in commerce in the United States” requirements

of the FSIA, Connecticut Bank, 309 F.3d at 260-61, not on

the location of the property. Neither Pertamina nor the

Ministry disputes that the funds contained in the New York

trust accounts are used in commerce in the United States,

and the Second Circuit expressly found that they were.

See Pet. App., at 17a.

Finally, the Ministry’s contention that the Court of

Appeals’ judgment conflicts with the district court’s decision

in Fidelity Partners is also incorrect. In Fidelity, the bond

interests in question was reflected only on the books of a

bank in Manila, not the United States, as is the case here.

Pertamina and the Ministry attempt to create a circuit

conflict where none exists. The Second Circuit allowed KBC

to attach a portion of Pertamina’s bank deposits that are

indisputably in New York, and that conclusion is consistent

with all existing case law.

Ill. THERE IS NO FOREIGN RELATIONS ISSUE

This case is little more than a deadbeat foreign

corporation’s refusal to pay its lawful debts. But the Ministry

predicts that the Second Circuit’s decision will “interfer[e]

with U.S. foreign relations” and “impair the relationship

between U.S. money center banks and foreign states and

instrumentalities.” Petition, at 4. That is simply not true, for

the United States government itself views this as a run-of-

the-mill commercial dispute.

The Republic of Indonesia has at least three times asked

the United States Department of State to intervene in this

case, see Resp. App. K, at 175a, and the State Department

has each time refused. The State Department views this as

an ordinary commercial dispute that does not implicate any

sovereign interests of the United States. Thus, the Second

Circuit’s decision does not constitute a matter of such public

importance that warrant this Court’s exercise of jurisdiction.

CONCLUSION

For the foregoing reasons, the Petitions for a Writ of

Certiorari should be denied, and the judgment of the Court

of Appeals should be affirmed.

Respectfully submitted,

CHRISTOPHER F. DUGAN

Counsel of Record

Scott M. FLICKER

JAMES E. BERGER

QuISsAIRA A. WHITNEY

LaMIA R. MaTTA

PAUL, HASTINGS, JANOFSKY

& WALKER LLP

1299 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 508-9500

Attorneys for Respondent

APPENDIX

APPENDIX A— RULE AND

REGULATIONS INVOLVED

UNITED STATES CODE ANNOTATED

FEDERAL RULES OF CIVIL PROCEDURE FOR

THE UNITED STATES DISTRICT COURTS

VIII. PROVISIONAL AND FINAL REMEDIES

Amendments received to April 18, 2003

Rule 69. Execution

(a) In General. Process to enforce a judgment

for the payment of money shall be a writ of

execution, unless the court directs otherwise.

The procedure on execution, in proceedings

supplementary to and in aid of a judgment, and in

proceedings on and in aid of execution shall be in

accordance with the practice and procedure of the

state in which the district court is held, existing

at the time the remedy is sought, except that any

statute of the United States governs to the extent

that it is applicable. In aid of the judgment or

execution, the judgment creditor or a successor

in interest when that interest appears of record,

may obtain discovery from any person, including

the judgment debtor, in the manner provided in

these rules or in the manner provided by the

practice of the state in which the district court is

held.

Appendix A

(b) Against Certain Public Officers. When a

judgment has been entered against a collector or

other officer of revenue under the circumstances

stated in Title 28, U.S.C., § 2006, or against an

officer of Congress in an action mentioned in the

Act of March 3, 1875, ch. 130, § 8 (18 Stat. 401),

U.S.C., Title 2, § 118, and when the court has

given the certificate of probable cause for the

officer’s act as provided in those statutes,

execution shall not issue against the officer or the

officer’s property but the final judgment shall be

satisfied as provided in such statutes.

Appendix A

MCKINNEY’S CONSOLIDATED LAWS OF

NEW YORK ANNOTATED

CIVIL PRACTICE LAW AND RULES

CHAPTER EIGHT OF THE CONSOLIDATED LAWS

ARTICLE 52—ENFORCEMENT OF

MONEY JUDGMENTS

§ 5201. Debt or property subject to enforcement; proper

garnishee

(a) Debt against which a money judgment

may be enforced. A money judgment may be

enforced against any debt, which is past due or which

is yet to become due, certainly or upon demand of

the judgment debtor, whether it was incurred within

or without the state, to or from a resident or non-

resident, unless it is exempt from application to the

satisfaction of the judgment. A debt may consist of

a cause of action which could be assigned or

transferred accruing within or without the state.

(b) Property against which a money

judgment may be enforced. A money judgment

may be enforced against any property which could

be assigned or transferred, whether it consists of a

present or future right or interest and whether or not

it is vested, unless it is exempt from application to

the satisfaction of the judgment. A money judgment

entered upon a joint liability of two or more persons

may be enforced against individual property of those

persons summoned and joint property of such

persons with any other persons against whom the

judgment is entered.

Appendix A

property or debt

1. Where property consists of a right or

share in the stock of an association or

corporation, or interests or profits therein,

for which a certificate of stock or other

negotiable instrument is not outstanding, the

corporation, or the president or treasurer of

the association on behalf of the association,

shall be the garnishee.

2. Where property consists of a right or

interest to or in a decedent’s estate or any

other property or fund held or controlled by

a fiduciary, the executor or trustee under the

will, administrator or other fiduciary shall

be the garnishee.

3. Where property consists of an interest

in a partnership, any partner other than the

judgment debtor, on behalf of the

partnership, shall be the garnishee.

4. Where property or a debt is evidenced

by a negotiable instrument for the payment

of money, a negotiable document of title or

a certificate of stock of an association or

corporation, the instrument, document or

certificate shall be treated as property capable

of delivery and the person holding it shall

be the garnishee; except that section 8-112

Appendix A

of the uniform commercial code shall govern

the extent to which and the means by which

any interest in a certificated security,

uncertificated security or security entitlement

(as defined in article eight of the uniform

commercial code) may be reached by

garnishment, attachment or other legal

process.

Appendix A

MCKINNEY’S CONSOLIDATED LAWS OF

NEW YORK ANNOTATED

CIVIL PRACTICE LAW AND RULES

CHAPTER EIGHT OF THE CONSOLIDATED LAWS

ARTICLE 52—ENFORCEMENT OF MONEY

JUDGMENTS

§ 5222. Restraining notice

(a) Issuance; on whom served; form;

service. A restraining notice may be issued by the

clerk of the court or the attorney for the judgment

creditor as officer of the court, or by the support

collection unit designated by the appropriate

social services district. It may be served upon any

person, except the employer of a judgment debtor

or obligor where the property sought to be

restrained consists of wages or salary due or to

become due to the judgment debtor or obligor. It

shall be served personally in the same manner as

a summons or by registered or certified mail,

return receipt requested or if issued by the support

collection unit, by regular mail, or by electronic

means as set forth in subdivision (g) of this

section. It shall specify all of the parties to the

action, the date that the judgment or order was

entered, the court in which it was entered, the

amount of the judgment or order and the amount

then due thereon, the names of all parties in whose

favor and against whom the judgment or order was

entered, it shall set forth subdivision (b) and shall

state that disobedience is punishable as a contempt

Appendix A

of court, and it shall contain an original signature

or copy of the original signature of the clerk of

the court or attorney or the name of the support

collection unit which issued it. Service of a

restraining notice upon a department or agency

of the state or upon an institution under its

direction shall be made by serving a copy upon

the head of the department, or the person

designated by him or her and upon the state

department of audit and control at its office in

Albany; a restraining notice served upon a state

board, commission, body or agency which is not

within any department of the state shall be made

by serving the restraining notice upon the state

department of audit and control at its office in

Albany. Service at the office of a department of

the state in Albany may be made by the sheriff of

any county by registered or certified mail, return

receipt requested, or if issued by the support

collection unit, by regular mail.

(b) Effect of restraint; prohibition of

transfer; duration. A judgment debtor or obligor

served with a restraining notice is forbidden to

make or suffer any sale, assignment, transfer or

interference with any property in which he or

she has an interest, except upon direction of the

sheriff or pursuant to an order of the court,

until the judgment or order is satisfied or vacated.

A restraining notice served upon a person other

than the judgment debtor or obligor is effective

only if, at the time of service, he or she owes a

ay ccmeteianenie

Appendix A

debt to the judgment debtor or obligor or he or

she is in the possession or custody of property in

which he or she knows or has reason to believe

the judgment debtor or obligor has an interest, or

if the judgment creditor or support collection unit

has stated in the notice that a specified debt is

owed by the person served to the judgment

debtor or obligor or that the judgment debtor

or obligor has an interest in specified property in

the possession or custody of the person served.

All property in which the judgment debtor or

obligor is known or believed to have an interest

then in and thereafter coming into the possession

or custody of such a person, including any

specified in the notice, and all debts of such a

person, including any specified in the notice, then

due and thereafter coming due to the judgment

debtor or obligor, shall be subject to the notice.

Such a person is forbidden to make or suffer any

sale, assignment or transfer of, or any interference

with, any such property, or pay over or otherwise

dispose of any such debt, to any person other than

the sheriff or the support collection unit, except

upon direction of the sheriff or pursuant to an

order of the court, until the expiration of one year

after the notice is served upon him or her, or until

the judgment or order is satisfied or vacated,

whichever event first occurs. A judgment creditor

or support collection unit which has specified

personal property or debt in a restraining notice

shall be liable to the owner of the property or the

person to whom the debt is owed, if other than

PRE SRE i eat as BET ATO eT OR Ogee a a a ta i i

SEER LL SEDAN LEDER SLIP

Appendix A

the judgment debtor or obligor, for any damages

sustained by reason of the restraint. If a garnishee

served with a restraining notice withholds the

payment of money belonging or owed to the

judgment debtor or obligor in an amount equal to

twice the amount due on the judgment or order,

the restraining notice is not effective as to other

property or money.

required to serve more than one restraining notice

upon the same person with respect to the same

judgment or order.

(d) Notice to judgment debtor or obligor.

If a notice in the form prescribed in subdivision

(e) has not been given to the judgment debtor or

obligor within a year before service of a

restraining notice, a copy of the restraining notice

together with the notice to judgment debtor or

obligor shall be mailed by first class mail or

personally delivered to each judgment debtor or >

obligor who is a natural person within four days

of the service of the restraining notice. Such notice

shall be mailed to the defendant at fis or her

residence address; or in the event such mailing is

returned as undeliverable by the post office, or if

the residence address of the defendant is unknown,

then to the defendant in care of the place of

employment of the defendant if known, in an

envelope bearing the legend “personal and

confidential” and not indicating on the outside

10a

Appendix A

thereof, by the return address or otherwise, that

the communication is from an attorney or concerns

a judgment or order; or if neither the residence

address nor the place of employment of the

defendant is known then to the defendant at any

other known address.

(e) Content of notice. The notice required

by subdivision (d) shall be in substantially the

following form and may be included in the

restraining notice:

NOTICE TO JUDGMENT DEBTOR OR OBLIGOR

Money or property belonging to you may have

been taken or held in order to satisfy a judgment

or order which has been entered against you. Read

this carefully.

YOU MAY BE ABLE TO GET YOUR MONEY BACK

State and federal laws prevent certain money

or property from being taken to satisfy judgments

or orders. Such money or property is said to be

“exempt”. The following is a partial list of money

which may be.exempt:

1. Supplemental security income, (SSI);

2. Social security;

3. Public assistance (welfare);

lla

Appendix A

4. Alimony or child support;

5. Unemployment benefits;

6. Disability benefits;

7. Workers’ compensation benefits;

8. Public or private pensions; and

9. Veterans benefits.

If you think that any of your money that has

been taken or held is exempt, you must act promptly

because the money may be applied to the judgment

or order. If you claim that any of your money that

has been taken or held is exempt, you may contact

the person sending this notice.

Also, YOU MAY CONSULT AN ATTORNEY,

INCLUDING LEGALAID IF YOU QUALIFY. The

law (New York civil practice law and rules, article

four and sections fifty-two hundred thirty-nine and

fifty-two hundred forty) provides a procedure for

determination of a claim to an exemption.

* * * *

12a

APPENDIX B — MEMORANDUM AND ORDER OF

THE UNITED STATES DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF TEXAS,

HOUSTON DIVISION,

DATED DECEMBER 4, 2001

United States District Court,

S.D. Texas,

Houston Division.

No. CIV.A.H 01-0634.

In the Matter of an Arbitration Between KARAHA

BODAS COMPANY, L.L.C.,

Petitioner,

PERUSAHAAN PERTAMBANGAN MINYAK DAN

GAS BUMI NEGARA

Respondent.

Dec. 4, 2001

MEMORANDUM AND ORDER

ATLAS, District Judge.

This action to enforce an international arbitral award is

before the Court on Petitioner Karaha Bodas Company,

L.L.C.’s Motion for Summary Judgment Confirming Arbitral

Award (“KBC’s Motion”) [Doc. # 14] to which Respondent

Perusahaan Pertambangan Minyak Dan Gas Bumi Negara

13a

Appendix B

(“Pertamina’’) has responded.' Having reviewed the parties’

briefs, all matters of record and the applicable authorities,

the Court concludes that KBC’s Motion should be granted.

I. BACKGROUND FACTS

KBC is a Cayman Islands limited liability company that

contracted to develop the 400 MW Karaha Bodas Geothermal

Project (the “Project”) in West Java, Indonesia. Pertamina is

an oil and gas corporation owned by the Government of the

Republic of Indonesia and entrusted with the exploration and

exploitation of geothermal resources and generation of

electricity in Indonesia. PLN is a state-owned electric utility

that supplies public electricity in Indonesia.

A. The Project

On November 28, 1994, Pertamina, PLN, and KBC

entered into two contracts to establish their roles and obliga-

tions in the Project. Pursuant to the Joint Operations Contract

(“JOC”) between KBC and Pertamina, Pertamina was

1. KBC also filed a Memorandum in Support of its Motion for

Summary Judgment Confirming Arbitral Award [Doc. # 16] (“KBC’s

Memorandum”). Pertamina filed its Memorandum in Opposition to

KBC’s Motion for Summary Judgment (“Pertamina’s Response”)

[Doc. # 29]. In addition, KBC filed a Reply [Doc. # 34] and Pertamina

filed a Sur-reply [Doc. # 40].

PT. PLN (Persero) (“PLN”), was a Respondent at the arbitration

and was originally named as a Respondent in this action. PLN was

not served and has been dismissed from this case, [see Doc. # 44],

pursuant to KBC’s Notice of Dismissal [Doc. # 43].

l4a

Appendix B

responsible for management of the geothermal operations

and KBC was designated the contractor responsible for

financing the Project and building, owning, and operating

the generating facilities. See Petitioner’s Exhibit (“PX”) 2,

JOC. The Energy Sales Contract (“ESC”) among KBC,

Pertamina, and PLN, obligated PLN to purchase from

Pertamina the electricity generated by KBC’s facilities for

specified prices. See PX 3, ESC.

In almost identical provisions, both the JOC and the ESC

required the parties to arbitrate any disputes in Geneva,

Switzerland, pursuant to the Arbitral Rules of the United

Nations Commission on International Trade Law (the

“UNCITRAL Rules”). See JOC, Art. 13.2(a); ESC, § 8.2(a),

at 18. Additionally, the arbitration provisions required

the parties to appoint arbitrators within thirty days of a

party’s request to initiate arbitration. The JOC provided that

“(eJach party will appoint an arbitrator,” while the ESC

specified that “PLN on one hand, and COMPANY [KBC]

and PERTAMINA on the other hand, will each appoint one

arbitrator.” /d. In the event that an arbitrator was not selected

within this thirty-day time frame, both contracts provided

that an arbitrator would, by default, be appointed by the

Secretary General of the International Center for Settlement

of Investment Disputes (“ICSID”) upon the request of any

party. Jd. The JOC and the ESC also contained virtually

identical provisions limiting the parties’ rights to appeal or

otherwise bring legal proceedings concerning a dispute

subject to the arbitration provisions. JOC, Art. 13.2(d); ESC,

§ 8.2(d), at 19.

15a

Appendix B

The Government of Indonesia issued a Presidential

Decree dated September 20, 1997 indefinitely postponing

the Project. However, KBC continued development of the

project based on Pertamina’s and PLN’s assurances that the

Project suspension was temporary and would be restored.

The Project was restored briefly by a Presidential Decree

dated November 1, 1997, but yet another Presidential Decree

dated January 10, 1998 (the “Presidential Decree”) confirmed

the indefinite postponement of the Project. As a result,

Pertamina and PLN did not fulfill their contractual

obligations to purchase the energy to be generated by KBC’s

facilities. In February 1998, KBC gave Pertamina and PLN

notice that the Presidential Decree constituted an event of

Force Majeure under both the JOC and the ESC. On April

30, 1998, KBC served its Notice for Arbitration.

B. The Arbitration Proceedings

In the Notice of Arbitration, KBC appointed Professor

Piero Bernardini? to serve as an arbitrator. Pertamina,

however, did not designate an arbitrator in the allotted time

of thirty days or thereafter. Nor did Pertamina contest KBC’s

selection at that time. By letter dated June 2, 1998, KBC

notified the ICSID of Pertamina’s inaction and requested the

appointment of a second arbitrator pursuant to the default

appointment provisions of the contracts. See PX 8. The ICSID

questioned KBC concerning the consolidation of disputes

under the JOC and the ESC and KBC’s unilateral appointment

2. Prof. Bernardini was at the time Vice Chairman of the

International Chamber of Commerce’s International Court of

Arbitration (“ICC”) and Member of the London Court of International

Arbitration. KBC’s Memorandum, at 6-7.

l6a

Appendix B

of an arbitrator, and KBC responded by letter dated June 22,

1998. See PX 10. The ICSID confirmed receipt of the June 2

and June 22 letters. PX 11. In a June 29, 1998 letter to all

parties, the ICSID recapped the prior correspondence, noted

Respondents’ failure to respond, and expressed its intent

to grant KBC’s request to appoint the second arbitrator.

See PX 12. The ICSID also provided to the parties at this

time the name of Dr. Ahmed El-Kosheri and his accom-

panying curriculum vitae,’ and requested that any objections

to the appointee be proffered by July 13, 1998. The ICSID

sent all the preceding correspondence to PLN by courier and

to Pertamina by fax and courier. See PX 15. Respondents

did not object or respond to the potential appointment.‘

On July 13, 1998, having received no communications from

Respondents, the ICSID notified them of its intent to appoint

Dr. El-Kosheri, see PX 16, and made the appointment on

July 15, 1998, copying all parties, see PX 17. Dr. El-Kosheri

accepted the nomination on July 16, 1998. See PX 18.

Pursuant to the JOC and the ESC, the two appointed |

arbitrators selected Mr. Yves Derains as Chairman of the

arbitration panel (the “Tribunal”), and duly notified the

parties. See PX 19.

3. Dr. El-Kosheri was also a Vice Chairman of the ICC. KBC’s

Memorandum, at 7.

4. KBC responded to the ICSID on July 1, 1998 (with copy

to Respondents) that it had no objection to the appointment of

Dr. El- Kosheri. See PX 13. The ICSID confirmed receipt of KBC’s

correspondence on July 2, with copies to Respondents. See PX 14.

On July 10, the ICSID again forwarded the correspondence to

Pertamina. See PX 15.

17a

Appendix B

Before proceeding on the merits of the case, PLN

requested that the Tribunal first consider certain preliminary

issues. See PX 21. The Tribunal heard the parties on these

preliminary issues on November 19, 1998. Following the

hearing, PLN and Pertamina, represented jointly by the same

lawyers, submitted a joint memorial, i.e., a memorandum,

contending that KBC had improperly attempted toconsolidate

claims against different parties arising under separate

agreements or putative agreements and that the Tribunal had

been improperly constituted as the result of (1) the nature of

a multi-party arbitration and (2) KBC’s failure to honor the

arbitrator nomination provisions of the ESC. See PX 23,

Respondents’ Memorial Regarding Preliminary Issues.

Respondents participated in further argument on their

preliminary objections at a hearing on May 31, 1999.

On October 4, 1999, the Tribunal issued a unanimous

Preliminary Award, which held, in pertinent part, that:

(1) the Tribunal was properly constituted; (2) KBC was

entitled to file its claims, based on the JOC and the ESC,

in a single arbitration; and (3) the Government of Indonesia

was not a proper party to the arbitration. See PX 28,

Preliminary Award, at 34.

KBC, after a brief extension of time, filed its Revised

Statement of Claim on November 24, 1999. Thereafter,

Pertamina and PLN sought, and were granted, a series of

extensions to file a response to KBC’s Revised Statement of

Claim. The Tribunal also granted Respondents’ March 6,

2000 joint request for a further extension to accommodate

their change of counsel. Ultimately, pursuant to an agreement

of the parties that was memorialized in Procedural Order

18a

Appendix B

No. 4, KBC filed a Revised Statement of Claim and First

Memorial supplementing its claims on November 24, 1999;

Respondents submitted a Reply and First Memorial on

April 7, 2000; KBC submitted a Rebuttal and Second

Memorial (“Rebuttal”) on May 8, 2000; and Respondents

submitted a Rejoinder to KBC’s Rebuttal and Second

Memorial on June 9, 2000. Procedural Order No. 4 set the

hearing on the merits for June 19 through June 30, 2000.

See PX 38.

Pertamina and PLN sought a further continuance and

additional discovery after being served with KBC’s Rebuttal,

which they claimed contained new assertions and “significant

elements of its case in chief” that had not previously been

revealed. The Tribunal denied their requests. Further, the

Tribunal determined that any adjustment to the proceedings,

that could be necessary, would be decided at the end of the

hearing. PX 57.

The hearing on the merits began June 19, 2000 and closed

on June 23, 2000. The hearing resulted in a transcript of over

800 pages reflecting extensive argument of counsel and live

testimony from seven witnesses. Written witness statements

were also submitted by the parties. The Tribunal noted that

at the conclusion of the hearing, counsel “declared that they

waived their respective requests for discovery,” and

confirmed that they had no objection beyond those already

stated as to the conduct of the proceedings. PX 71, Final

Award, at 12; see Transcript of Arbitration, Vol. V, at 807-

08, 814. Post-hearing briefs were submitted on August 7,

2000. PX 71, Final Award, at 13.

LAIR IN ae A a i aa ac

19a

a Appendix B

On December 18, 2000, the Tribunal issued its Final

Award which held that Pertamina and PLN had breached the

ESC and that Pertamina had breached the JOC. /d. at 24, 47.

The Tribunal reasoned that Respondents contractually

assumed the risk of the harm created by the Presidential

Decree. Jd. at 19-20. Further, the Tribunal awarded KBC

$111,100,000 to recoup its expenditures on the Project,

$150,000,000 in future lost profits, and $66,654.92 in costs ;

and expenses, plus four percent interest from J anuary 1, 2001,

until the date of full payment. /d. at 47.

KBC seeks enforcement of the Final Award in this

proceeding pursuant to the Convention on the Recognition

and Enforcement of Foreign Arbitral Awards, June 10, 1958

(“New York Convention”), codified at 9 U.S.C. § 201 et seq.

II. STANDARD OF REVIEW

The parties agree that the recognition and confirmation

of international arbitral awards is governed by the New York

Convention. See 9 U.S.C. § 201; Schlumberger Tech. Corp.

v. United States, 195 F.3d 216, 217 (Sth Cir.1999). “The goal

of the Convention, and the principal purpose underlying

American adoption and implementation of it, was to

encourage the recognition and enforcement of commercial

arbitration agreements in international contracts and to unify

the standards by which agreements to arbitrate are observed

and arbitral awards are enforced in the signatory countries.”

Imperial Ethiopian Govt v. Baruch-Foster Corp., 535 F.2d

334, 335 (Sth Cir.1976) (quoting Scherk v. Alberto-Culver

Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974)).

20a

Appendix B

The New York Convention is formally incorporated into

United States law through implementing legislation found

at 9 U.S.C. §§ 201-208.

In keeping with the expeditious nature of arbitration, this

implementing legislation provides for a “summary

procedure” for enforcement of foreign arbitral awards.

Imperial Ethiopian Govt, 535 F.2d at 335. Permissible

defenses are few and “the court shall confirm the award

unless it finds one of the grounds for refusal or deferral of

recognition or enforcement of the award specified in the said

Convention.” 9 U.S.C. § 207 (emphasis added); Imperial

Ethiopian Gov t, 535 F.2d at 335-36. The defenses specified

in the Convention are narrowly construed to give effect to

the Convention’s goal of encouraging the timely and efficient

enforcement of awards. Jn re Arbitration Between Trans

Chem. Ltd. and China Nat’! Mach. Import and Export Corp.,

978 F.Supp. 266, 310 (S.D.Tex.1997), aff’d, 161 F.3d 314

(Sth Cir.1998). In short, there is a “general pro-enforcement

bias” manifested in the Convention. American Const. Mach.

& Equip. Corp. v. Mechanised Const. of Pakistan, Ltd.,

659 F.Supp. 426, 428 (S.D.N.Y.1987).

The New York convention contains only seven possible

defenses. 9 U.S.C. § 201, Art. V. Recognition and enforce-

ment of the award may be refused if the losing party furnishes

proof that: (a) the parties to the agreement were under some

incapacity or the agreement was invalid under the law to

which the parties have subjected it; (b) the party against

whom the award was invoked was not given proper notice

of the appointment of the arbitrator, the arbitration

proceedings, or was otherwise unable to present his case;

2la

Appendix B

by the submission to arbitration or is beyond the scope of

the submission to arbitration; (d) the composition of the

arbitral authority or the arbitral procedure was improper

and not in accordance with the agreement of the parties; or

(e) the award has not yet become binding or has been stayed

by a competent authority. /d., Art. V(1). A court also may

refuse confirmation on a arbitral award if it finds (a) the

subject matter of the difference between the parties is not

capable of settlement by arbitration under the law of the

enforcing state or (b) enforcement of the award is or would

be contrary to the public policy of the enforcing state. Jd.,

Art. V(2).

Although it is necessary for the Court to analyze poten-

tial New York Convention defenses raised by Pertamina,

“[{a]bsent extraordinary circumstances, a confirming court is

not to reconsider the arbitrator’s findings.” Europcar Italia

v. Maiellano Tours, 156 F.3d 310, 315 (2d Cir.1998).

A mistake in fact or law is insufficient to refuse confirmation

of an arbitral award. Jd. at 316.

The burden of proof in confirmation proceedings rests

on the party defending against enforcement of the arbitral

award, in this case, Pertamina: Jmperial Ethiopian Govt, 535

F.2d at 336; Empresa Constructora Contex Limitada v. Iseki,

Inc., 106 F.Supp.2d 1020, 1024 (S.D.Cal.2000); American

Const. Mach. & Equip. Corp., 659 F.Supp. at 428.

22a

Appendix B

III. CONTRACTUAL WAIVER OF OPPOSITION TO

ENFORCEMENT

As athreshold matter, the Court must determine whether

Pertamina agreed in the JOC or ESC to forgo any defense

against enforcement of the arbitration award. KBC contends

that the following language, present in both contracts,

prohibits Pertamina from opposing KBC’s enforcement

action:

The award rendered in any arbitration commenced

hereunder shall be final and binding upon the

Parties and judgment thereon may be entered in

any court having jurisdiction for its enforcement.

The Parties hereby renounce their right to appeal

from the decision of the arbitral panel and agree

that in accordance with Section 641 of the

Indonesian Code of Civil Procedure neither Party

shall appeal to any court from the decision of the

arbitral panel and accordingly the Parties hereby

waive the applicability of Articles 15 and 108 of

Law No. 1 of 1950 and any other provision of

Indonesian Law and regulations that would

otherwise give the right to appeal the decision

of the arbitral panel. In addition, the Parties

agree that neither Party shall have any right

to commence or maintain any suit or legal

proceeding concerning a dispute [hereunder until

the dispute*] has been determined in accordance

5. The bracketed text inexplicably is absent from the JOC,

but the omission does not affect the meaning.

PA SAE ER CSR IT I a ne

+ Sitesi Mop ARNT

23a

Appendix B

with the arbitration procedure provided for herein

and then only to enforce or facilitate the execution

of the award rendered in such arbitration.

JOC, Art. 13(d); ESC, § 8(d). Pertamina contends that this

provision does not constitute a waiver of its rights under the

New York Convention.

Neither party has cited a case analyzing language

precisely like that in the contracts at issue here. KBC relies

on Jn re Arbitration Between Chromalloy Aeroservices

and Arab Repub. of Egypt, 939 F.Supp. 907 (D.D.C.1996).

However, the holding in that case is not precisely on point.

In that case, the United States District Court for the District

of Columbia found tha’ an Egyptian ruling nullifying an

arbitration award was improper because it was “the clear

intent of the parties that any arbitration of a dispute arising

- under the Contract is not to be appealed to any court.” Jd. at

912. While Chromalloy supports the conclusion that language

such as that quoted above constitutes a waiver of Pertamina’s

rightto appeal the arbitration award, the current proceeding

is not an appeal but an enforcement action. Chromalloy did

not address the affect of such language on a party’s right to

raise New York Convention defenses in opposition to an

enforcement proceeding.

Pertamina cites M & C Corp. v. Erwin Behr GmbH &

Co., 87 F.3d 844, 847 (6th Cir.1996), for the proposition

that the contract provisions quoted above do not constitute

a waiver of its defenses under the New York Convention.

The contract at issue in M & C Corp., provided that “[t]he

arbitral award shall be final” and that the parties have “waived

their right to any form of appeal.” Jd. The M & C Corp. court

24a

Appendix B

determined that notwithstanding the contractual language at

issue in that case, the party against. whom the award was

rendered was entitled to contest the validity and enforceability

of the award pursuant to the New York Convention. Jd.

The Sixth Circuit was concerned that ta hold otherwise

“would insulate [arbitration] judgments from judicial review

even in cases involving fraud, procedural irregularities,

or exertion of improper influence upon arbitrators.” Jd.

The contractual provisions at issue here are broader than

the one in M & C Corp. in that they limit not only appeals

but the “right to commence or maintain any suit or legal

proceeding concerning a dispute hereunder.” The Court

nevertheless concludes that Pertamina is entitled to rulings

on the arguments it raises. The present suit is one in which

KBC seeks to enforce an arbitration award which Pertamina

opposes. The necessity of a suit to enforce the award was

envisioned by the drafters of the JOC and ESC. Implicitly,

the parties thus recognized the right to defend against such

relief under the New York Convention. Had the drafters

intended to deprive an unsuccessful party of all New York

Convention defenses in an enforcement proceeding, the

drafters could and should explicitly have said so.

The defenses permitted by the New York Convention

ensure that arbitral awards meet minimum procedural

standards for protecting the litigants’ rights. The defenses

recognized by the New York Convention do not permit the

Court to address the merits of the dispute submitted to

arbitration. See Schlumberger, 195 F.3d at 220. The Court

concludes that Pertamina has not waived its New York

Convention defenses to enforcement of the arbitral award.

SEO EEO eI Ee et Fee ES ae ae

“3

25a

Appendix B

Thus, the Court will consider the substantive points raised

by Pertamina’s Response.

IV. PERTAMINA’S NEW YORK CONVENTION DEFENSES

Article V of the New York Convention specifies seven

limited exceptions to the mandatory enforcement of foreign

arbitration awards. “Absent a convincing showing that one

of these narrow exceptions applies the arbitral award will be

confirmed.” Zrans Chem., 978 F.Supp. at 309; see Yusuf

Ahmed Alghanim & Sons v. Toys “R” Us, 126 F.3d 15, 20

(2d Cir.1997). Pertamina asserts three of the enumerated New

York Convention defenses here: (1) the composition and

procedure of the Tribunal violated the terms of the parties’

agreements (Art. V(1)(d)); (2) the Tribunal deprived

Pertamina of due process (Art. V(1)(b)); and (3) the arbitral

award violates public policy (Art. V(2)(b)).

A. Alleged Violations of the Parties’ Agreements

Article V, § 1(d) of the Convention provides a defense

against confirmation of an arbitral award if the respondent

can prove that “the composition of the arbitral authority or

the arbitral procedure was not in accordance with the

agreement of the parties, or, failing such agreement, was not

in accordance with the law of the country where the

arbitration took place.” 9 U.S.C. § 201, Art. V(1)(d). At least

one district court faced with an objection to enforcement of

an arbitral award based on Article V(1)(d) has concluded that

because of the clear “pro-enforcement bias” of the New York

Convention, it is appropriate to “set aside an award based on

a procedural violation only if such violation worked

substantial prejudice to the complaining party.” Compagnie

26a

Appendix B

des Bauxites de Guinee v. Hammermills, Inc., No. 90-0169,

1992 WL 122712, *5 (D.D.C. May 29, 1992); American

Const. Mach. & Equip. Corp., 659 F.Supp. at 428. The Court

finds the Hammermills decision well-reasoned and adopts it

as persuasive authority. The Court therefore holds that

Pertamina must show that there is a violation of an arbitration

agreement between the parties and that the violation actually

caused Pertamina substantial prejudice in the arbitration.

Pertamina argues that the Final Award should not be

confirmed because first, the Tribunal improperly consolidated

the disputes under the JOC and ESC into one arbitral

proceeding and, second, the Tribunal was improperly

constituted because KBC unilaterally chose an arbitrator in

violation of the terms of § 8.2 of the ESC.°

1. Consolidation of KBC’s Claims Under the JOC

and ESC

Pertamina argues that the arbitral procedure was contrary

to the parties’ agreements because neither the JOC or-the

ESC expressly allows consolidation. Because arbitration is

6. KBC characterizes Pertamina’s arguments as “arbitrability”

issues, and argues that Pertamina cannot raise such issues here

because it agreed to submit them for decision by the Tribunal. The

Court disagrees. Disputes concerning breaches of the contracts

are encompassed by the contracts’ arbitration clauses. To the extent

that Pertamina raises issues as to whether the arbitration procedures

were in accordance with the parties’ agreements, these matters

are not strictly arbitrability questions. However, KBC’s contention

that these contract issues were fully aired before the Tribunal is

well-taken. Absent some clear reason under the New York

Convention, the Court will enforce the Tribunal’s award.

i i

eee

27a

Appendix B

a product of contract, courts generally are reluctant to allow

consolidation unless the parties consent. See Government of

United Kingdom of Great Britain v. Boeing Co., 998 F.2d

68, 72 (2d Cir.1993) (district courts do not have authority to

consolidate arbitrations absent the parties consent).

In this case, the Tribunal approved a single arbitration

based on the “connexity” of KBC’s claims and the integration

of the two contracts.’ See PX 28, Preliminary Award, at 26.

The Tribunal found that “the parties did not contemplate the

performance of two independent contracts, but the

performance of a single project consisting of two closely

related parties.” Jd. at 27. The Tribunal had “not the slightest

doubt” that a single arbitration was appropriate due to the

integration of the two contracts and the fact that the

Presidential Decree, the consequences of which are at the

origin of the dispute, affected both of them. Jd. Compare

United Kingdom, 998 F.2d at 69 (reversing district court

consolidation of arbitration proceedings involving separate,

distinct agreements between the United Kingdom and two

different parties, absent the parties’ agreement).

The Tribunal based its integration finding on the facts

that the contracts were signed on the same day; that the JOC

expressly provided that the ESC “shall be an integral part of

this contract, and to the extent the provisions of the Energy

Sales Contract obligate the Parties hereto, shall be deemed

7. “Connexity,” as explained in the Preliminary Award, relates

to the legal relations between KBC and Pertamina on the basis of the

JOC on the one hand, a~d between KBC, Pertamina and PLN on the

basis of the ESC on the other hand. PX 28, Preliminary Award,

at 26.

28a

Appendix B

incorporated into this contract for all purposes”; and that the

ESC provided that it and the JOC together constitute the

entire agreement between the parties. PX 28, Preliminary

Award, at 26-27. In essence, the Tribunal concluded that the

nature of the contracts at issue is such that the parties

contemplated arbitration in a single proceeding. This Court

strongly concurs. In addition, it is obvious that separate

arbitrations of the matters in dispute among the parties under

the JOC and ESC would have required substantial duplica-

tion of evidence on liability, damages and defensive issues.

Pertamina, the only Respondent in this enforcement

proceeding,® is a party to both the JOC and the ESC. The

two Respondents in the arbitration, Pertamina and PLN, were

represented by the same counsel at all times during the

arbitration. Further, Pertamina has not cited any case in which

consolidation was deemed to be in error under similar

circumstances.’

8. See supra note 1.

9. One treatise, cited by Pertamina in support of its argument

that there can be no consolidation absent consent, acknowledges

“there is strong support for the view that a judicially consolidated

arbitration would be enforceable under the New York Convention

where allowed by the governing local law as long as all parties have

agreed (1) to arbitration and (ii) to the same arbitral jurisdiction.

Where the parties have in effect agreed to a /ex arbitri, it is reasonable

to infer that they have agreed to be governed by any mandatory

requirements of that law regarding consolidation which may override

the express choice of the parties in matters of composition and

procedure of the arbitral tribunal.” ALLAN REDFERN, MARTIN

HUNTER, LAW AND PRACTICE OF INTERNATIONAL

COMMERCIAL ARBITRATION 187 (2d Ed.1991). In this case,

the parties agreed to arbitration and that the arbitration would be

(Cont'd)

29a

Appendix B

The Tribunal acknowledged that “the position of each

party has to be considered independently when discussing

the substance of the case, on the basis of their respective

legal and contractual situations” (Jd. at 28), and carefully

adhered to this precept in all its rulings. There is no evidence

that the Tribunal failed to distinguish between the positions

of Pertamina and PLN in the arbitration. Indeed, the Tribunal

went to great lengths to address the contentions of each

separately, even though Pertamina and PLN chose to submit

joint memorials and were represented by the same counsel

at the arbitration hearing. There is simply no showing that

these findings by the Tribunal are in error and should not be

enforced.

In any event, Pertamina has not demonstrated that it

suffered any loss of contract rights from the consolidation.

The Court concludes that the consolidation did not violate

- the parties’ agreements. Pertamina has not proven any

prejudice from the consolidation. Pertamina thus has failed

to meet its burden under the New York Convention to show

a violation of Article V(1)(d) that precludes enforcement of

the Final Award.

2. Appointment of Arbitrators

Pertamina also contends that the procedure used to

appoint the arbitrators for the arbitration proceedings violated

the ESC.

(Cont’d)

conducted in Geneva, Switzerland. Thus, there is a legal foundation

for the Tribunal’s application of the Swiss law of “connexity” to the

consolidation issue.

30a

Appendix B

The ESC provides for the appointment of arbitrators as

follows:

PLN on one hand, and COMPANY [KBC] and

PERTAMINA, on the other hand, will each

appoint one arbitrator, in each case within thirty

(30) days after the date of a request to initiate

arbitration, who will then jointly appoint a third

arbitrator within thirty (30) days of the date of

the appointment of the second arbitrator, to act as

Chairman of the Tribunal. Arbitrators not

appointed within the time limits set forth in the

preceding sentence shall be appointed by the 3

Secretary General of the International Center for :

Settlement of Investment Disputes, upon the

request of any Party.

PRA nce OID

ESC, § 8.2(a). The JOC’s procedure for arbitrators’

appointment is slightly different:

Each Party [KBC and Pertamina] will appoint an

arbitrator within thirty (30) days after the date of

a request to initiate arbitration, who will then

jointly appoint a third arbitrator within thirty (30)

days of the date of the appointment of the second

arbitrator, to act as Chairman of the Tribunal.

Arbitrators not appointed within the time limits

set forth in the preceding sentence shall be

appointed by the Secretary General of the Inter-

national Center for Settlement of Investment

Disputes.

3la

Appendix B

JOC, Art. 13.2(a). Thus, each contract provided for the

appointment of arbitrators by the ICSID in the event any party

failed to meet its own obligation to do so. There is no question

that the Tribunal was constituted in accordance with the

express terms of the JOC. The disputed issue is whether

KBC’s unilateral designation of the first arbitrator violated

the ESC.

The Tribunal rejected the Respondent’s position that in

all disputes under the ESC, KBC and Pertamina must jointly

appoint one arbitrator while PLN appointed the other.

See PX 28, Preliminary Award, at 30. The Tribunal found

that the ESC arbitration clause applies to the entire contract,

not only to disputes aligning KBC and Pertamina on one side

against PLN, and that therefore it defied common sense, in a

dispute between KBC and Pertamina, to oblige KBC and

Pertamina to jointly appoint an arbitrator. See id. Because

the ESC does not expressly address the method for appointing

arbitrators in the KBC v. Pertamina situation, the Tribunal

found that the appointment of arbitrators must be made in

accordance with UNCITRAL Arbitration Rules, which the

parties incorporated into the ESC and which were satisfied

in this case.'® To the extent that the contract interpretation

issue is an arbitrable one, the Court sees no reason under the

New York Convention to reject the Tribunal’s reasoned

analysis of the ESC.

10. Section 8.2(a) of the ESC provides that any dispute arising

under that contract “shall finally be settled by an arbitral tribunal

(the “Tribunal”) under the UNCITRAL arbitration rules contained

in Resolution 31/98 adopted by the United Nations General Assembly

on December 15, 1976 and entitled ‘Arbitration Rules of the United

Nations Commission on International Trade Law’ as in force at the

time such arbitration commenced.”

32a

Appendix B

In addition, looking at the issue afresh, the Court

concludes that Pertamina has not established a violation of

the ESC in regard to the first (or any other) arbitrator’s

selection. Pertamina has not claimed, before the Tribunal or

this Court, that it failed to receive KBC’s April 30, 1998

Notice of Arbitration. That Notice included Prof. Bernardini

as KBC’s choice of arbitrator. Pertamina also has not claimed

that it did not receive the ICSID’s June 29 and July 13, 1998

letters, see supra, at 4, informing Pertamina of the ICSID’s

intention to appoint Dr. El-Kosheri as the second arbitrator."

The ICSID’s action thus also indicated its acceptance of

Prof. Bernardini as the first arbitrator. Nonetheless, Pertamina

lodged no objection to the appointment of either Prof. Bernardini

or Dr. El-Kosheri.'?

The Court also rejects Pertamina’s contention that KBC’s

nomination of an arbitrator without Pertamina’s consent

violates the ESC because Pertamina’s construction of the

selection procedure renders the ESC’s arbitration provision

illusory. Under Pertamina’s interpretation, Pertamina would

11. Pertamina apparently argued to the Tribunal that it did not

name an arbitrator because it was contesting the legitimacy of the

arbitration and further contended that it did not receive certain of

the correspondence from the ICSID regarding KBC’s request that

the ICSID appoint the second arbitrator. See PX 28, Preliminary

Award, at 8. Pertamina does not assert these arguments before the

Court.

12. In fact, Pertamina expressly informed the Tribunal in its

Preliminary Memorial that it had no objection to Dr. El-Kosheri, the

arbitrator selected by the ICSID. See PX 23, at 36. Thus, Pertamina’s

objection is solely to fact that KBC was allowed to select one of the

arbitrators.

33a

Appendix B

hold the unilateral power to prevent the arbitration of disputes

between it and KBC arising under the ESC simply by refusing

to select or comment on KBC’s proposals for an arbitrator.

That is not a reasonable interpretation of the expressed intent

of the parties as set forth in the ESC. The parties intended

that in the event a party failed to name an arbitrator within

: thirty days of the request for arbitration, the ICSID would

do so. In effect, that is the scenario that transpired in this

case. KBC nominated an arbitrator. Pertamina had ample

notice of this act. The time for Pertamina to object to KBC’s

selection or for Pertamina to have asserted its right to

participate in the first arbitrator’s appointment was within

thirty days of receiving KBC’s Notice of Arbitration and

arbitrator selection. In the absence of an objection from

Pertamina, nothing in the ESC precluded the ICSID from

accepting KBC’s nomination for the first arbitrator."? This

procedure materially complies with the terms of the ESC."4

13. It is noted that Pertamina still lodged no objection to either

the first or the second individual appointed arbitrator.

14. There are other viable interpretations of the ESC arbitration

clause and the parties’ contracts generally that support the procedure

used in this dispute. For instance, because the ESC and JOC are

expressly integrated contracts, they must be interpreted together to

determine the intent of the parties. It is arguable that the parties to

the ESC intended to be bound by the arbitration provision (including

the provision for the selection of arbitrators) of the JOC when a

dispute involved that contract. Under that interpretation, the

arbitration provision of the ESC would be operative only in the event

the arbitration did not include issues arising under the JOC.

Alternatively, the contract provisions may be harmonized by applying

the ESC methodology only when KBC and Pertamina both were

adverse to PLN and not to each other.

34a

Appendix B

Pertamina’s belated arguments that Prof. Bernardini was

improperly selected are a futile attempt to avoid consequences

of its strategic decisions not to object timely to KBC’s selection

and to decline to participate in the selection of an arbitrator.

Moreover, there is no evidence—and Pertamina does not

even allege—that Prof. Bernardini, the KBC-selected

arbitrator, was biased against Pertamina. Indeed, to the extent

Pertamina must show prejudice from the contract violation

to support this New York Convention defense, Pertamina’s

evidence fails even if one assumes that Prof. Bernardini

unfairly favored KBC in the arbitration. All the findings

and awards were unanimous. See PX 28, Preliminary Award;

PX 71, Final Award. There is no evidence or even any

allegation that the other two arbitrators were not neutral, were

biased, or had any conflict of interest. Therefore, Pertamina

cannot show that the arbitration selection procedure worked

any prejudice to Pertamina. See Compagnie des Bauxites de

Guinee, 1992 WL 122712, at *5.

The Court accordingly holds that Pertamina has not met

its burden to show either that the composition of the Tribunal

violated the parties’ agreements or that the composition

caused Pertamina substantial prejudice.

B. Alleged Due Process Violations

The New York Convention allows denial of award

confirmation if the party against whom it is invoked can prove

that it “was not given proper notice of the appointment of

the arbitrator or of the arbitration proceedings or was other-

wise unable to present his case”. 9 U.S.C. § 201, Art. V(1)(b).

35a

Appendix B

This enumerated defense “essentially sanctions the

application of the forum state’s standards of due process.”

Iran Aircraft Indus. vy. Avco Corp., 980 F.2d 141, 145-46

(2d Cir.1992). The fundamental requirement of due process

is the opportunity to be heard at a “meaningful time and in

meaningful manner.” /d. at 146. Enforcement of the award

may be denied only if there was a procedural infirmity that

rendered the proceedings fundamentally unfair and caused

prejudice to the complaining party. Hammermills, 1992 WL

122712, at *5.A fundamentally fair hearing is one that meets

the minimum requirements of fairness: adequate notice, a

hearing on the evidence, and an impartial decision by the

arbitrators. See Generica Ltd. v. Pharm. Basics, 125 F.3d

1123, 1130 (7th Cir.1997); Sunshine Mining Co. v. United

Steelworkers, 823 F.2d 1289, 1295 (9th Cir.1987). The right

to due process does not, however, encompass the procedural

rights guaranteed by the Federal Rules of Civil Procedure.

Imperial Ethiopian Government, 535 F.2d at 337; Empresa,

106 F.Supp.2d at 1026; Trans Chem., 978 F.Supp. at 310

(“The right to due process does not include the complete set

of procedural rights guaranteed by the Federal Rules of Civil

Procedure. By agreeing to arbitration [the respondent]

subjected itself to its advantages and disadvantages.”).

Pertamina argues that it was not afforded due process in

the arbitration because the Tribunal (1) failed to grant a

continuance and denied it further discovery six weeks before

the scheduled hearing, and (2) “reversed,” without

notification, the Preliminary Award. The first of these alleged

procedural deficiencies relates to Pertamina’s alleged

inability to respond adequately to issues raised in KBC’s

Rebuttal briefing. In connection with its arguments regarding

36a

Appendix B

discovery, Pertamina further asserts that it is entitled to

discovery in this federal court proceeding pursuant to Federal

Rule of Civil Procedure 56(f) before the Court rules on KBC’s

summary judgment motion. The second alleged procedural

deficiency relates to Pertamina’s perception that the Final

Award is contrary to the Tribunal’s Preliminary Award, which

found that the Government of Indonesia was not a proper

party to the arbitration and that Pertamina could not be held

liable for the acts of the Government of Indonesia. KBC

contends that Pertamina received a full and fundamentally

fair hearing.

1. Denial of Request for Continuance and Discovery

Tribunal’s Denial of Continuance and Discovery

Requests.—Six weeks before the hearing, in early May 2000,

KBC filed a Rebuttal with the Tribunal. Pertamina contends

that it was prejudiced by KBC’s Rebuttal because KBC

allegedly included an entirely new position on the financing

of the Project, made new allegations of the conduct

constituting Pertamina’s breach, relied on newly-submitted

awards in the arbitrations known as Himpurna and Patuha,

identified additional witnesses, and presented new

documentary evidence. Pertamina asserts that it was required

to secure new experts and fact witnesses and to impose upon

its existing experts and fact witnesses to review KBC’s

Rebuttal submissions in four weeks. Pertamina further

contends it had insufficient time post-Rebuttal to prepare for

the hearing.

In fact, KBC’s Rebuttal did not assert any new claims or

new legal theories for recovery. KBC’s Rebuttal responded

sep ERO GRIER Hf LETHE IA SE ARO

37a

Appendix B

to specific defenses asserted in Respondents’ Reply by

specifying additional facts, argument, and authority

supporting its claims, including the Himpurna and Patuha

awards. The Court is aware of no rule or law that obligated

KBC to specify in its Revised Statement of Claim all evidence

it intended to submit, and every argument it intended to make,

ultimately to support its claims at the hearing. Pertamina had

notice of KBC’s claims, and should have anticipated that

KBC would contest its defenses. The arbitration proceeding

was pending for approximately two years. Pertamina had

ample time to prepare its case. Moreover, the fact that KBC’s

Rebuttal was submitted only six weeks before the hearing

was the direct result of Respondents’ requests for extensions

of time to submit their Reply to KBC’s November 1999

Revised Statement of Claim. Pertamina was aware in mid-

March 2000, when the Tribunal granted its latest request for

an extension of time, that the hearing date remained set for

June 19, 2000. See PX 38, Procedural Order No. 4. Pertamina

did not file its Reply to KBC’s Revised Statement of Claim

until April 2000, which explains the timing of KBC’s

Rebuttal. |

To the extent Pertamina also contends that it was unfairly

denied discovery on the “highly material” issue of KBC’s

ability to finance the Project, the record does not support the

contention. During the two years preceding the filing of the

Rebuttal, Pertamina iiad requested no discovery on this

“highly material” issue, even though KBC expressly sought

lost profits in its Revised Statement of Claim in November,

1999, and even though Pertamina responded to KBC’s claim

by arguing that KBC waz entitled to no damages because it

could not have completed the Project for reasons independent

38a

Appendix B

of the Presidential Decree. See PX 40, at 6. Moreover, even

without the requested discovery, Pertamina presented

substantial evidence on the Indonesian economy (information

easily accessible to Pertamina and PLN), and expert opinions

on the availability of financing, on the size of the “geothermal

reserve,” and on the “useable resource.” See PX 39, 41, 42,

43, and 44. Pertamina’s counsel thoroughly cross-examined

KBC’s witnesses on the issues raised in KBC’s Rebuttal.

Pertamina, which bears the burden to prove that the hearing

was fundamentally unfair, does not identify specific topics

or other matters it was prevented from raising; nor does

Pertamina identify anything it would have done differently

if it had more preparation tim=2. Pertamina refers to the broad,

general discovery requests attached to its letter of submission

to the arbitrators, see PX 54, but it has not identified a single

specific piece or type of evidence it believes exists that would

have aided in its defense on these issues. Pertamina has failed

to establish under the New York Convention that it was

denied a fundamentally fair hearing, and thus denied due

process, 7s a result of the lack of discovery or a continuance

after K.7sC’s Rebuttal.'®

in addition, the transcript of the June 23, 2001

proceedings (the last day of the arbitration hearing)

establishes that Respondents informed the Tribunal that they

were satisfied with the record as it existed, and that they

abandoned their pre-hearing discovery requests:

15. The issue is not whether this Court would have granted the

discovery or the continuance. The question is whether the procedures

employed met the minimum requirements of fairness.

PRS

DR NSH

PASE RS patyenr

39a

Appendix B

MR. CHAIRMAN: May we, before departing have a

discussion on what is going to be done now in these

proceedings, and we see two items on this particular

agenda. There were first a certain number of procedural

objections which have been made before this hearing,

and in the procedural order we said that this would be

decided after the hearing. In summary, there was a

request for discovery from one side, and there was

objection to the submission of this arbitral award and

the business of confidentiality. You remember this

discussion.

MR. MISHKIN [Respondents’ Attorney]: I think there

was a request for discovery from both sides.

MR. CHAIRMAN: Our first question is are these

requests maintained, all of them, part of them, because

we would like to know on what we have to decide.

MR. MISHKIN: May I just give you my views on that

question.

MR. CHAIRMAN: Yes.

MR. MISHKIN: And that is that the purpose of

discovery is to prepare for the hearing, it is not to

supplement the record after the hearing. So I think the

discovery requests are moot, and if discovery is now

permitted, then you have to re-open the proceedings

and so on. So I treated, notwithstanding the fact that

it was theoretically open, I treated this request as

effectively being denied, and we went forward. Our

Oe ee

40a

Appendix B

request went to the purported financial ability, the

purported financing that would have been made

available and other things, and J think the record on

that has been fully made. I am prepared to rest on that

record, and so J think discovery requests should no

longer be in the picture.

MR. SCHILLER [Petitioner’s Attorney]: I agree.

PROF. BERNARDINI [Arbitrator]: And you agree on

their withdrawing their request. What about yours?

MR. SCHILLER: I withdraw my request.

Hearing Transcript, Vol. V, at 807-08 (emphasis added).

Thus, Pertamina expressly abandoned its arguments

concerning the timing and other alleged procedural defects

in the arbitration proceedings.

In any event, these procedural decisions were well within

the reasonable exercise of the Tribunal’s discretion. These

decisions did not prevent Pertamina from having a

meaningful hearing. They do not rise to the level of

fundamental unfairness necessary to deny enforcement of the

arbitration award.

Pertamina’s Rule 56(f) Request for Discovery.—

As another avenue in its due process defense under the New

York Convention, Pertamina requests discovery in this

lawsuit under the Federal Rules of Civil Procedure. Speci-

fically, Pertamina requests, as it did before the Tribunal,

additional discovery related to KBC’s ability to finance the

4la

Appendix B

Project. KBC opposes Pertamina’s request, contending

that it is improper under applicable law and the New York

Convention, and is unwarranted factually. Pertamina’s request

for discovery is denied.

Rule 56(f) of the Federal Rules of Civil Procedure permits

a district court, upon a proper showing by the party seeking

Rule 56(f) relief, to delay consideration of a motion for

summary judgment pending additional discovery. FED. R.

CIV. P. 56(f); Krim v. BancTexas Group, Inc., 989 F.2d 142 5,

1441 (Sth Cir.1993). “In order to obtain a continuance of a

motion for summary judgment for discovery purposes, a party

must set forth some statement to the court indicating why

additional discovery is necessary and ‘how additional

discovery will create a genuine issue of material fact.’”

Canady v. Bossier Parish School Bd., 240 F.3d 437, 445 (Sth

Cir.2001) (citing Leatherman v. Tarrant County Narcotics

Intelligence and Coordination Unit, 28 F.3d 1388, 1395 (Sth

Cir.1994)). A party “may not simply rely on vague assertions

that additional discovery will produce needed, but

unspecified facts.” Krim, 989 F.2d at 1442 (internal citations

omitted). It must show (1) why additional discovery is needed

and (2) how that discovery will create a genuine issue of

material fact. Stearns Airport Equip. Co. v. FMC Corp., 170

F.3d 518, 535 (Sth Cir.1999) (citing Krim, 989 F.2d at 1442).

If the party has not diligently pursued discovery, however, it

is not entitled to relief under Rule 56(f). See Leatherman vy.

Tarrant County Narcotics Intelligence & Coordination Unit,

28 F.3d 1388, 1397 (Sth Cir. 1994).

Pertamina argues that this Court’s review of its New York

Convention defenses involves legal issues subject to de novo

42a

Appendix B

review, but concedes that the Court must defer to the

Tribunal’s factual findings. Pertamina’s Response, at 2.

Pertamina also concedes that the grounds for review under

the New York Convention typically relate to the existing

record and do not otherwise depend on discovery. Pertamina’s

Response, at 50 (citing Frere v. Orthofix, Inc., Nos. 99

CIV4049 and 00CIV1968, 2000 WL 1789641, at *4-*8

(S.D.N.Y. Dec.6, 2000)). Discovery is particularly inappro-

priate in enforcement proceedings under the New York

Convention. See Imperial Ethiopian Govt, 535 F.2d at 337

(“the loser in arbitration cannot freeze the confirmation

proceedings in their tracks and indefinitely postpone

judgment by merely requesting discovery.”).

As noted above, the right to due process protected by

the New York Convention does not encompass the procedural

rights guaranteed by the Federal Rules of Civil Procedure.

See Imperial Ethiopian Government, 535 F.2d at 337;

Empresa, 106 F.Supp.2d at 1026; Trans Chem., 978 F.Supp.

at 310 (“The right to due process does not include the

complete set of procedural rights guaranteed by the Federal

Rules of Civil Procedure. By agreeing to arbitration [the

respondent] subjected itself to its advantages and

disadvantages.”). Pertamina had notice at least as early as

November 24, 1999, upon KBC’s submission of its Revised

Claim, that KBC was seeking lost profits.’ See PX 31,

16. In its Notice of Arbitration, KBC claimed it was seeking

damages from PLN and Pertamina for breach of both the JOC and

ESC. See PX 6, Notice of Arbitration, 17(A). It was apparent at

that point that KBC’s ESC claim likely would include lost profits,

and thus raised the issue of financing, because the ESC contemplated

that the Project would be completed and electricity sold to PLN.

43a

Appendix B

Revised Statement, at 37. Indeed, the issue of available

financing was raised and thoroughly addressed by Pertamina,

without the benefit of any discovery, in its Reply to KBC’s

Revised Statement, see PX 40, Respondents’ Reply, at 6, and

through witness statements. There is no reason to allow the

discovery Pertamina requests at this enforcement stage of

the proceedings.

Finally, the Court’s conclusion that the requested discovery

is unwarranted at this stage is supported by statements of

Pertamina’s counsel at the conclusion of the arbitration

hearing. Counsel stated that “discovery is to prepare for the

hearing, it is not to supplement the record after the hearing”

and that Pertamina’s discovery request “went to the purported

financial ability, the purported financing that would have been

made available and other things, and I think the record on

that has been fully made. I am prepared to rest on that record,

and so I think the discovery requests should no longer be in

the picture.” Hearing Transcript, Vol. V, at 807-08.

Even if discovery were appropriate at this late stage in

the parties’ dispute, and even if the Tribunal made a factual

or legal error, Pertamina has failed to meet its Rule 56(f)

burden to demonstrate why the requested discovery is

material. This Court may not disturb the Tribunal’s ruling

absent a due process violation, or other ground under the

New York Convention. Pertamina has failed to show that the

evidence that could be discovered likely would lead to a

finding that the arbitration process was fundamentally unfair,

constituted a due process violation for some other reason, or

violated the New York Convention in some other way. Thus,

Pertamina’s discovery request under Rule 56(f) is denied.

44a

Appendix B

In sum, Pertamina has failed to meet its burden to show

that circumstances warrant opening the record for additional

evidence in this enforcement proceeding. Thus, the Court

rejects Pertamina’s request for discovery and its argument

that KBC’s motion for summary judgment is premature.

2. “Reversal” of the Preliminary Award

Pertamina contends that it was denied due process when

the Tribunal found it liable for abiding by the requirements

of the Presidential Decree despite having determined in the

Preliminary Award that a “Government Related Event” is “not

deemed to be a breach of contract by Pertamina or PLN but

a Force Majeure event excusing KBC’s non-performance.”

PX 28, Preliminary Award, at 19. Further, Pertamina contends

that because the Tribunal explicitly stated that the matters to

be considered at the hearing on the merits were to be “issues

not resolved in this Preliminary Award,” it did not have notice

that it would be held liable for breach of contract. Pertamina’s

position misinterprets both the Preliminary Award and the

Final Award, and defies logic. The Preliminary Award found

that the Government of Indonesia was not a party to the

contracts and that Pertamina was not the alter-ego of the

Government. However, it expressly recognized that

Pertamina would bear the risk of loss arising from a

Government Related Event:

[T]he parties took care of the close relation of

PERTAMINA and PLN with the [Government].

They included in both contracts a definition of

“Government [R]elated Event” and, in both

contracts, the Force Majeure clause indicates

45a

Appendix B

that a “Government [R]elated Event” is an event

of Force Majeure with respect to KBC only. This

has two consequences for the interpretation of the

parties’ intention. On the one hand, they were

acknowledging that PERTAMINA and PLN had

such a close relation with the GOI that a decision

of the latter was not a Force Majeure event for

them; on the other hand, they were confirming

that the [Government] was not a party to the

contracts since a governmental decision which

prevents KBC to perform its obligations is not

deemed to be a breach of contract by PERTA-

MINA or PLN but a Force Majeure event excusing

KBC’s non performance.

Id.

In the Final Award, the Tribunal found that Pertamina

had a contractual responsibility to make KBC whole for a

“Government [R]elated Event,” not that the Presidential

Decree constituted a breach of contract by Pertamina. The

Tribunal stated:

[The Preliminary Award] was not meant to express

any view as to the consequences for PERTAMINA

or PLN of a Governmental decision which prevents

the performance of the Contracts. Contrary to

Respondents’ point of view, the fact that they are

not responsible for the Governmental decision to

prevent the performance of the Contracts does not

exempt them from liability if they do not perform

their own obligations in abiding by the decision.

sidelined

eeeeeeieeeemnenee nee

46a

Appendix B

The Governmental decisions, in this case the

Presidential Decrees n. 39/1997 and n. 5/1998,

do not amount to a breach of Pertamina’s and

PLN’s obligations. However, since a Govern-

mental event is not a Force Majeure event for

them, their non-performance has no legitimate

excuse and must be considered as a breach of

contract.

Such distinction is far from being artificial, as the

Respondents contend. It applies each time a party

is actually prevented from performing its

contractual obligations by an event which it cannot

invoke as Force Majeure due to the existence of

provisions to that effect in the contract or by

application of the law.

PX 71, Final Award, 4] 56-57.

Moreover, the Preliminary Award must be read in context

with the Notice of Arbitration and all subsequent pleadings

by claimant KBC and Respondents. KBC clearly and directly

sought relief for alleged breaches of contract. In these

circumstances, if Pertamina truly thought the Preliminary

Award eliminated its liability for non-performance, then there

was nothing left to arbitrate. At the very least, Pertamina

had ample notice that the Tribunal would be hearing all of

the matters addressed in KBC’s Revised Statement of Claim,

submitted after the Preliminary Award and approximately

seven months before the hearing on the merits. Pertamina

responded to those claims in its briefing to the Tribunal and

thus demonstrated its awareness at the time of the matters in

An AR Se eiaetesateed deans ee ass

47a

Appendix B

issue. Pertamina’s self-serving, erroneous interpretation of

the Preliminary Award, does not support a finding that the

arbitration was fundamentally unfair. Indeed, Pertamina has

failed to demonstrate that the Tribunal’s own interpretation

of its order is in any way unfounded.

C. Alleged Violations of Public Policy

The Convention allows confirmation of an award to be

refused if “the recognition or enforcement of the award would

be contrary to the public policy of that country.” 9 U.S.C.

§ 201, Art. V(2)(b). Pertamina asserts that the Final Award

is contrary to United States public policy because it (1) violates

the internationally recognized doctrine of “abuse of rights”

by awarding lost profits to KBC; and (2) holds Pertamina

liable for refusing to violate governing Indonesian law.

Application of the public policy exception will succeed

in only the narrowest of circumstances; indeed, vacating an

arbitral award under this defense requires a violation of the

“most basic notions of morality and justice.” Slaney v. Int’]

Amateur Athletic Fed n, 244 F.3d 580, 593 (7th Cir.2001)

(quoting Fotochrome, Inc. y. Copal Co., 517 F.2d 512, 516

(2d Cir.1975)); see also Europcar, 156 F.3d at 315 ; Industrial

Risk Ins. v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d

1434, 1445 (11th Cir 1 998); Parsons & Whittemore Overseas,

Co., Inc. v. Societe Generale de L’Industrie du Papier

(RAKTA), 508 F.2d 969, 974 (2d Cir.1974). The award must

violate an “explicit public policy that is well-defined and

dominant . . . [and is] ascertained by reference to the laws

and legal precedents and not from general consideration of

supposed public interests.” Industria] Risk Ins., 141 F.3d

48a

Appendix B

at 1445 (quoting Drummond Coal Co. v. United Mine

Workers, Dist. 20, 748 F.2d 1495, 1499 (11th Cir.1984)

(internal quotes deleted)).

1. Does The Lost Profits Award Constitutes An

“Abuse of Rights”?

The international “abuse of rights” doctrine put forth by

Pertamina in its defense of enforcement of the Final Award

is akin to America’s “good faith” principle of law. Joseph

M. Perillo, “Abuse of Rights, A Pervasive Legal Concept,”

27 PAC. L.J. 37, (Fall 1995). Actions constitute an abuse

within the scope of the doctrine if: “(1) the predominant

motive for the action is to cause harm; or (2) the exercise of

a right is totally unreasonable given the lack of any legitimate

interest in the exercise of the right and its exercise harms

another; or (3) the right is exercised for a purpose other than

that for which it exists.” JOHN D. CALAMARI AND

JOSEPH M. PERILLO, THE LAW OF CONTRACTS,

§ 11.39 (4th 1998).

In asserting the “abuse of rights” doctrine, Pertamina

does not argue that lost profits are never a legitimate form of

damages for breach of contract, but that an award of lost

profits in this particular case, when KBC never finished

construction on the Project and the Indonesian economy was

in ruins, constitutes an abuse of rights in violation of United

States public policy.

First, Pertamina falls far short of meeting its burden to

show that the “abuse of rights” doctrine is well-defined and

dominant inUnited States law. Pertamina has not cited a

49a

Appendix B

single case holding that “abuse of rights” is a recognized

doctrine in the United States or applying that doctrine to avoid

enforcement of a contractual right. However, even assuming

for purposes of the instant motion that “abuse of rights” is

an accepted legal doctrine in this country, the facts of this

case, as found by the Tribunal, do not meet the elements of

an “abuse of rights” as set forth by the authority relied upon

by Pertamina. There is no evidence, and thus can be no

finding, that KBC’s primary motivation was to cause harm

te Pertamina or the Indonesian People; that KBC lacks a

legitimate interest in asserting its right to lost profits by virtue

of its contracts with Pertamina; or that KBC was attempting

to exercise its right to recover lost profits for any purpose

other than being compensated for its losses caused by

Pertamina’s failure to perform its obligations under the

contracts. The fact that KBC was awarded a substantial sum

of money, and Pertamina may think that its resources are

better spent elsewhere, does not Satisfy the doctrine.

In arguing that the lost profits award constitutes an

“abuse of rights,” Pertamina cites two arbitration awards that

resulted from the same Presidential Decree that precipitated

the arbitration in the instant case. See Petitioner’s Legal

Authorities (“LA”) 2, Final Award dated May 4, 1999,

Himpurna California Energy Ltd. v. PT. (Persero) Peru-

sahaan Listruik Negara (“Himpurna “); LA 3, Final Award

dated June 11, 1998, Patuha Power Ltd. vy. PT. (Persero)

Perusahaan Listruik Negara (“‘Patuha’’). The arbitral tribunal

that decided both Himpurna and Patuha invoked the doctrine

of “abuse of rights” to deny the claimants’ awards of lost

profits. These awards contain extensive discussion of the

)

50a

Appendix B

“abuse of rights” doctrine. See Pertamina’s Response,

at 60-64. A review of those awards reveals that the tribunal

was influenced by PLN’s status as “an arm of governmental

policy acting in pursuit of the public welfare” that had not

intentionally deprived the claimant of valuable contractual

rights, and by the dire straits of the Indonesian economy.”’

The Himpurna and Patuha Final Awards were introduced

into evidence by KBC, over Pertamina’s objection.'*

Pertamina contends that despite its objection to those awards,

it argued for application of the “abuse of rights” doctrine

detailed therein, but the Tribunal ignored the doctrine.

See Pertamina’s Response, at 60. Pertamina’s arguments

fail for several reasons. First, prior arbitral awards are

not precedential authority for the Tribunal or this Court.

See Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co.,

991 F.2d 141, 147 (4th Cir.1993).

17. Itis noted that Pertamina’s argument to this Court, that the

interests of the Indonesian public demand that Pertamina be immune

from liability for lost profits, is at odds with the vigorously defended

position in the arbitration that Pertamina and PLN are not the alter-

egos of the Indonesian Government. In any event, it is possible that

the results in Himpurna and Patuha are attributable, at least in part,

to positions taken by PLN in those cases that are materially different

from PLN’s positions here.

18. Pertamina’s reliance on Himpurna and Patuha is also

somewhat disingenuous given its argument to the Tribunal that those

decisions should not be treated as precedents. PX 71, Final Award,

gq 31.

Sla

Appendix B

Second, it is clear that the doctrine of “abuse of rights”

was before the Tribunal, and was not “ignored.”"? The Final

Award indicates that the Tribunal in reaching its conclusion

considered the state of the Indonesian economy and balanced

the harm to Pertamina and PLN against KBC’s legitimate

interest in enforcing its contractual rights. The Tribunal noted

that “the worsening of the economic and political situation

in Indonesia at the time has to be taken into account as regards

both the conditions at which financing could have been

obtained and possible delays in arranging the same.” PX 71,

Final Award, J 133. The Tribunal further noted, “{t}here is

no doubt . . . that the Claimant is entitled to obtain the benefit

of its bargain in addition to recovering the expenditures it

has incurred. As stated in the Himpurna award, ‘[t]o limit

the recovery of the victim of a breach to its actual expendi-

tures is to transform it into a lender, which is commercially

intolerable when the party was at full risk for the amount

of investments made on the strength of the contract.’” Jd.,

{| 122. Thus, by awarding KBC its lost profits, the Tribunal

necessarily rejected the “abuse of rights” doctrine in light of

the facts and arguments presented.

19. In any event, it is likely that disregard of a principle of law

is not a valid basis for avoiding confirmation under the Convention.

See M & C Corp., 87 F.3d at 851 n. 2 (“Whatever may be meant by

the manifest disregard doctrine applicable in domestic arbitration

cases, it is clear that such a doctrine does not rise to the level of a

violation of public policy that is necessary to deny confirmation of a

foreign arbitral award.”); RAKTA, 508 F.2d at 977 (“Both the

legislative history of Art. V and the statute enacted to implement the

United States’ accession to the Convention, are strong authority for

treating as exclusive the bases set forth in the convention for vacating

an award.”).

52a

Appendix B

This Court sees no reason to revisit the merits of the

Tribunal’s factual findings or its Final Award in this regard.

The Court concludes that Pertamina has not met its burden

to establish that the award to KBC of lost profits violates

public policy.

2. Boes the Final Award Hold Pertamina Liable For

“Obeying The Law”

Pertamina lastly contends that the Tribunal held it liable

for refusing to violate governing Indonesian law. As discussed

supra in Section IV.B.2, at 953 — 54, this contention

mischaracterizes the Final Award. The Tribunal did not find

Pertamina liable for refusing to break the law.” Rather,

in the Final Award, consistent with the Preliminary Award,

the Tribunal found that Pertamina had a contractual

responsibility to make KBC whole for a “Government

[R]elated Event.” The Tribunal thus found Pertamina liable

for damages based on the parties’ express contractual

allocation of the risk of loss. As the Tribunal pointed out,

the risk of loss was rational based on Pertamina’s close

relationship with the Indonesian Government.

Pertamina accordingly has not satisfied its burden to

show that the Final Award offends the “most basic notions

of morality and justice.” Enforcement of the Final Award is

not contrary to United States public policy.

20. Nor did the Tribunal hold that the Presidential Decree

constituted a breach of contract by Pertamina, as Pertamina has argued

elsewhere.

53a

Appendix B

V. CONCLUSION AND ORDER

Pertamina did not waive its right to assert the defenses

established by the New York Convention in this case, but

has failed to meet its burden of proof on any of its asserted

defenses under the New York Convention. The Court finds

that the arbitration was not contrary to the contractual

agreements of the parties; Pertamina was not denied due

process in connection with the arbitration proceeding;

and the Final Award does not violate United States public

policy. In addition, the Court concludes that Pertamina’s

request to be allowed to conduct discovery in this enforce-

ment proceeding is without merit. It is therefore

ORDERED that KBC’s Motion for Summary Judgment

Confirming Arbitral Award [Doc. # 14] is GRANTED.

The Court will issue a separate Final J udgment.

FINAL JUDGMENT

In accordance with the Memorandum and Order issued

this date, it is hereby

ORDERED that Petitioner Karaha Bodas Company,

L.L.C.’s (““KBC’s”) Motion for Summary Judgment is

GRANTED. It is further

ORDERED that the Final Award in the Arbitration

dated December 18, 2000 is CONFIRMED. Therefore, in

accordance with the Final Award, KBC shall recover from

Pertamina:

oo WE ee

54a

Appendix B

(1) $111,100,000.00 for lost expenditures, plus

interest at the rate of 4% per annum from January

1, 2001 until the date of full payment;

(2) $150,000,000 for lost profits, plus interest at

the rate of 4% per annum from January 1, 2001

until the date of full payment;

(3) $66,654.92 for costs and expenses of the

arbitration, plus interest at the rate of 4% per

annum from January 1, 2001 until full payment.

Each party shall pay its own costs incurred in this proceeding.

55a

APPENDIX C — TEMPORARY RESTRAINING

ORDER AND ORDER OF CONTEMPT OF THE

UNITED STATES DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF TEXAS, DATED

APRIL 9, 2002 AND ENTERED APRIL 11, 2002

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H 01-0634

IN THE MATTER OF AN

ARBITRATION BETWEEN

KARAHA BODAS COMPANY, L.L.C.,

Petitioner,

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS

BUMI NEGARA,

Respondent.

TEMPORARY RESTRAINING ORDER

AND

ORDER OF CONTEMPT

KBC sought a Temporary Restraining Order [Doc. # 88]

to enjoin Pertamina from proceeding with an action

commenced in the District Court of the Central District of

Jakarta, Indonesia, to set aside an Arbitral Award dated

56a

Appendix C

December 18, 2000, made in Switzerland. This United States

District Court for the Southern District of Texas has held the

Arbitral Award to be enforceable under the Convention on

Recognition and Enforcement of Foreign Arbitral Awards

(“New York Convention”) in a Memorandum and Order,

entered December 4, 2001, upon a declaratory judgment

complaint and summary judgment motion filed by KBC, after

notice and full briefing by both parties. The Judgment in this

case has become final and is on appeal before the United

States Court of Appeals for the Fifth Circuit.

Based on findings of fact and conclusions of law stated

orally on the record at the hearing on March 29, 2002, as

supplemented at a hearing on April 2, 2002, the Court issued

orally a Temporary Restraining Order. A copy of transcripts

of each of Court’s oral orders was provided to the parties on

March 30, 2002, and April 3, 2002, respectively. This

Temporary Restraining Order, set forth below, is a formal

writing containing the Court’s prior rulings. This is not the

Court’s ruling on the Motion for Preliminary injunction that

remains pending before the Court.

The Court held a hearing on April 2, 2002, on KBC’s

Motion for Contempt [Doc. # 97], because the Indonesian

Court issued on April 1, 2002, an injunction purporting to

prevent KBC from taking any steps, world-wide, to enforce

or execute on the Judgment entered in this case. Pertamina

had not informed the Indonesian Court that this Court had

issued an injunction effective March 29, 2002, as set forth

in the following Temporary Restraining Order.

57a

Appendix C

TEMPORARY RESTRAINING ORDER

Based on the findings and conclusions set forth on the

record on March 29, 2002, it is hereby (and previously)

ORDERED, as stated orally on the record on March 29,

2002 and effective that date, that Petitioner’s Motion for a

Temporary Restraining Order is GRANTED in part.

Specifically, it is

ORDERED that, during the pendency of this Temporary

Restraining Order, Pertamina shall withdraw its application

for injunctive relief against KBC in the District Court of the

Central District of Jakarta, Indonesia. It is further

ORDERED that, to effectuate the foregoing, Pertamina

shall amend its Complaint filed in the District Court of the

Central District of Jakarta, Indonesia, to specifically and

explicitly withdraw Pertamina’s request for injunctive relief

against KBC, and shall withdraw its request for penalties

associated with any injunction issued by that Court. It is

further

ORDERED that Pertamina affirmatively shall request

that the Distract Court of the Central District for Jakarta,

Indonesia, not issue any injunctive relief. It is further

ORDERED that Pertamina shall explain to the District

Court of the Central District of Jakarta, Indonesia, that the

United States District Court for the Southern District of Texas

is to be permitted adequate time to complete the assessment

of the legal right of Pertamina under Article VI of the New

58a

Appendix C

York Convention to proceed in the courts of Indonesia, in

light this Court’s final Judgment declaring the Arbitral Award

issued on December 18, 2000, fully enforceable. It is further

ORDERED that Pertamina is enjoined from seeking

from the District Court of the Central District of Jakarta,

Indonesia, expedited relief to set aside the December 4, 2000

Arbitral Award. Pertamina is not at this time required to

withdraw its Complaint filed under Article V of the New

York Convention in the District Court of the Central District

of Jakarta, Indonesia, but is directed to proceed with filings

in this action to perform ministerial actions only. It is further

ORDERED that Pertamina shall arrange for the

preparation of a transcript of the April 1, 2002 hearing before

the District Court of the Central District of Jakarta, Indonesia.

KBC and Pertamina shall each pay one-half of the cost of

the transcript. It is further

ORDERED that during the pendency of this TRO, until

the issue of the Preliminary Injunction is determined by this

Court, KBC shall not seek in courts of Canada, Hong Kong,

Singapore, or any other jurisdiction outside the United States,

expedited relief, ex parte relief, or other relief to execute

upon Pertamina’s assets located in Canada, Hong Kong,

Singapore, or any other jurisdiction outside the United States.

This is not an injunction preventing KBC from seeking

execution upon assets of Pertamina in jurisdictions within

the United States on notice to Pertamina. It is further

ORDERED that KBC shall post a bond of $1,000,000,

in support of this Temporary Restraining Order. As stated on

59a

Appendix C

the record on March 29, 2002, this bond was to be posted on

or before April 1, 2002.

ORDER OF CONTEMPT

Based on the Court’s findings of fact and conclusions of

law as stated orally in connection with KBC’s Motion for

Contempt [Doc. #97], at the hearing on April 2, 2002, it is

hereby

ORDERED that Pertamina is in civil contempt of the

Temporary Restraining Order issued by the Court on March

29, 2002, reflected in the transcript of the March 29, 2002

ruling (delivered to Pertamina’s counsel on March 30, 2002),

and reaffirmed above. The Temporary Restraining Order was

clear and precise. There is no question, as evidenced by the

record, that Pertamina had notice of the Court’s injunction

issued March 29, 2002, and that Pertamina knowingly did

not comply with the Order. It is further

ORDERED that, effective April 2, 2002, Pertamina must

direct its counsel to withdraw immediately its application

for injunctive relief against KBC in the District-Court of the

Central District of Jakarta, Indonesia. It is further

ORDERED that Pertamina shall request immediately

that the Central District and any appropriate Appellate Court

vacate the injunctive relief ordered by the Jakarta, Indonesia

District Court on April 1, 2002. It is further

ORDERED that, in order to protect the status quo

between the parties as if the Indonesian injunction had never

60a

Appendix C

existed, Pertamina shall indemnify KBC for all monetary

punishments or penalties imposed under the injunction issued

| by the District Court for the Central District of Jakarta,

Indonesia, as a result of any action taken by KBC between

March 29, 2002 and this Court’s final ruling on KBC’s

Motion for Preliminary Injunction [Doc. # 111] seeking to

preclude Pertamina from proceeding with the Indonesian

litigation. It is further

ORDERED that Pertamina will not recover, at any time,

any monies as a result of the injunction issued on April 1,

2002, by the District Court for the Central District of Jakarta,

Indonesia, or as a result of any appeals therefrom, or as a

result of any similar injunctions issued in favor of Pertamina

by an Indonesian Court. KBC has no obligation to pay any

penalties arising from such order, to the extent such monies

are imposed as a penalty for any actions taken by KBC

between March 29, 2002 and this Court’s final ruling on

KBC’s Motion for Preliminary Injunction. It is further

ORDERED that, if any order is issued by any court

against KBC to pay penalties arising from the injunction order

of the District Court for the Central District of Jakarta based

on any action taken by KBC between March 29, 2002 and

this Court’s final ruling on KBC’s Motion for Preliminary

Injunction, Pertamina must pay KBC such monies prior to

KBC having any obligation to pay to Pertamina such

amounts. It is further

ORDERED that Pertamina retains all its defenses to

enforcement of the Arbitral Award and execution against its

or others’ assets, and may defend against KBC’s enforcement

6la

Appendix C

of the Award and against enforcement of the Judgment of

this Court, or against KBC’s execution upon its or others’

assets, in all jurisdictions. It is further

ORDERED that the injunction entered against KBC by

the District Court for the Central District of Jakarta shall not

bar KBC from pursuing its enforcement actions anywhere in

the world if this Temporary Restraining Order is dissolved

and not converted to a comparable or similar Preliminary

Injunction. It is further

ORDERED that the letter of the President Director of

Pertamina dated April 1, 2002 as interpreted by the Court at

the April 2, 2002 hearing shall be treated as a judicial

ORDERED that, because of the hardship to the parties

that may result from enforcement of the Indonesian injunction

before this Court has an opportunity to make a final ruling

on the Preliminary Injunction, good cause exists to extend

this Temporary Restraining Order for ten days from the date

of this Order.

The Clerk will file and record this Temporary Restraining

Order with copies to all parties.

SIGNED at Houston, Texas, at 5:30 p.m. on this 9th day

of April, 2002.

s/ Nancy F. Atlas

NANCY F. ATLAS

UNITED STATES DISTRICT JUDGE

Oana ss 6 oo

62a

APPENDIX D — ORDER GRANTING PRELIMINARY

INJUNCTION OF THE UNITED STATES DISTRICT

COURT FOR THE SOUTHERN DISTRICT OF TEXAS,

HOUSTON DIVISION, DATED AND FILED

APRIL 26, 2002

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H 01-0634

IN THE MATTER OF AN

ARBITRATION BETWEEN

KARAHA BODAS COMPANY, L.L.C.,

Petitioner,

PERUSAHAAN PERTAMBANGAN

MINYAK DAN GAS BUMI NEGARA,

Respondent.

ORDER GRANTING PRELIMINARY INJUNCTION

This case, in which a final judgment confirming an

arbitral award in favor of Karaha Bodas Company, L.L.C.

(“KBC”) against Perusahaan Pertambangan Minyak Dan Gas

Bumi Negara (“Pertamina”) was entered on December 4,

2001, is before the Court on KBC’s Motion for Preliminary

63a

Appendix D

Injunction.’ The Motion has been briefed and is ripe for

determination.’ Both parties represented to the Court that no

evidentiary hearing on KBC’s Motion for Preliminary

Injunction was necessary. Having considered the parties’

submissions, argument of counsel at hearings on March 29,

2002 and April 2, 2002, all matters of record, and applicable

legal authorities, the Court concludes that KBC’s Motion for

Preliminary Injunction should be granted.

1. PROCEDURAL BACKGROUND

An international arbitral tribunal made an award of over

$261,000,000, plus interest, in damages in favor of KBC

1. The Court issued a Temporary Restraining Order orally on

the record at a hearing on March 29, 2002 and issued a Temporary

Restraining order and Order of Contempt orally on the record at a

hearing April 2, 2002. The Court’s oral orders were memorialized in

a Temporary Restraining Order and Order of Contempt issued

April 9, 2002 [Doc. # 129], as extended by Order issued April 17,

2002 [Doc. # 132].

2. KBC filed an Application for Temporary Restraining Order [Doc.

# 88] and Memorandum in Support of Application for Temporary

Restraining Order (“KBC’s Memorandum of Law”) [Doc. # 90],

followed by its Memorandum in Support of its Motion for Preliminary

Injunction [Doc. # 111] and KBC’s Reply Memorandum in Support of

its Motion for a Preliminary Injunction [Doc. # 128]. Pertamina filed

Pertamina’s Memorandum of Law in Opposition to Petitioner’s Motion

for a Restraining Order and in Support of its Right to Seek Annulment

of the Arbitral Award in Indonesia (“Pertamina’s Memorandum in

Opposition”) [Doc. # 115] and Pertamina’s Reply Memorandum of Law

in Opposition to Petitioner’s Motion for a Restraining Order and in

Support of its Right to Seek Annulment of the Arbitral Award in Indonesia

[Doc. # 127].

64a

Appendix D

against Pertamina in Geneva, Switzerland, on December 18,

2000 (the “Arbitral Award’’). The arbitration arose from a

commercial dispute over the construction and operation of a

power plant in West Java, Indonesia. Pertamina acknowledges

that all post-arbitration proceedings are governed by

the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (the “New York Convention”).

As contemplated by the New York Convention, Pertamina

appealed the Arbitral Award to the Swiss Supreme Court.

The Swiss court declined to hear Pertamina’s appeal due to

a procedural error in paying the appeal costs. In August 2001,

the Swiss court rejected Pertamina’s request for

reconsideration and the Swiss Court’s dismissal of the appeal

became final.

Meanwhile, in February 2001, KBC filed this case

seeking confirmation of the Arbitral Award pursuant to

Article V of the New York Convention. This Court entered a

final judgment (the “Judgment”) confirming the Arbitral

Award on December 4, 2001. Pertamina appealed the

Judgment to the Fifth Circuit, but has not filed a supersedeas

bond or otherwise acted to stay the Judgment’s execution.

The appeal is still pending.

KBC actively is pursuing execution on the Judgment by

registering it in other states and seeking writs of execution,

garnishment, and turnover of assets KBC believes are owned

by Pertamina. These proceedings are being conducted

according to the local laws and practices of the states in which

the assets are located. KBC also is seeking enforcement in

Canada, Hong Kong, and Singapore of the Arbitral Award in

original proceedings commenced under Article V of the New

York Convention.

65a

Appendix D

In March 2002, about fifteen months after entry of this -

Court’s Judgment enforcing the Arbitral Award and seven

months after the Swiss Supreme Court dismissed Pertamina’s

appeal, Pertamina filed suit in the District Court of Central

Jakarta, Indonesia, seeking an injunction and penalties against

KBC to prevent it from enforcing the Arbitral Award and

seeking to annul the Arbitral Award (the “Indonesian

Action’’).

KBC filed an emergency request in this Court for a

temporary restraining order to prevent Pertamina’s

Indonesian Action from proceeding and to prevent entry of

an injunction against it at a hearing scheduled for April 1,

2002 in Indonesia. The Court held a hearing on March 29,

2002, at which both parties argued their respective positions

at length. This Court issued a limited temporary restraining

order directing Pertamina to withdraw its request for

injunctive relief against KBC at or prior to the hearing

scheduled for April 1, 2002, in the Indonesian Action. This

temporary restraining order was issued in order to preserve

the integrity of the Court’s Judgment, which had become final

and was on appeal without bond, and to maintain the parties’

positions prior to Pertamina’s commencement of the ni

Indonesian Action. The Court needed additional time to

determine the merits of Pertamina’s position that it had the

right to proceed with its annulment action. So as not to

prejudice Pertamina’s rights, the Court did not grant KBC’s

request to order Pertamina to dismiss the Indonesian Action.

Also, to protect Pertamina’s interests in being able to defend

against proceedings initiated by KBC to enforce the Arbitral

Award or to execute on the Judgment, KBC was ordered not

to seek ex parte or emergency relief from any court. The

66a

Appendix D

Court made it clear that the parties were permitted to make

any and all arguments they saw fit in enforcement or

execution proceedings on notice to the opponent. The

temporary restraining order was narrowly tailored to protect

the status quo that existed prior to Pertamina seeking entry

of the Indonesian Injunction without interfering with the

jurisdiction of other courts. By its terms, the temporary

restraining order was to last only until a ruling could be made

on the pending motion for a preliminary injunction after full

briefing.

Despite receiving actual notice of this Court’s March 29

Order, Pertamina did not withdraw its injunction request

in the Indonesian Action. The Indonesian court on April 1,

2002, issued an injunction with draconian enforcement

penalties against KBC (the “Indonesian Injunction”).

KBC complained, and at a hearing on April 2, 2002, this

Court found Pertamina in contempt of the March 29, 2002

restraining order, again ordered Pertamina to withdraw it:

3. The Indonesian Injunction prohibits KBC from taking any

action to enforce:

[t]he arbitral award rendered in Geneva, Switzerland,

on 18 December 2000 (P-1), arising from Joint Operating

Contract/JOC; and Energy Sales Contract/ESC, upon the

condition that KBC is imposed with the obligation

to pay enforcement money in the amount of

US $500,000.00 for each day this order is contravened,

which amount must be paid promptly and fully to the

Pertamina.

Exhibit 3 to Petitioner Karaha Bodas Company, L.L.C.’s Motion for

Contempt.

GEOL ELEEELIEI A PE

CL PEROLLSY OLE NBII OE

PAAR EE a 0

3 POR OTORE LA CE oe

LES ELON CTT ON OTN RII

67a

Appendix D

request in Indonesia for injunctive relief against KBC, and

ordered Pertamina to indemnify KBC for any penalties

imposed pursuant to the Indonesian Injunction for conduct

by KBC that takes place while KBC’s Motion for Preliminary

Injunction is pending. As the Court explained on April 2 and

in its written injunction, Pertamina’s pursuit in Indonesian

courts of a broad injunction, and “enforcement penalties”

for violation of that injunction, impinges on this Court’s

Judgment and upon KBC’s legitimate efforts to enforce its

rights thereunder.

Pertamina has sent a transcript of the hearings in this

Court to the Indonesian court and has sent a letter notifying

the Indonesian court that this Court has ordered Pertamina

to file an application for the withdrawal of the Indonesian

Injunction.‘ To date Pertamina has not filed a formal

application withdrawing its injunction request nor made any

commitment to the Indonesian court not to enforce the

Injunction. Pertamina has committed through a letter from

its President Director and C.E.O. that it will not seek to

enforce the Indonesian Injunction against KBC for KBC’s

actions within the United States.

7 4. Pertamina has filed a Motion to Purge Contempt and to

Alter or Amend the Adjudication holding Pertamina in Contempt

{[Doc. # 131]. Pertamina contends that its letter to the Indonesian

court satisfies the Court’s Temporary Restraining Order. Pertamina

further contends that it should be purged of contempt because the

oral TRO issued March 29, 2002, on which the contempt was based,

was defective and, given the time difference involved, compliance

was impossible. Pertamina’s Motion to Purge Contempt is denied.

However, the Court notes that the April 9, 2002 Temporary

Restraining Order and Order of Contempt is superseded by this -

Pzeliminary Injunction Order.

68a

Appendix D

II. KBC’S MOTION FOR PRELIMINARY

INJUNCTION

KBC’s Motion for Preliminary Injunction has two parts.

First, it seeks an injunction prohibiting Pertamina from

seeking (a) to enjoin KBC’s attempts to execute on this

Court’s December 4, 2001 Judgment and (b) to take steps to

enforce the December 18, 2000 Arbitral Award in the United

States or in other jurisdictions. Second, KBC seeks an anti-

suit injunction prohibiting Pertamina from pursuing its

annulment action in Indonesia altogether.

Pertamina contends that this Court cannot enjoin the

Indonesian action because Indonesia is the only court with

jurisdiction to consider Pertamina’s claim for annulment of

the Arbitral Award.

Traditionally, a plaintiff seeking a preliminary injunction

must show the following four elements: (1) a substantial

likelihood of success on the merits; (2) a substantial threat

that it will suffer irreparable injury absent the injunction;

(3) that the threatened injury outweighs any harm the

injunction might cause the defendants; and (4) that the

injunction will not impair the public interest. Enrique Bernat

F., S.A. v. Guadalajara, Inc., 210 F.3d 439, 442 (Sth Cir.

2000) (citing Sugar Busters, L.L.C. v. Brennan, 177 F.3d 258,

265 (Sth Cir. 1999)). In addition, it is well-established in the

Fifth Circuit that federal courts have the power to enjoin

foreign suits by persons subject to their jurisdiction. Kaepa,

Inc. v. Achilles Corp., 76 F.3d 624, 626 (5th Cir. 1996);

see also Bethell v. Peace, 441 F.2d 495, 498 (Sth Cir. 1971);

accord Laker Airways Ltd. v. Sabena Belgian World Airlines,

69a

Appendix D

731 F.2d 909, 926 (D.C. Cir. 1984). There is no dispute that

this Court has jurisdiction over Pertamina.

In setting the standard for issuance of an anti-suit

injunction, the Fifth Circuit has emphasized the need to

prevent vexatious or oppressive litigation, and has concluded

that “a district court does not abuse its discretion by issuing

an anti-suit injunction when it has determined that allowing

simultaneous prosecution or the same action in a foreign

forum thousands of miles away would result in ‘inequitable

hardship’ and ‘tend to frustrate and delay the speedy and

efficient determination of the cause.’” Kaepa, 76 F.3d at 627.

The Fifth Circuit has declined “to require a district court to

genuflect before a vague and omnipotent notion of comity

every time that it must decide whether to enjoin a foreign

action.” Jd. -

In this case, there is a Judgment issued by this Court

after extensive and detailed litigation. The Judgment has long

been final in the District Court and has been-appealed by

Pertamina to the Fifth Circuit The Judgment enforces the

Arbitral Award. Until two weeks ago, after this Court issued

its temporary restraining order, Pertamina did not seek a stay

of the Judgment. Pertamina has never filed, nor offered to

file, any bond to prevent KBC’s execution or enforcement

efforts. KBC contends this Court’s Judgment and KBC’s

ability to seek enforcement of it are threatened by Pertamina’s

new Indonesian proceeding. After a judgment on the merits,

there is less need for concern about interfering with a

foreign court’s jurisdiction and “a court may freely protect

the integrity of judgments by preventing their evasion

through vexatious or oppressive relitigation.” Laker Airways,

731 F.2d at 928.

70a

Appendix D

To the extent that it is necessary for KBC to meet the

traditional requirements for a preliminary injunction in

addition to meeting the standard articulated in Kaepa, the

Court finds KBC has done so with respect to both aspects of

its preliminary injunction request. First, KBC has shown a

substantial likelihood of success on the merits. As explained

further below, the Indonesian court is not the proper forum

for Pertamina’s annulment action. Pertamina raises the same

issues in Indonesia that this Court has already ruled upon in

KBC’s favor. Second, absent a preliminary injunction, KBC

will suffer irreparable harm; KBC will be forced to relitigate

in a foreign forum issues it has already fully litigated and

won in this Court. Further, KBC is justified in assuming that

forum will be biased against it, rendering the current

Judgment meaningless. Third, the balance of harm weighs

in favor of granting a preliminary injunction. The Indonesian

Injunction and Indonesian Action pose draconian penalties

threatening KBC’s ability to collect on the Judgment of this

Court both in the United States and abroad, Indeed, at

Pertamina’s request the Injunction was. issued without any

meaningful due process afforded to KBC. On the other hand,

Pertamina is permitted to assert any and all arguments in its

favor in courts where KBC seeks to enforce or execute on

assets on the basis of this Court’s judgment.

Although the Court has been careful not to undermine

international comity, the Court is not required to give absolute

deference to proceedings in-a foreign court filed without

viable legal authority, especially when a final judgment on

the matter has already been entered. In this case, a preliminary

injunction of this Court does not impinge on another court’s

jurisdiction or cause comity concerns. It is the late-filed

Tla

Appendix D

Indonesian Action that potentially interferes with this Court’s

jurisdiction, not vice versa. Moreover, as explained hereafter,

the Indonesian court does not have jurisdiction under the New

York Convention over Pertamina’s claims. Thus, the

preliminary injunction KBC seeks is consistent with the

standards expressed by the Fifth Circuit in Kaepa and is not

contrary to public policy.

These elements and the ways in which the-Indonesian

Injunction and the Indonesian Action threaten this Court’s

jurisdiction and KBC’s rights are discussed in detail below.

1. The Indonesian Injunction

KBC argues that the injunction sought and obtained by

Pertamina in Indonesia is an attack on this Court’s jurisdiction

and interferes with this Court’s inherent authority to enforce

its judgments. KBC contends that this effect flows both from

the fact that the Indonesian Injunction prevents KBC from

seeking enforcement of the Judgment enforcing the Arbitral

Award in the United States, and because it prevents KBC

from seeking enforcement of the Arbitral Award in other

countries under the New York Convention and through other

local means.

Pertamina’s briefs do not address the injunction aspect

of its Indonesian Action except with the following oblique

statement: “The only aspect of the Indonesian annulment

proceeding that even raised this prospect [of interference]

was to the extent [Pertamina] sought an injunction against

enforcement of the [arbitral] Award that might apply in the

United States, which this Court’s March 29 order and now

Pertamina’s commitment not to pursue or enforce such

relief.” Pertamina’s Memorandum in Opposition, at 13. The

72a

Appendix D

Court interprets this statement as Pertamina’s continued

commitment to this Court that Pertamina will not take steps

to enforce the Indonesia Injunction against KBC as to actions

KBC might undertake in the United States. It is unclear

what Pertamina’s position is as to the Indonesian Court’s

sua sponte deeming KBC’s actions within the United States

a violation of its injunction. As to steps KBC might take to

enforce the Arbitral Award outside of the United States under

the New York Convention or otherwise, the Court construes

Pertamina’s position to be that the Indonesian Injunction does

not interfere with this Court’s jurisdiction, that this Court’s

restraining order is invalid or ineffective outside the United

States, and that Pertamina is not in contempt for any violation

of that order.

The Court at the March 29 (and April 2) hearing raised

the issue of whether res judicata bars Pertamina’s Indonesian

Action and whether the Indonesian Action is simply an end-

run around the Judgment and appeal here. Pertamina has

declined this Court’s invitation to submit briefing on the

res judicata effect of this Court’s Judgment in foreign

jurisdictions where KBC seeks enforcement. KBC has

presented affidavits supporting its contention that the courts

and laws of Canada, Hong Kong, and Singapore would apply

res judicata or analogous principles to give effect to this

Court’s Judgment is making their own enforcement

determinations.° Pertamina has submitted nothing to

5. See Declaration of Douglas Alexander Bodner, Exhibit 1 to

KBC’s Memorandum of Law (Canada); Declaration of Russell

Coleman, Exhibit 2 to KBC’s Memorandum of Law (Hong Kong);

Declaration of Nandakumar Ponniya, Exhibit 3 to KBC’s

Memorandum of Law (Singapore).

73a

Appendix D

contradict KBC’s evidence as to the extraterritorial effect of

this Court’s Final Judgment.

Moreover, Pertamina has presented no authority to

support the legitimacy of the Indonesian Injunction in light

of the completion of the enforcement proceeding here

pursuant to Article V of the New York Convention. Pertamina

has cited, and the Court has found, no authority under the

New York Convention (which Pertamina concedes contains

the exclusive procedure for recognition and enforcement of

foreign arbitral awards by its signatories, including Indonesia)

tor a court in which an action to annul an award is pending

to enjoin enforcement proceedings or a party’s post judgment

enforcement efforts in another jurisdiction. Instead, the New

York Convention contemplates that, under appropriate

circumstances, a court in which enforcement is sought may

stay the enforcement proceeding pending the annulment

action.®

The Court concludes that unless and until this Court’s

Judgment is vacated or stayed by the Court of Appeals for

6. Article VI of the New York Convention provides: “If an

application for the setting aside or suspension of the award has been

made to a competent authority referred to in Article V(1)(e), the

authority before which the award is sought to be relied upon may, if

it considers it proper, adjourn the decision of the enforcement of the

award and may also, on the application of the party claiming

enforcement of the award, order the other party to give suitable

security.” (Emphasis added.) In connection with its response to KBC’s

pending application for turnover, Pertamina filed a cross-motion to

stay enforcement proceedings until the Indonesian court has ruled

(Doc. # 101]. Pertamina’s cross-motion, filed April 1, 2001, has only

recently become ripe and will be addressed in a separate order.

74a

Appendix D

the Fifth Circuit, KBC has ever right to rely on this Court’s

Judgment in its enforcement actions in other countries.

The Indonesian Injunction against enforcement of the Arbitral

Award is a patent attempt to interfere with the Court’s

Judgment against and deprives KBC of enjoyment of the

Judgment’s purpose and effect under United States law and

the New York Convention. Therefore, The Court concludes

that KBC’s request for a preliminary injunction restraining

Pertamina from enforcing the Indonesian Injunction has merit

and will be granted. The Court also concludes that the

indemnification provision of the temporary restraining order

is fully justified and necessary. The indemnification

provisions will be included in a preliminary injunction, until

and unless Pertamina withdraws iis request for an injunction

and the present injunction is vac ated by the Indonesian court.

2. The Indonesian Action

KBC contends that no proceeding under the New York

Convention may be maintained in Indonesia because

Indonesia is neither the place of arbitration nor the place in

which enforcement is sought. Pertamina argues that the

Indonesian court has jurisdiction over its annulment

proceeding pursuant to Articles V(1)(e) and VI of the

New York Convention, and that this Court, as an enforcing

court, cannot enjoin the annulment proceeding. Article

V(1)(e) provides that recognition and enforcement of an

award “may be refused” if “[t]he award has not yet become

binding on the parties, or has been set aside or suspended by

a competent authority of the country in which, or under the

law of which, the award was made.” Pertamina concedes that

the phrase “under the law of which” in Article V(1)(e) refers

75a

Appendix D

to the arbitral law under which the award was made, not the

substantive law that applied to the merits of the dispute.’

Because of the distinction under the New York Convention

between the proper forum for enforcement of an arbitral

award versus the forum for annulment of an arbitral award,

Pertamina nevertheless contends that the Indonesian Action

in no way interferes with this Court’s jurisdiction.

Pertamina insists that this Court lacks jurisdiction under

the New York Convention to enjoin the Indonesian Action.

Pertamina misconstrues the source of this Court’s injunction

jurisdiction. The Court is not attempting to usurp the

annulment jurisdiction that is bestowed upon the “country

of origin” under the New York Convention. Instead, the

Court’s injunction is based on its inherent power to protect

7. See Pertamina’s Memorandum of Law, at 3 (“Under

Indonesian law and as envisaged by the New York Convention,

Pertamina is authorized to seek annulment of the Award in Indonesia

because the Award is governed by the arbitration law of Indonesia.”);

Expert Report of Albert Jan van den Berg, Exhibit B to Pertamina’s

Memorandum of Law, { 7 (“In most cases, the country of origin is

the country where the place of arbitration is located and the arbitral

award is made. That corresponds to the territorial concept of

international arbitration, according to which the place of arbitration

determines the applicable arbitration law (which law is to be

distinguished from the law applicable to the merits).”); id. J 19 (“when

parties agree on a governing arbitration law that is different than

that of the arbitral locale, the country whose arbitration law was

chosen by the parties to govern the proceedings is the proper

jurisdiction for bringing an annulment proceeding.”); see also Yusuf

Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F3d 15,

21(2d Cir. 1997) (“only the state under whose procedural law the

arbitration was conducted has jurisdiction under Art. V(1)(e) to vacate

the award.” (Emphasis added)}.

76a

Appendix D

its own jurisdiction, as clearly established by Fifth Circuit

authority. Kaepa, 76 F.3d at 627. The Court has jurisdiction

over Pertamina and thus has jurisdiction to enjoin Pertamina’s

actions in a foreign country to the extent those actions

interfere with the jurisdiction of this Court or the effect and

scope of its orders. /d.

The Court finds that KBC has met its burden to show

that an anti-suit injunction is appropriate in this case.

Pertamina’s assertion that the annulment proceeding is not

an attack on this Court’s jurisdiction and Judgment is

disingenuous. Pertamina has admitted that if it is successful

in the Indonesian Action, it intends to invoke Article V(1)(e)

in support of a motion to this Court to vacate the Judgment

confirming the Arbitral Award.’ In fact, Pertamina clearly

seeks to circumvent this Court’s rulings by belatedly

relitigating the validity of the Arbitral Award in a presumably

more sympathetic forum. The Court recognizes that, as an

enforcing court, its review of the Arbitral Award was limited

to the defenses listed in Article VI of the New York

Convention, whereas a court of competent authority with

8. Pertamina’s plan is complicated by the fact that this Court

lacks jurisdiction to issue the relief Pertamina seeks, since the

Judgment has been final for months and Pertamina has appealed the

matter. Pertamina would have to seek relief in the Fifth Circuit.

Moreover, this Court would not be obligated to give effect to an

Indonesian judgment annulling the Arbitral Award. See In re

Chromalloy Aeroservices, 939 F. Supp. 907, 911-13 (refusing to give

res judicata effect to an Egyptian judgment annulling an otherwise

valid arbitration award made in Egypt). Based on the information

currently presented, the Court questions how much weight an

Indonesian annulment judgment would be entitled to in a proceeding

to vacate the Judgment.

774

Appendix D

jurisdiction to set aside the Arbitral Award is not so limited.

See Yusuf, 126 F.3d at 21 (a motion to set aside an

international arbitral award is controlled by the domestic law

of the rendering state). Nevertheless, in this case, virtually

all Pertamina’s asserted grounds for annulling the Arbitral

Award were litigated fully before this Court. Pertamina states:

Pertamina’s application to annul the award

is based inter alia, on the following grounds:

(1) in rendering the Award, the Tribunal exceeded

the power conferred on it by the applicable

arbitration agreements by disregarding the parties’

express choice of Indonesian law, in violation of

both the parties’ agreements and the applicable

UNCITAL Arbitration Rules; (2) the Tribunal

improperly consolidated the two proceedings into

a single arbitration, also in violation of both

parties’ agreements and the applicable

UNCITRAL Arbitration Rules; (3) the Tribunal

improperly forced Pertamina to share the choice

of an arbitrator with the Government of Indonesia

and with PLN, in violation of the express

procedure laid out by the parties’ agreements; and

(4) the Award contravenes the public policy of the

Republic of Indonesia because it held Pertamina

(and PLN) liable for its (their) compliance with

Indonesian law. Neither grounds (1) nor (4) had

been rased before this Court in the enforcement

proceedings.

Pertamina’s Memorandum in Opposition, at 3-4. This

argument is belied by the record in the present case. Pertamina

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Appendix D

expressly argued before this Court that the Arbitral Tribunal

failed to consider Indonesian law. See Respondent

Pertamina’s Memorandum in Opposition to KBC’s Motion

for Summary Judgment [Doc. #29], at 67 (“Not only is such

a result fundamentally unfair and contrary to public policy,

but it makes no sense under the contracts or Indonesian law.

As a matter of Indonesian law, the Tribunal’s determination

to award damages is in conflict with its factual determination

that the parties were prevented from performing by an action

that neither party caused — specifically, Presidential Decree

No. 5/1988.”); id. at 71 (“there is no basis under the contracts

or Indonesian law for the award of damages”); see also

Respondent Pertamina’s Sur-Reply Memorandum in

Oppesition to KBC’s Motion for Summary Judgment

[Doc. # 42], at 26 (“[KBC] ignores (as did the tribunal) that

it [secured contractual benefits from Pertamina] in return for

and in the context of the application of Indonesian law.

As Pertamina’s Indonesian law expert Didi Dermawan

established, the clauses in the JOC and ESC did not shift the

risk of a Government Related Event to Respondents as KBC

seeks to do, as a matter of Indonesian law . . . In reaching a

different conclusion, the tribunal did not purport to resolve

disagreements between experts on the interpretation of

Indonesian law. ... Nor did the tribunal purport to explain

how and why the JOC or ESC should be construed as

modifying Indonesian law. To the contrary, the tribunal did

not refer at all to Indonesian law, but instead reasoned from

abstract legal propositions that were not founded on

Indonesian law.”).

In addition, this Court expressly ruled that the Arbitral

Tribunal did not find Pertamina liable for its compliance with

79a

Appendix D

Indonesian law. Although the issue before this Court arose,

in part, in the context of the application of United States’

public policy, this finding would be equally applicable to an

argument regarding Indonesian public policy. Moreover,

Pertamina in effect argued that the award also violated

Indonesian public policy in connection with its “abuse of

rights” defense. Respondent Pertamina’s Memorandum in

Opposition to Further, KBC’s Motion for Summary Judgment

[Doe. #29], at 57 (“The award violates public policy and

should not be enforced because, by awarding $150 million

in lost profits where KBC had not yet even begun construction

of a power plant, could not have reasonably done so, and :

would have senselessly contributed to the further

impoverishment of Indonesia by doing so, it sanctions an

abuse of rights by KBC and against Pertamina and PLN (and

ultimately, the people of Indonesia”): id. at 64 (“And the

economic distress to which Indonesia had fallen in 1997 had

no more improved as of the hearing in this case than it had

in the Himpurna or Patuha Cases, and there continues to be

a considerable over-supply of electricity.”); id. at 64 n.37

(“As of July 27, 2001, the Dollar-Rupiah exchange rate

(1:10050) is still more than four times greater than it was

before the Asian financial crisis, thus increasing the

prospective prices for KBC’s electricity by four-fold; Clearly

this is prohibitive in the dramatically depressed Indonesian

economy. . . . It remains the fact that the natural resources of

Indonesia belong to the Government for the benefit of all

people; they do not belong to Pertamina. Pertamina’s

exploitation of those resources is for the benefit of the people

of Indonesia, not for its own benefit or for the benefit of

any private parties, and payment of the Award would cause a

very substantial blow to Indonesia’s precarious economic

BS EIS:S<S =

80a

Appendix D

standing.”). Presumably, Pertamina intends to argue that the

Award violates Indonesian public policy for the same reasons

it argued that Award violates United States public policy,

namely because it holds Pertamina liable for engaging in

conduct that was compelled by Indonesian law, which

governed the parties’ relations” and because it is “injurious

to the public interest.’”® /d. at 67. Thus, Pertamina’s efforts

to relitigate the same issues actually decided by this Court is

an obvious attempt to attack this Court’s jurisdiction by

relitigating old issues in a more favorable forum.'°

9. Pertamina’s argument that the damages award is contrary to

public policy because it would be injurious to the Indonesian economy

is at odds with its position that it is an independent company and the

Indonesian government is not liable for its debts. The Court is not

making a ruling as to the ownership of any assets at this time. If in

fact Pertamina has no assets subject to execution, as it has contended

in response to KBC’s attempts at execution, then the existence of the

Arbitral Award itself will not affect Indonesia’s assets nor injure the

Indonesian economy.

10. Pertarnina is much like the vexatious plaintiffs enjoined in

Younis Bros. & Co. v. Worldwide Ins. Co., 167 F.Supp. 2d 743, 747

(E.D. Pa. 2001):

[P]laintiffs are obviously unhappy with the results of

their litigation [in the United States] and are attempting

to get a’second opinion’ from the Liberian courts ...

[defendant] has already succeeded on the merits, and it

will be irreparably harmed if it is forced to continue to

defendant against plaintiff’s’ vexatious and duplicative

Liberian litigation and/or defend against execution upon

a judgment that conflicts with the final judgment in

this case.

Pe Ce

8la 7

Appendix D

In this case, Pertamina never raised the possibility of seeking

annulment of the Arbitral Award by an Indonesian court during

the summary judgment proceedings, despite Pertamina’s

awareness of the defense to enforcement provided by Article

V(1)(e) of the New York Convention. Furthermore, Pertamina

has spared no expense in its attack on the Arbitral Award. The

company is represented by highly regarded, sophisticated

lawyers who have raised every conceivable argument in

Pertamina’s defense. The Indonesian Action appears to be no

more than a last ditch effort to avoid the effect of this Court’s

Judgment enforcing the Arbitral Award.

To the extent Pertamina contends that the Indonesian

Action is based on grounds not presented to this Court, that

position depends on a finding that, pursuant to the parties’

agreements, Indonesian arbitral law applied in the

arbitration.'' Pertamina’s interpretation of the contracts in

this regard is unpersuasive.'2 Under Pertamina’s own expert’s

11. There is no dispute that Indonesian law applied to the merits.

However, Pertamina does not argue that the choice of substantive

law governs the forum for its annulment proceeding under the New

York Convention.

12. Pertamina’s own expert points out that “if the parties agree

on a place of arbitration, it is generally assumed that such agreement

implies a choice on the arbitration law of the place of arbitration.

However, if the parties have agreed on a place of arbitration and the

applicability of the arbitration law of another country (which is

exceptional), they have agreed on the place of arbitration in the

physical sense as opposed to the one they agreed to in the legal sense.”

Expert Report of Jan van den Berg, ¥ 9. Jan van den Berg further

States “[m]y own view is that the agreement to arbitrate under the

law of a country which is not the country in which the award is to be

(Cont'd)

—O Oe

82a

Appendix D

standards, the parties failed to make it clear in the governing

agreements that Indonesian arbitral law was to apply.

Rather, the parties made it clear to the arbitrators that the

arbitration in fact was to be conducted under the arbitral law

of Switzerland.'* The Court combed the arbitration record

(Cont'd)

made needs to be clear as it is a rather exceptional agreement.” Expert

Report of Jan van den Berg, 4 20. Yet, Jan van den Berg seems to

ignore his own standards when he goes on to opine that the parties’

mere reference to certain provisions of the Indonesian Code of Civil

Procedure is a sufficiently “clear” expression of the parties’ intent to

make the “rather exceptional” selection of Indonesian law as the law

governing the arbitration and award. /d. 27. This Court places no

weight on this expert’s uitimate conclusion as to the parties’ intent

as to the choice of arbitral law.

13. See, e.g., Preliminary Award in an Arbitration Procedure

Under the UNCITRAL Arbitration Rules, September 30, 1999, § B(1)

(“The Respondents support this conclusion by making reference to

Swiss law as the JOC and the ESC provide for UNCITRAL

Arbitration in Geneva between the parties which are neither Swiss

nor Swiss resident. As a result, and under both contracts, the

arbitration proceedings are governed by Chapter 12 of the Swiss

Private International Law Statutes. Under Swiss law, [Respondent

contends] the Arbitral Tribunal is lacking jurisdiction because KBC

failed to comply with the contractual prerequisites to arbitration.”);

id. § C(1) (“‘The Respondents also state that, under the arbitration

agreements and Swiss law, the arbitrators have no power to

consolidate . . .”); id. § C(3) (citing the “famous Westland Case” of

the Swiss Federal Tribunal in support of its decision that a

consolidated arbitration was appropriate); id. § D(1) (Respondents

contend “such solution is not acceptable under the applicable Swiss

law”). For this reason, it is not necessary to interpret the underlying

contracts or to address KBC’s argument that Pertamina’s Expert

Report of Albert Jan van den Berg improperly assumes the role of

the Court by interpreting the contracts.

83a

Appendix D

presented by the parties in connection with the summary

judgment motion and the pending motion and has found no

indication that Pertamina ever argued for the application of

Indonesian arbitral law.'* Under Pertamina’s own theory, the

New York Convention vests jurisdiction to set aside an

arbitral award only in the “country in which, or under the

law of which, that award was made.” There can be no doubt

that the physical and legal situs of the Arbitral Award was

Geneva, Switzerland. Since Pertamina never argued in the

arbitration that the parties’ contracts selected Indonesian

arbitral law, and the arbitral panel adopted Swiss arbitral law,

Pertamina is bound to its prior positions.'* See supra n.13

and cites therein. ;

Pertamina’s new posture is further undermined by its

previous representations to this Court that the arbitration was

conducted pursuant to Swiss arbitral law." Pertamina’s

14. In fact, as the Court pointed out in its December 2001

Memorandum and Order affirming the Arbitral Award, Pertamina’s

counsel expressly represented to the tribunal at the close of evidence

that Pertamina had no objections (beyond those already lodged) to

the arbitration proceeding. Hearing Transcript, Vol. V, at 814.

15. An arbitration decision can have collateral estoppel or res

judicata effect between the same parties in a subsequent proceeding.

Universal American Barge Corp. v. J-Chem, Inc., 946 F.2d 1131,

1137 (Sth Cir. 1991); RESTATEMENT (SECOND) JuDGMENTs § 84 ( 1980).

16. Although the Court denied Pertamina’s motion to stay the

enforcement proceeding pending a decision from the Swiss court,

the Court did slow the proceedings in this case in deference to

~ (Cont’d)

~ 84a

Appendix D

comments in its motion for a stay of the instant case pending

resolution of Pertamina’s Swiss appeal, filed May 19, 2001,

are telling. Pertamina argued not only that the Swiss Supreme

Court had jurisdiction to hear its appeal (without eliminating

the possibility that an Indonesian court might share such

jurisdiction), but also urged specifically, repeatedly and

unequivocally that Swiss arbitration law applied in the

arbitration. Pertamina opened

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