Appendix — Ministry of Finance of the Philippines v. Karaha Bodas Co. LLC (Nos. 05-1571, 05-1573)

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APPENDIX A

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

No. M-18-302 (TPG)

In the Matter Of An Arbitration Between

KARAHA BODAS COMPANY, L.L.C.,

Petitioner,

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS

BUMI NEGARA (“Pertamina”),

Respondent.

FINAL ORDER

1. On February 22, 2002, petitioner Karaha Bodas

Company, L.L.C. (“KBC”) registered in this District a final

judgement against respondent Perusahaan Pertambangan

Minyak Dan Gas Bumi Negara (“Pertamina”) that was en-

tered on December 4, 2001 by the United States District

Court for the Southern District of Texas (the “Texas Judg-

ment”). The Texas Judgment confirmed the final arbitral

award entered in Karaha Bodas Company v. Pertamina &

Others, YDS 60 319, pursuant to the Convention for the

Recognition and Enforcement of Foreign Arbitral Awards

of 1958, U.S.T. 2517, T.L.A.S. No. 6997, codified at 9 U.S.C.

§§ 201-208, which awarded KBC $261,166,654.92, plus

interest from January 1, 2001. Pertamina is an Indonesian

state-owned oil and gas enterprise.

2. On February 22, 2002, this Court issued on an ex

parte basis two Writs of Execution and Orders to Show

Cause, pursuant to which the Court: (a) permitted KBC to

issue restraining notices (the “Restraining Notices”), which

KBC served pursuant to Rule 69(a) of the Federal Rules of

Civil Procedure and Article 52 of New York Civil Practice

Law and Rules (“CPLR”) upon the banks listed in paragraph

3 (the “Garnishee Banks”), which Garnishee Banks KBC

alleged held funds owed to Pertamina or in which Pertamina

had an interest; (b) authorized certain discovery; and c) or-

dered Pertamina to show cause why KBC could not execute

upon any property of Pertamina within this jurisdiction in

satisfaction of the judgement.

3. KBC served the restraining notices upon the following

garnishee banks in New York:

Bank of America Corporation f/k/a Bank International

Bank of America National Association

Bank of America Securities

Bank of New York

Chase Securities, Inc.

Dai-Ichi Kangyo Bank, Ltd.

JP Morgan Chase Bank

Bank Indonesia

Bank of Montreal Trust Company

Bank of Taiwan New York Agency

Bank Rakyat Indonesia

PT Bank Central Asia (Persero)

PT Bank Negara Indonesia (Persero) Tbk

PT Bank Mandiri (Persero)

4. On March 25, 2002, the Ministry of Finance of the

Republic of Indonesia (the “Ministry”) appeared to contest

ownership of the restrained assets, and to that end filed a

motion to quash (the “Motion to Quash”) the Restraining

Notices, the Writs of Execution and Orders to Show Cause,

and the subpoenas issued by KBC seeking discovery from the

Garnishee Banks. The Motion to Quash was fully briefed.

5. On March 23, 2002, Pertamina filed an Opposition to

KBC’s Writs of Execution and Orders to Show Cause. KBC

filed a reply on April 2, 2002.

6. On April 5, 2002 this Court conducted a hearing on:

(i) the Order to Show Cause, and (ii) the Ministry’s Motion

to Quash.

7. For the reasons stated in open court on April 5, 2002,

IT IS HEREBY ORDERED, ADJUDGED AND DECREED:

A. Trust Accounts Holding Pertamina’s Production

Sharing Percentage of Gas Sales Revenues

8. The trust accounts listed in this paragraph at the

identified Garnishee Bank below: (a) are established pursuant

to various Trustee and Paying Agent Agreement; (b) relate to

natural gas production projects in Indonesia conducted pur-

suant to Production Sharing Contracts; (c) contain revenues

from natural gas, liquefied natural gas (“LNG”) and liquid

petroleum gas (“LPG”) sales by Pertamina; and (d) are held

in Pertamina’s name and are subject to the Retention Fee as

described in paragraph 12. These trust accounts are restrained

under the Restraining Notices:

Trust accounts at Garnishee Bank of America, N.A.:

ARUN II Trust

ARUN III Trust

Bontang Excess Sales MCGC Trust

Bontang Excess Sales AQP Trust

Bontang Excess Sales Korea II Trust

Bontang Excess Sales KCO Trust

Bontang LPG PKG V Trust

Bontang LPG PKG VII Trust

Bontang IJ Trust

Bontang III Trust

Bontang IV Trust

Bontang V Trust

Bontang VI Trust

East Java Pipeline (PSC Revenue) Trust

ONWYS Trust

9. Each Trust identified in paragraph 8 above receives

the sales proceeds arising out of specific Production Sharing

Contracts; these sales proceeds are deposited by buyers into

the appropriate trust fund account as required by contract.

Pursuant to a specific Trustee and Paying Agent Agreement,

the Trustee first makes payments and accruals for debt

service, reserves, and other expenses and costs. The excess

amount left in each general trust account after these payments

are made (the “Net Operating Income”) is distributed by the

Trustee in accordance with the Production Sharing Percent-

ages specified in the Production Sharing Contracts for each

producer, a term defined for the Trustee and Paying Agent

Agreements to include both Pertamina and the foreign con-

tractors. A Trustee deposits each producer’s share of the

Net Operating Income in that producer’s trust sub-account.

Pertamina, as a producer, receives a share of each Production

Sharing Contract.

10. The only trust and payment accounts and sub-

accounts restrained are those maintained in Pertamina’s name

or for Pertamina’s benefit.

11. Article 5(2) of Indonesian Government Regulation

41/1982 provides that the difference between the share nom-

inally received by Pertamina according to each Production

Sharing Contract and a Retention Fee payable to Pertamina as

intended in Article 5(1) “shall be the Government’s portion.”

(the “Government’s Portion’’)

12. Article 5(1) of Indonesian Government Regulation

41/1982 provides that Pertamina receives a retention fee out

of the proceeds of each Production Sharing Contract. The

Retention Fee is equal to five percent (5%) of the Net

Operating Income that is generated from each such contract

and that is paid to Pertamina and its production sharing

partners (the “Retention Fee”).

13. The Court finds that Pertamina has a property right in

the trust accounts identified in paragraph 8 above, to the

extent of its five percent (5%) Retention Fee, which can be

executed upon in the manner allowed under New York

C.P.L.R. 5222(b).

14. The Court finds that the Government of Indonesia

does not have an ownership interest in any of the five percent

(5%) Retention Fee, and that the provisions of Indonesian law

providing for a tax and a dividend to be paid out of the five

percent (5%) Retention Fee do not confer an ownership

interest on the Government of Indonesia.

15. The Court finds that the Government of Indonesia has

a property right in the “Government’s Portion” under Article

5(2) of Government Regulation No. 41/1982 with respect to

those funds held in Pertamina’s name in the trust accounts

identified in paragraph 8 above, and therefore, is entitled to

these funds. The trust accounts cannot be executed upon to

the extent of the Government’s Portion.

16. Accordingly, the Ministry’s Motion to Quash is

GRANTED and KBC’s Motion is DENIED with regard to

the trust accounts listed in paragraph 8, as to the Govern-

ment’s Portion. KBC’s Motion is GRANTED and the Min-

istry’s Motion to Quash is DENIED only as to the amount of

Pertamina’s Retention Fee with regard to the trusts listed in

paragraph 8.

17. In addition, to the trust accounts listed in paragraph 8,

restraints have been placed on the following accounts:

Trust Accounts at Garnishee Bank of America, N.A.:

BLRE Trust

Cilacap Trust

Corridor Trust

East Java Pipeline (Throughput Fee) Trust

KMI Trust

South Sumatra Trust

West Natuna Trust

Trust Accounts at Garnishee Bank of New York:

Exor I Trust

MUSI II Trust

18. The Court finds that the present record is insufficient

to determine whether KBC is entitled to execution against

these accounts. These accounts, to some extent, raise individ-

ual factual issues and, in any event, do not involve the same

uniform questions of law raised with respect to the trust ac-

counts listed in paragraph 8.

19. The Court certifies that the order contained in para-

graphs 8-16 involves controlling questions of law as to which

there is substantial ground for difference of opinion and that

an immediate appeal from this order may materially advance

the ultimate termination of the litigation.

20. The order contained in paragraphs 8-16 is stayed pend-

ing the conclusion of proceedings in the Court of Appeals.

Dated: New York, New York

April 24, 2002

/s/ Thomas P. Griesa

United States District Court Judge

APPENDIX B

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT.

Docket Nos. 02-7513(L), 02-7515(CON), 02-7547(XAP),

02-7715(CON), 02-7717(CON), 02-7723(XAP).

KARAHA BODAS COMPANY, L.L.C.,

Petitioner-Appellee-

Cross-Appellant,

PERUSAHAAN i ERTAMBANGAN MINYAK DAN GAS

BuMI NEGARA (“Pertamina”),

Respondent-Appellant-

Cross-Appellee,

MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA,

Non-Party-Appellant-

Cross-Appellee.

Argucd: Aug. 7, 2002.

Decided: Dec. 10, 2002.

Before: CALABRESI, POOLER, and SACK, Circuit

Judges.

SACK, Circuit Judge.

Respondent-appellant Perusahaan Pertambangan Minyak

Dan Gas Bumi Negara (“Pertamina”) and non-party-appellant

the Ministry of Finance of the Republic of Indonesia (the

“Ministry”) appeal from an April 26, 2002, memorandum

and order issued by the United States District Court for the

Southern District of New York (Thomas P. Griesa, Judge)

insofar as it permits petitioner-appellee Karaha Bodas Com-

pany, L.L.C. (“KBC”) to execute against a portion of the

funds in several Bank of America trust accounts that are listed

in the district court’s order. KBC appeals the same order

insofar as it denies KBC’s motion to execute against the re-

mainder of the same funds. The question on appeal concerns

the ownership of the funds in the Bank of America trust ac-

counts, which derive from sales of Indonesian liquefied

natural gas (“LNG”), and whether such funds can be attached

under New York law, as applicable pursuant to the Foreign

Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-

1611 (“FSIA”). KBC’s claim rests on the allegation that all

such funds belong to Pertamina, and on the alternative theory

that KBC was entitled to rely on Pertamina’s ownership

thereof. Pertamina and the Ministry respond that under Indo-

nesian law, the funds belong to the Republic of Indonesia.

We agree with the district court’s disposition of the own-

ership question. The district court correctly analyzed the

Indonesian law that controls the ownership of the funds and

correctly concluded that most, but not all, of the funds be-

longed to Indonesia. Accordingly, we affirm.

BACKGROUND

The Parties

KBC describes itself as ““a Cayman Islands limited liability

company formed by two American power companies and

other investors, and is 90%-owned by U.S. investors.” Peti-

tioner-Appellee’s Br. at 2. The Ministry, acting on behalf of

the Government of the Republic of Indonesia, is a “foreign

state” within the meaning of the FSIA, 28 U.S.C. § 1603(a).’

Pertamina is an oil and gas company owned and controlled by

' 28 U.S.C. § 1603(a) defines “foreign state” to include “a political

subdivision of a foreign state or an agency or instrumentality of a foreign

state.” Jd. None of the parties dispute that the Ministry is a foreign state

for the purposes of the FSIA.

the Republic of Indonesia. Pertamina engages in oil and gas

exploration, extraction, processing, marketing, transportation,

and distribution. The 1971 statute creating Pertamina, Law 8

of 1971, explains that the company’s goals are “to develop

and carry out the exploitation of oil and natural gas . . . for the

maximum prosperity of the People and the State.” Law of the

Republic of Indonesia Number 8 Year 1971, Art. 5. The

Indonesian government owns all of Pertamina’s equity and

controls a supervisory board, constituted pursuant to Law 8,

that supervises Pertamina’s management.° Pertamina, for

purposes of the FSIA, is therefore “an agency or instru-

mentality of a foreign state.”* 28 U.S.C. § 1603.

? Pursuant to Government Regulation Number 27 of 1968, Pertamina

was initially established as the National Oil and Gas Mining State Enter-

prise, but was reorganized under Law 8. Prior to Law 8’s issuance, the

Republic of Indonesia had authorized different state enterprises to extract

and sell natural gas and oil pursuant to Articles 5 and 6, of Law 44

of 1960.

* Pertamina is currently in a state of legal flux because of changes in its

organic statute. Under Law 22 of 2001, Pertamina must, within two years,

change “from a state enterprise to a state-owned limited liability

company.” Decl. of Sudargo Gautama {| 37. Law 22 repeals Law 8 and

Law 44, but leaves in place implementing regulations that supplement

those laws. Draft Law of the Republic of Indonesia Number 22 of 2001,

Art. 66. But “Law 22/2001 has not yet been implemented with respect to

Pertamina.” Supp. Decl. of Sudargo Gautama {4 6. The parties’ experts on

Indonesian law apparently agree that this case should be decided

according to the pre-Law 22 regulations. See Decl. of Sucargo Gautama

4] 36; Decl. of Robert N. Hornick § 14.

* 28 U.S.C. § 1603 includes any entity in which a government has “a

majority of . . . shares or other ownership interest.” 28 U.S.C. § 1603(b).

“A typical governmental instrumentality . . . is created by an enabling

statute that prescribes the powers and duties of the instrumentality, and

specifies that it is to be managed by a board selected by the government in

a manner consistent with the enabling law.” First Nat'l City Bank v.

Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 624, 103 S.Ct.

2591, 77 L.Ed.2d 46 (1983). Pertamina satisfies this description.

10a

The KBC-Pertamina Geothermal Energy Contracts

In November 1994, KBC executed two contracts—a “Joint

Operation Contract” and an “Energy Sales Contract”—with

Pertamina and another Indonesian state-owned entity, Per-

sero, for the development of geothermal energy extraction

facilities in the Karaha area of West Java. In these contracts,

Pertamina waived “any . . . right of immunity (sovereign or

otherwise) which it or its assets now has or may acquire in the

future.” See, e.g., Karaha Geothermal Joint Operation

Contract, Art. 21.7(c); Karaha Geothermal Energy Sales

Contract, § 15.8(c). Pertamina also “consent[ed) in respect of

the enforcement of any judgment against it.” Karaha Geo-

thermal Joint Operation Contract, Art. 21.7(d); Karaha

Geothermal Energy Sales Contract, § 15.8(d). The contracts

did not contain any representations about KBC’s right to

attach particular assets in case of default or breach. And KBC

points to no evidence, either within the contracts’ text or in

pre-contract negotiations, that Pertamina made any represen-

tations regarding its ownership of LNG revenues or its obli-

gation to provide a security interest. Each contract also con-

tained a choice of law clause specifying Indonesian law and

provided that disputes would be resolved by an international

arbitral tribunal constituted under the Arbitral Rules of the

United Nations Commission on International Trade Law.

In 1997 and 1998, Indonesia experienced a fiscal crisis that

induced political instability and the eventual collapse, on May

21, 1998, of the regime led by President Mohamed Suharto.

In the course of the crisis, on September 20, 1997, the

KBC projects were suspended by an Indonesian “Presidential

Decree,” along with approximately seventy-four other gov-

ernment-related infrastructure projects. In November 1997,

another decree permitted some of the projects to proceed

again, but in January 1998, a third decree terminated the KBC

projects once more, despite lobbying by KBC and Pertamina,

among others.

lla

Arbitration on the Geothermal Energy Contracts

On April 30, 1998, KBC commenced arbitration in

Geneva, Switzerland, alleging that the project’s termination

constituted a breach of the geothermal energy contracts. On

September 30, 1999, the Swiss arbitral panel issued a pre-

liminary ruling rejecting Pertamina’s objections to arbitration

and concluding that all of KBC’s claims could be addressed

in a unitary proceeding. The arbitral panel also rejected

KBC’s motion to treat the Republic of Indonesia as a party to

the geothermal energy contracis. _

In a December 18, 2000, award, the arbitral panel

concluded that KBC had been “prevented from pursuing the

performance of the binding contracts that it relie[d] upon for

reasons beyond its control . . . [and] should not bear the

consequences thereof.” Final Award in an Arbitration

Procedure Between KBC and Pertamina and Persero, at 31.

The arbitral panel awarded KBC damages for lost invest-

ments of $111.1 million and lost profits of $150 million plus

interest and fees. /d. at 35-47. On February 1, 2001, Per-

tamina filed an appeal in the Supreme Court of Switzerland.

The appeal was dismissed or. April 24, 2002. Pertamina also

asked an Indonesian court to enjoin enforcement and annul

the award.°

Proceedings in the Southern District of Texas

KBC sought enforcement of the «ward in the United States

District Court for the Southern District of Texas pursuant to

the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards, June 10, 1958, implemented by

Chapter Two of the Federal Arbitration Act, 9 U.S.C. §§ 201-

* Pertamina filed suit on March 14, 2002, in Indonesia requesting both

annulment of the arbitral award and an injunction preventing KBC from

enforcing the arbitral award. A court in Jakarta, Indonesia enjoined KBC

from taking action to enforce the judgment anywhere in the world,

threatening a $500,000 per diem fine for violations.

12a

208. Rejecting Pertamina’s numerous asserted defenses, the

district court (Nancy Atlas, Judge) entered final judgment

on December 4, 2001, in the amount of $261.1 million

and interest at the rate of four percent per annum for KBC.°

Karaha Bodas Co. v. Perusahaan Pertambangan Minyak

Dan Gas Bumi Negara, 190 F.Supp.2d 936, 957 (S.D.Tex.

2001). Pertamina’s appeal of that order is pending before the

Fifth Circuit.

KBC, in an attempt to enforce the judgment, then moved

before the Southern District of Texas to register that judg-

ment in other judicial districts within the United States

pursuant to 28 U.S.C. § 1963.’ KBC filed with the court,

among other papers, an affidavit alleging that Pertamina had

assets in seven New York banks. Judge Atlas held that KBC

had fulfilled the requirement of 28 U.S.C. § 1610(c), that a

party seeking to attach a foreign sovercign’s property refrain

for “a reasonable period of time” after judgment, and per-

mitted KBC to register the judgment in Delaware, New York,

and California federal district courts. On February 15, 2002,

Judge Atlas also granted KBC’s motion for an ex parte writ

of garnishment against Bank of America.

Proceedings in the Southern District of New York

On February 22, 2002, KBC presented the December 4,

2001, Southern District of Texas judgment for registration to

the United States District Court for the Southern District of

New York. The same day, the latter court issued an ex parte

writ of execution and order to show cause pursuant to Fed R.

° In response to the Indonesian order annulling the arbitral award, see

supra note 5, Judge Atlas issued her own injunction barring Pertamina

from requesting enforcement of the Indonesian order. Tr. of March 29,

2002 Hearing Before Judge Atlas, at 5-6. Judge Atlas’s injunction has

been appealed to the Fifth Circuit.

’ 28 U.S.C. § 1963 permits registration of a judgment “when ordered

by the court that entered the judgment for good cause shown.” Jd.

13a

Civ. P. 69(a) and 28 U.S.C. § 1610(c) “author[izing KBC] to

execute upon any property of Pertamina within this juris-

diction in satisfaction of the outstanding final judgment,

amounting, to date, in total to the sum of $261,166,654.92

plus interest from January 1, 2001.” Pursuant to Fed.R.Civ.P.

69(a) and N.Y. C.P.L.R. § 5222(b),® the district court issued

restraining notices, which KBC subsequently served upon

Bank of America and several other banks.

The Nature of the Disputed Funds

This appeal concerns fifteen trust accounts at Bank of

America.” These accounts contain funds from the sale of

LNG extracted in Indonesia under arrangements called Pro-

duction Sharing Contracts (“PSCs”), which are governed by

Indonesian law.

As mandated by Indonesian law, Pertamina enters into

PSCs with private oil and gas contractors for the extraction of

Indonesian crude oil and natural gas.'° The Republic of

Indonesia is not party to the PSCs, but it must approve them.

Under a PSC, the private contractor (the “PSC contractor’) is

responsible for all exploration, development, extraction, pro-

duction, transportation, and marketing operations related to a

* Rule 69(a) provides, “Process to enforce a judgment for the payment

of money shall be a writ of execution. . . . The procedure on execution...

shall be in accordance with ‘the practice and procedure of the state in

which the district court is held. . . .” Fed.R.Civ.P, 69(a).

” The district court’s analysis (and hence this appeal) does not concern

trusts “containing non-PSC Operating Income: the Musi II, Exor 1,

Cilacap and the throughput fee portion of the East Java Pipeline trusts.”

Final Order § 17. The district court concluded that the record was

“insufficient to determine whether KBC is entitled to execution against

these accounts.” Id. ¥ 18.

'° Geothermal energy contracts and PSCs are different. Pertamina en- —

tered into geothermal energy contracts with KBC for the purposes of

developing extraction facilities. Pertamina entered into PSCs with private

oil and gas contractors for the purposes of extracting oil and natural gas.

l4a

specified geographic area under Pertamina’s management. As

part of their compensation, PSC contractors initially receive a

share of the oil or natural gas after extraction. They then

transfer the remaining oil or gas to Pertamina.

PSC contractors must deliver the extracted natural gas to

Pertamina, which then transports the gas for domestic sale or

for conversion into LNG at liquefaction plants. Pertamina

sells LNG to foreign buyers pursuant to long-term sales con-

tracts that contain choice of law clauses specifying New York

law as governing the contracts. LNG sales were the “largest

single source of Pertamina sales revenue” in the last nine

months of 2000. Decl. of Robert N. Hornick § 22. Buyers of

LNG remit payment to specified trust accounts in New York.

In all such LNG sales, Pertamina, in its own name, purports

to transfer title to the LNG, or title to the refined product, to

the buyer. Pertamina warrants that it has “good title to the

[LNG], free of all liens and encumbrances of any kind.” Jd.

{| 23(b). Revenues from sales of natural gas are also sent to

trusts in New York. The trusts “distribute the proceeds in

accordance with trust agreements and ultimately to the [PSC

contractor] in accordance with their respective [PSCs].” Decl.

of Sahala L. Gaol 4 9. However natural gas is sold, and

whether er not it is liquefied, procceds from sales are first

paid into trust accounts such as those at Bank of America.

Bank of America is the trustee of the accounts deposited

with it. Before making any allocations or distributions, it

credits all LNG revenues from a particular project, or subpart

of a project, to a general account. The general accounts and

other subaccounts are operated pursuant to contractual ar-

rangements known as Trustee and Paying Agent Agreements

(“TPAA”) that define the trustee’s obligations. TPAAs are

signed by Bank of America, Pertamina, and relevant PSC

contractors, but only Pertamina has authority to direct pay-

ment. See, e.g., Bontang V Trustee and Paying Agent Agree-

ment of July 1, 1995, Art. 3.5(b)(i). Like the LNG sales

lSa

contracts, the TPAAs also contain choice of law clauses

specifying New York law as governing. /d. Art. 13.6.

Before any distribution can be made to Pertamina or the

PSC Contractor, the TPAAs specify that production ex-

penses—which include debt service payments, production

costs, and trustee expenses—are paid first. /d. Art. 3.3-3.4.

After production payments are made, the “PSC Revenue” or

the “Net Operating Income” remains in the general trust

account. This remainder is essentially the net profit from

the PSC, after costs have been deducted and debts have

been serviced.

The PSC Revenue is then divided between Pertamina and

the PSC Contractor for a particular project in contractually

specified portions known as “Production Sharing Percen-

tages.” These payments are made to separate subaccounts or

separate line accounts within the general trust account. Jd. at

8. The funds at issue in this appeal are, thus, Pertamina’s

Production Sharing Percentage or, in the terms used in the

contracts, Pertamina’s share of the Net Operating Income.

Pertamina’s Production Sharing Percentage is transferred

directly to the Republic of Indonesia. Indeed, “Pertamina at

the direction of the Indonesian Government, has issued stand-

ing instructions to the Trustee to pay its Production Sharing

Percentage to an account of the Government of Indonesia

at Bank Indonesia.” Decl. of Ainun Na’im 4 23. Evidence

submitted by the Ministry and Pertamina suggests that twenty

percent of the Indonesian national budget derives from oil

and natural gas revenues. See Decl. of Sahala L. Gaol § 11.

The funds are typically used to maintain Indonesia’s foreign

exchange reserves, and thus to service Indonesia’s foreign

debt. /d. J 12.

The LNG Security Arrangement

One noteworthy feature of the trust arrangements is the

mechanism whereby Pertamina borrows funds for the con-

l6a

struction of natural gas liquefaction facilities, without requir-

ing a counter-party lender to depend on Pertamina’s will-

ingness or ability to assure repayment. For example, the

record contains 1997 loan agreements for funds to create a

natural gas liquefaction facility. One loan agreement explains

that “certain proceeds of liquefied natural gas” that are held in

trust accounts at Bank of America are the “sole source of

repayment.” Bontang VI Loan Agreement of March 4, 1997,

at 2 (emphasis added). A fixed percentage of gross revenues

from LNG revenues in the trust accounts is therefore allo-

cated to loan repayment, and only after loan repayments

are complete can other disbursements be made. Through

this device, the LNG revenue stream structure protects

lenders’ interests.

The District Court Opinion and Order

On March 23, 2002, Pertamina filed papers opposing

KBC’s order to show cause for a writ of execution on the

ground that none of the restrained accounts contained prop-

erty owned by Pertamina. The previous day, the Ministry,

purporting to be a “Non-Party with Interest,” had also filed a

memorandum of law arguing that the restraining notices and

writs of execution should be quashed.

Following supplementary briefing, the district court held a

non-evidentiary hearing on April 5, 2002, and delivered an

oral decision on the ownership and disposition of the re-

strained funds in the trust accounts. According to the district

court, “the ultimate ownership of the money . . . does not

have to appear in the trustee and paying agent agreement,” so

the TPAAs’ designation of Pertamina as trust owner was not

dispositive. Tr. of April 5, 2002 Hearing, at 10-11. Nor could

Pertamina’s practice of paying the funds directly to the

Republic of Indonesia dispose of the question. /d. at 51. The

district court reasoned instead that the ownership of the LNG

revenues in Pertamina’s subaccount was a matter of Indo-

nesian law, which explicitly allocated ownership rights in the

17a

funds. Jd. at 80-81. Canvassing Indonesian law, the court

concluded that Article 5(2) of Government Regulation 41 of

1982 vested ownership of all funds, except for a portion

called the “Retention,” in the Republic of Indonesia. “What is

decisive on the question of property rights is a provision of

Indonesian law which became effective in 1982 and article 5

of that law.” /d. at 81. It allocated Pertamina’s Production

Sharing Percentage, less five percent of the Net Operating

Income (which is designated Pertamina’s “Retention”), to the

Republic of Indonesia. This 1982 law, noted the district court,

distinguished the Republic of Indonesia’s interest from

Pertamina’s tax and dividend obligations. /d. at 83. Therefore,

the only portion of the funds that KBC could attach was the

five-percent portion—i.e., the Retention—which belonged to

Pertamina. The district court memorialized its decision in a

written order on April 26, 2002.

This Appeal

Pertamina and the Ministry appeal the district court’s order

and challenge its conclusion that the Retention is owned by

Pertamina. The Ministry also contends that once the district

court had concluded that the remaining funds belonged to the

Republic of Indonesia, sovereign immunity foreclosed any

_ further restraint of those funds. KBC appeals the portion of

the order that is based on the district court’s conclusion that

KBC could not execute against the entirety of Pertamina’s

Production Sharing Percentage.

On June 18, 2002, we denied KBC’s motion to dismiss the

appeal, and permitted both the Ministry and Pertamina to

appeal pursuant to either 28 U.S.C. § 1292(b), the collateral

order doctrine, or both. We observed that the collateral order

doctrine might apply because this appeal raised an issue of

sovereign immunity, but expressly reserved judgment on the

jurisdictional issues. Finally, we modified the stay to apply

only to those funds that would be necessary and sufficient to

satisfy a judgment.

18a

DISCUSSION

I. Standard of Review

In a proceeding under the FSIA, “[t]he standard of review

established for district court decisions regarding subject

matter jurisdiction is clear error for factual findings and de

novo for legal conclusions.” Filetech S.A v. France Telecom

S.A., 157 F.3d 922, 930 (2d Cir.1998). De novo review is

appropriate even where the district court supplements the

complaint with “undisputed facts from the record,” as the

court did here. Robinson v. Gov't of Malaysia, 269 F.3d 133,

138 (2d Cir.2001) (citation and quotation marks omitted).

“Likewise, pursuant to Fed. R.Civ.P. 44.1, a court’s deter-

mination of foreign law is treated as a question of law, which

is subject to de novo review.” Curley v. AMR Corp., 153 F.3d

5, 11 (2d Cir.1998). Finally, the district court’s choice of law

determination is also subject to de novo review. Id.

IJ. Subject Matter Jurisdiction

Prior to consideration of the appeal’s substance, we address

two threshold subject matter jurisdiction questions: whether

our statutory subject matter jurisdiction properly obtains and

whether the Ministry is a proper party on appeal.

A. Statutory Appellate Jurisdiction

Ordinarily, appeals are permitted only from “final deci-

sions of the district courts.” 28 U.S.C. § 1291. One exception

to this rule, contained in 28 U.S.C. § 1292(b}, however,

permits appellate jurisdiction over interlocutory civil orders

“fwhen a district judge . . . [is] of the opinion that such order

involves a controlling question of law as to which there is

substantial ground for difference of opinion and that an

immediate appeal from the order may materially advance the

ultimate termination of the litigation,” and so certifies in a

written order. 28 U.S.C. § 1292(b). Upon entry of such an

19a

order, the court of appeals has the discretion to accept or

decline jurisdiction. /d.

On April 24, 2002, the district court certified this case for

appeal under 28 U.S.C. § 1292(b). Final Order of April 24,

2002, at 6. The prerequisites for appellate jurisdiction are

satisfied. First, the interaction of federal, New York, and

Indonesian law poses “substantial ground for difference of

opinion.” 28 U.S.C. § 1292(b). Second, our review of the

district court’s order will advance the litigation by resolving

the disposition of funds that allegedly belong to a foreign sov-

ereign. Pursuant to our discretion under 28 U.S.C. § 1292(b),

we therefore accept jurisdiction to hear this appeal. '!

B. The Ministry as Appellant

KBC did not name the Ministry as a party in its action to

enforce the Swiss arbitral award in the Southern District of

Texas. KBC, 190 F.Supp.2d at 939. Judge Atlas’s final order

names only Pertamina as a respondent. And the order certi-

fied in the Southern District of New York on February 22,

2002, again mentions Pertamina alone. Not until March 22,

2002, after the funds in the Bank of America trust accounts

were attached, did the Ministry appear in the district court,

then characterizing itself as a “Non-Party with Interest.”

At first blush, the Ministry’s absence from the initial

proceedings and its failure to intervene pursuant to Fed.

R.Civ.P. 24 seem to preclude its participation in this appeal.

“{OJnly parties to a lawsuit, or those that properly become

parties, may appeal an adverse judgment” Marino v. Ortiz,

484 U.S. 301, 304, 108 S.Ct. 586, 98 L.Ed.2d 629 (1988) (per

curiam). But, as the Supreme Court recently made clear, the

'' Having accepted jurisdiction under 28 U.S.C. § 1292(b), we need not

determine whether the collateral order doctrine provide an alternative

vehicle to hear this appeal. See Excimer Assocs. v. LCA Vision, Inc., 292

F.3d 134, 138 (2d Cir.2002) (describing the collateral order doctrine).

20a

Ministry is indeed a “party” to the district court’s judgment

for present purposes, and can therefore properly appeal.

In Devlin v. Scardelletti, 536 U.S. 1, 122 S.Ct. 2005, 2008,

2013, 153 L.Ed.2d 27 (2002), the Court held that an unnamed

member of a class could appeal a class action settlement at a

fairness hearing even though he had failed to intervene

earlier. The Court cautioned that “[t]he label ‘party’ does not

indicate an absolute characteristic, but rather a conclusion

about the applicability of various procedural rules that may

differ based on context.” /d. at 2010. To determine who may

appeal, courts must ascertain whether putative appellants are

“bound by the order from which they were seeking to ap-

peal.” Jd. In Devlin, for instance, the appellant faced a “final

decision of [a] right or claim sufficient to trigger his right to

_ appeal.” /d. (citation and internal punctuation omitted).

‘| Similarly, we have long allowed appeal “when the

nonparty has an interest that is affected by the trial court’s

judgment.” United States v. Intl Bhd. of Teamsters, 931 F.2d

177, 183-84 (2d Cir.1991) (quoting Hispanic Soc’y v. N.Y.

City Police Dep’t, 806 F.2d 1147, 1152 (2d Cir.1986), aff'd,

Marino v. Ortiz, 484 U.S. 301, 108 S.Ct. 586, 98 L.Ed.2d 629

(1988)); accord West v. Radio-Keith-Orpheum Corp., 70 F.2d

621, 624 (2d Cir.1934). “The question therefore is whether

the putative appellant can identify an ‘affected interest.’”

Kaplan v. Rand, 192 F.3d 60, 67 (2d Cir.1999). The Ministry

alleges that the Republic of Indonesia owns the property

encompassed by the garnishment order. Under Devlin, Kaplan,

and similar cases, this constitutes an “affected interest,”

which entitles the Ministry to join this appeal.

IIJ. Execution Against or Attachment of Foreign Sov-

ereigns’ Property

Attachment of a foreign state’s property in the United

States is governed by the FSIA. In relevant part, the FSIA

provides that “the property in the United States of a foreign

2la

state shall be immune from attachment arrest and execution

except as provided in sections 1610 and 1611 of (the FSIAJ.”

28 U.S.C. § 1609. Section 1610 provides different regimes

for sovereign states on the one hand, and their agencies and

instrumentalities on the other. First, 28 U.S.C. § 1610(a)

provides that any property of a foreign sovereign that is

used for a commercial activity in the United States, shall

not be immune from attachment in aid of execution, or

from execution, upon a judgment entered by a court of

the United States... if... (1) the foreign state has

waived its immunity from attachment in aid of execution

or from execution either explicitly or by implication,

notwithstanding any withdrawal of the waiver the

foreign state may purport to effect except in accordance

with the terms of the waiver.

Id. Second, § 1610(b), which concerns foreign states’ instru-

mentalities, such as Pertamina, provides in relevant part that:

any property in the United States of an agency or

instrumentality of a foreign state engaged in commercial

activity in the United States shall not be immune from

attachment in aid of execution, or from execution, upon

a judgment entered by a court of the United States . . . if

... (1) the agency or instrumentality has waived its im-

munity from attachment in aid of execution or from

execution either explicitly or implicitly, notwithstanding

any withdrawal of the waiver the agency or instrumen-

tality may purport to effect except in accordance with

the terms of the waiver.

Id. Subsection (a) is generally thought to be narrower than

subsection (b). Connecticut Bank of Commerce v. Republic of

Congo, 309 F.3d 240, 252-65 (Sth Cir.2002). While sub-

section (b) applies to al] property of the agencies and in-

strumentalities of foreign states, subsection (a) applies only to

the property of foreign states that is “used in commercial

activity.” Jd.

22a

In the appeal before us, sample geothermal energy con-

tracts between Pertamina and KBC state that Pertamina

“waive[s] any .. . right of immunity (sovereign or otherwise)

which it or its assets now has or may have in the future.”

Karaha Geothermal Joint Operation Contract, Art. 21.7(c);

Karaha Geothermal Energy Sales Contract, Art. 15.8(c).

Pertamina, through its use of the trust funds to channel LNG

revenues, engages in commerce in New York. Under 28

U.S.C. § 1610(b), Pertamina has thus waived its sovereign

immunity from attachment in United States courts. '”

A. Attachment Under the FSIA and New York 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 indi-

vidual under like circumstances.” 28 U.S.C. § 1606. In at-

tachment actions involving foreign states, federal courts thus

apply Fed.R.Civ.P. 69(a), which requires the application of

local state procedures. See Alliance Bond Fund, Inc. v. Grupo

Mexicano De Desarrollo, $.A., 190 F.3d 16, 20 (2d Cir.1999)

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

FSIA action).

In the instant action, the district court is located in New

York state. We therefore apply New York law to determine

what assets are “subject to enforcement, and thus available to

judgment creditors.” Alliance, 190 F.3d at 20. “New York

procedure for enforcement of judgments is set out in Article

52 of the Civil Practice Law and Rules. The first section of

Article 52 describes the assets that New York law has made

subject to enforcement, and thus available to judgment credi-

'? Because this is an appeal from an order executing a judgment against

the property of Pertamina—as opposed to the property of the Ministry or

the Republic of Indonesia—the sovereign immunity claims of the Min-

istry or the Republic of Indonesia are not before us.

23a

tors.” Jd. The relevant provision, N.Y. C.P.L.R. § 5201(b),

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.

Id. In New York, then, a party seeking to enforce a judgment

“stand[{s] in the shoes of the judgment debtor in relation to

any debt owed him or a property interest he may own.” Bass

v. Bass, 140 A.D.2d 251, 253, 528 N.Y.S.2d 558, 561 (lst

Dep’t 1988). Nonetheless, a party cannot “reach . . . assets in

which the judgment debtor has no interest.” Jd. A determina-

tion of Pertamina’s property interest in the disputed funds—

i.e., whether Pertamina can “assign or transfer” any of these

funds-—is therefore dispositive of this appeal. N.Y. C.P.L.R.

§ 5201(b).

B. Ownership of the Disputed Funds

While the litigants agree that New York law governs what

property can be attached, they diverge on what law governs

the property rights of the Republic of Indonesia and

Pertamina in the disputed funds. KBC argues that under New

York law, Pertamina owns the Production Sharing Percentage

because Pertamina controlled the allocation of the funds

within the trust accounts and retained initial title to the LNG,

which it sold to generate the disputed funds. KBC finds no

significance in the fact that much of those funds flow to the

Republic of Indonesia. In KBC’s view, these funds merely

represent “various royalties, taxes, and dividends” which

“Pertamina is obligated to pay the Government.” Decl. of

Robert N. Hornick § 24. KBC argues that before those

obligations are met, the funds belong to Pertamina. KBC’s

expert also argues that Indonesian law does not vest the Re-

24a

public of Indonesia with any ownership interest in these funds. See

id. at 9] 24-49.

Both Pertamina and the Ministry argue to the contrary that

Indonesian law deprives Pertamina of all but a future property

interest, limited to five percent of the Net Operating Income,

while the Republic of Indonesia has the exclusive right to the

rest of Pertamina’s Production Sharing Percentage. They, like

the district court, identify Government Regulation 41 as pro-

viding the dispositive rule of decision:

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 Per-

tamina according to each Production Sharing Contract

and the retention (fee) received by Pertamina as intended

in paragraph (1) of this Article shall be the Govern-

ment’s portion.

Government Regulation of the Republic of Indonesia

Number 41 of 1982. Art. 5 (emphasis added). According to

Pertamina’s expert, “[t]his [provision] means that the Govern-

ment owns the Percentage Share due to Pertamina under the

PSC but must pay Pertamina the five percent fee,” or Reten-

tion. Supp. Decl. of Sudargo Gautama § 4.

Pertamina also argues that even the Retention, which

equals five percent of the Net Operating Income, cannot be

attached. Pertamina contends that before it transfers its Pro-

duction Sharing Percentage to the Republic of Indonesia, the

latter owns all the PSC Revenue as a result of Government

Regulation 41. Only after the revenue reaches Jakarta does

Pertamina receive the Retention. And even in Jakarta, Per-

tamina is not entitled to the entire Retention. Regulation 41,

in Article 5(3), subjects the retention to a sixty percent tax. A

second regulation, Government Regulation 73, then mandates

25a

payment of a fifty percent dividend to the government. In all,

Pertamina actually receives one fifth of the Retention. -

Resolution of this appeal requires that we determine the

legal ownership of the PSC Revenues. At the threshold, we

must consider which choice of law rule governs the question

of ownership.

IV. Choice of Law Analysis

A. Federal or State Choice of Law Rules

“{Rjather than directing courts to apply the choice of law

rules of the place of [the relevant events], the FSIA implicitly

requires courts to apply the choice of law provisions of the

forum state with respect to all issues governed by state

substantive law.” Barkanic v. Gen. Admin. of Civil Aviation

of the People’s Republic of China, 923 F.2d 957, 959 (2d

Cir.1991); accord Pescatore v. Pan Am. World Airways, Inc.,

97 F.3d 1, 12 (2d Cir.1996) (“[T]he FSIA . . . operates as a

‘pass-through’ to state law principles.”). In Barkanic, we rea-

soned that the FSIA “expressly embraces the goal of holding

foreign states liable in the same manner and to the same

extent as a private individual under like circumstances.”

Barkanic, 923 F.2d at 960 n. 3 (internal citation and quotation

marks omitted). Barkanic suggests that New York choice of

law rules govern.

The Ministry argues that Barkanic applies only to ques-

tions of “liability,” and does not extend to questions about

“the amenability of the sovereign to suit.” Ministry Reply Br.

'? For instance, if the PSC Revenue were $100, the Pertamina’s reten-

tion weuld be $5, or five percent. Under the terms described in Perta-

mina’s annual reports, though, the PSC Revenue would be divided: $35

would go to the PSC contractor, and $65 would go to Pertamina in New

York, then be transferred immediately to the Ministry in Jakarta. Once

the $65 reached Jarkarta, Pertamina would receive $5. After taxes and

dividends, however, Pertamina would only retain $1.

26a

at 16. The latter questions, the Ministry argues, are governed

by federal common law choice of law rules. /d. (emphasis

omitted). But in Barkanic, we explained that in FSIA cases,

we use the forum state’s choice of law rules to resolve “all

issues,” except jurisdictional ones. Barkanic, 923 F.2d at 959,

961 (emphasis added). Determining what property Pertamina

owns is not a jurisdictional question, which would require

application of federal law. Jurisdiction has already been

established pursuant to 28 U.S.C. § 1610(b)(1) by the

contractual waiver of immunity. Like the Barkanic court, we

now determine only the scope of recovery.'* New York

choice of law rules therefore govern our decision.

B. New York or Indonesian Property Law

Under New York law, “The first step in any case present-

ing a potential choice of law issue is to determine whether

there is an actual conflict between the laws of the juris-

dictions involved.” Jn re Allstate Ins. Co. and Stolarz, 81

N.Y.2d 219, 223, 613 N.E.2d 936, 937, 597 N.Y.S.2d 904,

905 (1993); accord Curley v. AMR Corp., 153 F.3d 5, 12 (2d

Cir.1998). In property disputes, if a conflict is identified, New

York choice of law rules require the application of an “in-

terests analysis,” in which “the law of the jurisdiction having

the greatest interest in the litigation [is] applied and

[ ] the facts or contacts which obtain significance in defining

'* Any “resort to federal common law to fill the interstices of our

federated legal system, must be warranted by overriding and compelling

federal concerns.” Pescatore, 97 F.3d at 10 (citation and internal quota-

tion marks omitted); accord O’Melveny & Myers v. FDIC, 512 U.S. 79,

87, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994) (noting that “cases in which

judicial creation of a special federal rule would be justified . .. are . . . few

and restricted”) (citation and internal quotation marks omitted). The Min-

istry’s proffered interest, the uniform application of federal law, Ministry

Reply Br. at 16, is “insufficient to justify imposition of federal common

law,” because of its “generic” and “generalized” nature. Pescatore, 97

F.3d at 11 (citing O'Melveny, 512 U.S. at 88, 114 S.Ct. 2048).

27a

State interests are those which relate to the purpose of the

particular law in conflict.” Koreag, Controle et Revision S.A.

v. Refco F/X Assoc. Inc., 961 F.2d 341, 350 (2d Cir.), cert.

denied, 506 U.S. 865, 113 S.Ct. 188, 121 L.Ed.2d 132 (1992)

(citation omitted); see also Istim, Inc. v. Chemical Bank, 78

N.Y.2d 342, 348, 581 N.E2d 1042, 1044, 575 N.Y.S.2d 796,

798 (1991) (applying interests analysis); In re Estate of Clark,

21 N.Y.2d 478, 485-86; 236 N.E.2d 152, 156, 288 N.Y.S.2d

993, 998 (1968) (same); Jn re Crichton’s Estate, 20 N.Y.2d

124, 133, 228 N.E.2d 799, 805-06, 281 N.Y.S.2d 811, 819

(1967) (same); Indosuez Int’l Fin. B.V. v. Nat’l Reserve Bank,

279 A.D.2d 408, 408-09, 720 N.Y.S.2d 102, 103-04 (ist

Dep’t 2001) (same).’°

1. Actual Conflict of Law. In the case at bar, the

Republic of Indonesia and the State of New York apply the

same general rules to property disputes. The Republic of

Indonesia offers the only specific rules-Indonesian statutes

and regulations—that determine the respective rights of Per-

tamina and the Republic of Indonesia in the disputed funds.

New York law directs us to apply these Indonesian statutes

and regulations. There is thus no actual conflict of law.

Under New York law, the party who possesses property is

presumed to be the party who owns it. See Pollock v. Rapid

Indus. Plastics Co., 113 A.D.2d 520, 525, 497 N.Y.S.2d 45,

49 (2d Dep’t 1985) (noting that “possession of tangible prop-

erty . . . creates a rebuttable presumption of ownership”).

When a party holds funds in a bank account, possession is

established, and the presumption of ownership follows. See

Kolodziejczyk v. Wing, 261 A.D.2d 927, 928, 689 N.Y.S.2d

825, 825 (4th Dep’t 1999) (joint bank account creates rebutt-

'S KBC argues that “the law of the situs of the disputed property gen-

erally controls.” Appellee’s Br. at 34. (citing 19A N.Y. Jur.2d Conflict of

Laws §§ 26, 27, 31). But the New York Court of Appeals explicitly

rejected the “traditional situs rule” in favor of interest analysis in Jstim, 78

N.Y.2d at 347, 581 N.E.2d at 1044, 575 N.Y.S.2d at 798.

28a

able presumption of ownership in joint possessors); Perkins

v. Guaranty Trust Co. of New York, 274 N.Y. 250, 261, 8

N.E.2d 849, 853 (1937) (possession of stock certificates cre-

ates rebuttable presumption of ownership).

Similarly, the Indonesian Civil Code provides that “who-

ever is in control of movable goods . . . shall be deemed to be

the owner of such goods,” Indonesian Civ. Code, art.1977,

and the phrase “movable goods” includes cash held in bank

accounts, Decl. of Robert N. Hornick § 34.

Pertamina possesses the disputed funds. Under both New

York and Indonesian law, we therefore proceed from the

presumption that Pertamina owns the disputed funds. It is

clear, however, that this presumption may be rebutted by evi-

dence that the Republic of Indonesia actually controlled the

disputed funds, or that Pertamina merely held the funds for

the Republic of Indonesia, in the manner of a trustee.'® See

Fragetti v. Fragetti, 262 A.D.2d 527, 527-28, 692 N.Y.S.2d

442, 443 (2d Dep’t 1999) (hoiding that joint bank account

created presumption of joint ownership, which was rebutted

by contrary evidence of the parties’ intentions and relative

control over the funds); Vergari v. Kraisky, 120 A.D.2d 739,

740, 502 N.Y.S.2d 788, 789 (2d Dep’t 1986) (holding that

certificate of title constituted prima facie evidence of owner-

ship of a vehicle, which was rebutted by contrary evidence of

the parties’ relative dominion and control over the vehicle);

Kurtish v. Iskokovic, 204 A.D.2d 847, 848, 612 N.Y.S.2d

263, 264 (3d Dep’t 1994) (holding that a “constructive trust”

exists between two parties when there is: (1) a confidential or

'© As the district court stated, Pertamina’s possession of the disputed

funds “is not the end of the story. Under absolute Hornbook law, the

Court must look past that and must recognize any property rights in that

money which belong to any other parties . . . such as the right of a

beneficiary to a trust or some similar kind of property right.” Tr. of April

5, 2002 Hearing, at 80. KBC does not advance any contrary proposition of

Indonesian law. See Petitioner-Appellee’s Br. at 41, 44.

29a

fiduciary relation, (2) a promise, (3) a transfer in reliance

thereon and (4) unjust enrichment); Mende! v. Hewitt, 161

A.D.2d 849, 850, 555 N.Y.S.2d 899, 900 (3d Dep’t 1990)

(stating that to determine whether a “constructive trust”

exists, courts conduct “flexible” factual inquiries into the

relationships between parties); cf, Dec. of Robert N. Hornick

4] 34 (stating that under Indonesian law, possession estab-

lishes a presumption of ownership, but not stating that the

presumption is irrebuttable). Under New York law, then, the

property rights are determined by the underlying relationship

between Pertamina and the Republic of Indonesia.

KBC urges us to apply New York law to this relationship,

and thus, to the property rights in the disputed funds. Yet

KBC has not pointed to any New York cases or statutes that

purport to govern this kind of arrangement. The Republic of

Indonesia is a foreign state, and Pertamina is a corporate

entity of Indonesia, created by the legislative enactments and

executive orders of the Republic of Indonesia. The relation-

ship was created neither by contract nor by any other mecha-

nism familiar to the laws of New York. It was established

instead by provisions of Indonesian law uniquely applicable

to the relationship itself:, Law of the Republic of Indonesia

Number 8 Year 1971 and Government Regulation of the

Republic of Indonesia Number 41 of 1982. Under New York

law, the meaning of these two provisions of Indonesian law

determines the property rights of the parties. There is thus no

actual conflict between the laws of New York and the laws

of Indonesia.

2. Interests Analysis. In any event, even if there were

such a conflict, we are confident that Indonesian law would

govern under the “interests analysis” that would be applicable

under New York choice of law rules. Cf. Allstate, 81 N.Y.2d

at 225, 613 N.E.2d at 938, 597 N.Y.S.2d at 906 (holding that

“there is no conflict between New York and New Jersey

law,” and that even if there were a conflict, “New Jersey law

30a

[would] govern{]”). As the New York Court of Appeals has

explained,

Applying interests analysis, we first look to the purposes

of the statutes in conflict and identify the polictes which

the States seek to promote through application of their

laws. Then, based upon the facts of the case which relate

to the statutes’ purpose, we determine which State has

the greater interest in having its law applied.

Istim, 78 N.Y.2d at 348, 581 N.E.2d at 1044, 575 N.Y.S.2d

at 798. In the case at bar, Indonesian law sets forth a set of

rules specifically resolving the ownership and disposition of

the particular funds indispute. See, e.g., Government Regula-

tion of the Republic of Indonesia Number 41 of 1982, Art. 5;

Law of the Republic of Indonesia Number 8 Year 1971, Art.

15; see also Decl. of Sudargo Gautama $f] 29-39 (describing

the regulation of PSC revenues). More generally, Indonesian

laws also reflect a significant national interest in the eventual

fate of funds from LNG exploitation. An Indonesian Consti-

tution “Elucidation” observes, “The earth and the waters and

the natural riches contained therein are the fundamentals of

the people’s prosperity. Therefore they should be controlled

by the State and be made use of for the greatest possible

prosperity of the people.” Elucidation of the Indonesian

Const., Art. 33. Other Indonesian laws evince similar con-

cerns. See Law Substituting Gov’t Regulation No. 44 Year

1960; Law of the Republic of Indonesia Number 8 Year

1971. And, unlike New York’s interests, Indonesia’s interests

implicate the particular circumstances at issue: the use of an

Indonesian governmental instrumentality to generate funds in

order to maintain satisfactory foreign exchange reserves.

In contrast, the New York statutory interests implicated

here are relatively attenuated: (i) the creation and operation

of trusts under New York law; (ii) the execution of sales

contracts that operate under New York law to obtain funds for

deposit in these trusts; (iii) New York’s general interest “in

3la

defining and protecting the property interests of its citizens

and those who do business there,” Koreag, 961 F.2d at 351;

and (iv) New York’s “interest as an international clearing-

house and market place,” Jndosuez, 279 A.D.2d at 408-09,

720 N.Y.S.2d at 104 (citation and internal quotation marks

omitted).

Moreover, these generic interests are only minimally

implicated in this case. Both the LNG sales contracts and the

trust mechanism complete their operations before funds arrive

in Pertamina’s subaccount. Whatever interest New York has

in proper application of its contract or trust law has de

minimis application here. And we do not see how a decision

to apply New York law would materially further New York’s

reputation as a cosmopolitan, as opposed to insular and

provincial, financial center. Indeed, if this latter reason alone

sufficed to mandate New York law, courts would never apply

foreign law to cases involving property located in New York

bank accounts, which has clearly not been the case. Cf, e.g.,

Clark, 21 N.Y.2d at 485-86, 236 N.E.2d at 156, 288 N.Y.S.2d

at 998 (applying Virginia law to determine the ownership of

property located in New York).

We conclude that even if there were a conflict between

New York and Indonesian law, New York choice of law rules

would mandate application of Indonesian law to determine

the relative property interests of Pertamina and the Republic

of Indonesia in the disputed funds.

V. The Property Interests of the Republic of Indonesia

and Pertamina in the Restrained Funds

There is some uncertainty about the theory pursuant to

which KBC presses its claim to the attached funds. On the

one hand, KBC argues that the disputed funds belong to

Pertamina even as a matter of Indonesian law, and conse-

quently can be attached. This theory of recovery therefore

rests on the ownership of the disputed funds. On the other

32a

hand, KBC, in its brief and at oral argument, also suggested

that it had been entitled to rely on Pertamina’s ownership of

the LNG funds, and due to that reliance, is now entitled

to attach those funds, without regard to the funds’ legal

ownership.

We reject both arguments. Like the district court, we

conclude that under Indonesian law, all of the disputed funds

except for the Retention belong to the Republic of Indonesia,

and that it would have been unreasonable for KBC to rely on

the notion that Pertamina owned those funds.

A. The Reliance Argument

KBC’s reliance argument appears to run as follows: The

Republic of Indonesia has established Pertamina as a separate

legal entity, comparable to a private corporation, in order to

do business with various other entities in international mar-

kets. When those entities make serious claims against Perta-

mina’s assets, however, Pertamina disclaims ownership, and

invokes the sovereign immunity protections of the Republic

of Indonesia. KBC hints that Pertamina was a vehicle for the

Republic of Indonesia to participate in international mar-

kets without fairly accepting the consequences of such

participation.

This argument rests on the premise that when KBC entered

into the geothermal! energy contracts, KBC relied upon Perta-

mina’s ownership #f the disputed funds, and that it was

reasonable for KBC te do so. We can find no evidence in the

record to support these claims.

KBC has not elicited evidence from which a court could

conclude that KBC actually relied upon any representation

that Pertamina made about KBC’s ability to recover from the

disputed funds in the event of default. KBC does not allege

that before or during the negotiation of the geothermal energy

contracts, Pertamina made any oral or written representation

about recovery in the event of default. The geothermal energy

33a

contracts contain no reference to Pertamina’s obligations to

make funds available in the event of default, nor do they

make any mention of LNG revenues. Neither Pertamina’s

separate legal status nor its previous title to the LNG supports

the notion that Pertamina represented that it owned the

disputed funds, or that the funds were available to KBC to

satisfy a default. Moreover, neither fact establishes that

Pertamina owns the proceeds from LNG sales, free of any

prior obligations to the Republic of Indonesia.”

None of Pertamina’s representations and actions, as re- _

flected in the record, support the inference that Pertamina had

an ownership interest in the disputed funds. To the con-

trary, Pertamina seems to have been entirely forthright about

its lack of ownership rights. Pertamina’s annual report, for

example, states that “[rJevenue from LNG sales, after deduc-

tion of contractually agreed cost items, is shared between the

Government (65%) and the contractor (35%). From the LNG

operations PERTAMINA earns one thirteenth (1/13) or

approximately 5% from the Government's share.” Pertamina

Annual Financial Report 2000, at 17 (emphasis added).

Although the TPAAs do not denominate the Republic of

Indonesia as owner of the LNG proceeds, Pertamina presents

undisputed evidence that it has consistently transferred all of

its Production Sharing Percentage to the Republic of Indo-

'? Nor can KBC rely on the structure or denomination “f the disputed

accounts at issue here to establish reliance. There is no evidence that KBC

knew of the existence of the Bank of America trust accounts, let alone that

_ it relied on their existence when contracting. KBC sought permission from

the United States District Court for the Southern District of Texas to

Memorandum and Order of February 20, 2002, at 7. In New York alone,

KBC served restraining notices on no less than seven banks. Writ of Exe-

cution and Order to Show Cause of February 22, 2002, at 5. This broad-

side approach suggests that KBC, while perhaps aware that LNG revenues

existed and flowed through New York, knew nothing of these accounts,

let alone who established or controlled them.

34a

nesia’s account at the Federal Reserve Bank of New York.

And it was widely understood that the Republic of Indonesia

relied on LNG funds to maintain its foreign currency

reserves, which would have been more difficult had the funds

belonged to Pertamina, rather than the Republic itself. See

Decl. of Sahala L. Gaol. JJ 11-12.

Further, the evidence of the LNG contracting process

suggests that other persons dealing with Pertamina thought

that Pertamina could not be relied on as a creditor. The LNG

financing structure was designed to assure parties contracting

with Pertamina that—while doing LNG business with Perta-

mina—they would not be left without financial recourse in

the case of default. For instance, when money was needed to

construct Pertamina’s liquefaction facilities, the loan was

not made directly to Pertamina. Rather, it was made to the

trustee, Bank of America. The loan contracts described the

“Borrower” as “Bank of America National Trust and Savings

Association, solely as Trustee under the Trust Agreement

[but) not in its individual capacity” and not “any one or more

of the Producers (defined to include Pertamina].” Bontang VI

Loan Agreement of March 4, 1997, at 4. The loan agreements

further specified that debt payments must be made from the

LNG proceeds in the trust before Pertamina or the PSC

contractor obtain any profit. Jd. at 18-19. The loan agree-

ments therefore warranted that the borrowers’ interest had

priority over all other “obligations and liabilities,” id. at 38,

and the TPAAs provided for payment to Pertamina and the

PSC contractor only after such debts were satisfied, see, e.g.,

Bontang VI Trustee and Paying Agent Agreement of March

4, 1997, at 39. PSC contractors’ interests were also protected

through the trust such that they did not need to rely on access

to Pertamina’s assets in order to be paid. See Decl. of Ainun

Na’im 4 22; Decl. of Robert Hornick § 23(c). The TPAA

mechanism thereby ensured that parties involved in the

production of LNG never needed to rely on the independence

and financial viability of Pertamina nor contend with Perta-

35a

mina’s potential sovereign immunity assertions, nor its will-

ingness to comply with adverse judgments.

Other sophisticated commercial counter-parties thus ex-

pressly sought contractual mechanisms to guarantee recovery

without reliance on the accessibility of Pertamina’s assets.

This suggests that even if KBC had actually relied upon

Pertamina’s ownership rights, such reliance would not have

been reasonable. Others were aware of complexities in the

relationship between Pertamina and the Republic of Indo-

nesia, and consequent limits on Pertamina’s ability to satisfy

judgments against it. We would think that KBC, no less than

others, could have arranged similar protections. Having failed

to bargain for such protection before the fact and having

failed to identify any actual reliance, KBC now asks us in

effect to rearrange nunc pro tunc the relations of Pertamina

and the Republic of Indonesia in KBC’s favor. In these cir-

cumstances, we see no reason why a sophisticated commer-

cial entity should not be required to abide by the conse-

quences of its bargain. We therefore reject KBC’s reliance

argument.

B. The Property Interest Argument

As described above, the crux of the parties’ disagreement

about Indonesian law hinges on a provision of Government

Regulation 41:

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 Per-

tamina according to each Production Sharing Contract

and the retention (fee) received by Pertamina as intended

in paragraph (1) of this Article shall be the Govern-

ment’s portion.

36a

Government Regulation of the Republic of Indonesia

Number 41 of 1982, Art. 5. 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.

Thus, we agree that most of “the share denominated as

‘Pertamina’s’ share under the PSCs belongs entirely to the

Government,” Decl. of Sudargo Gautama § 4, with the

exception of the Article 5(1) Retention. KBC responds that

“the ‘Government’s Portion’ referenced in {Government

Regulation 41] is not a property interest [but] simply a

reference to the ‘indebted obligations’ [already] owed by

Pertamina to the Government of Indonesia.” Petitioner—

Appellee’s Br. at 46 (emphasis omitted). KBC contends that

Law 8, the statute under which Regulation 41 was passed,

creates these “indebted obligations.” /d. at 14-16. Article 15

of Law 8 states that Pertamina s deposit of sixty percent of

Net Operating income from PSCs “shall consti‘ute the

payment” of corporate tax, various levies, and other con-

tributions. Law of the Republic of Indonesia Number 8 Year

1971, Art. 15. KBC argues that the amount that Pertamina

owes to Indonesia in taxes, levies, and contributions is the

“Government’s portion.” The disputed funds are, in KBC’s

view, owned by Pertamina and owed to Indonesia.

But KBC’s interpretation of Article 5 of Government

Reguiation 41 is inconsistent with the surrounding statutory

text. While Article 5(2) identifies in mandatory terms what

“shall be the Government’s portion,” the very next provision

imposes a “tax,” which it explicitly labels as such. Govern-

ment Regulation of the Republic of Indonesia Number 41 of

1982, Art. 5(3). The presence of a parallel provision explicitly

referencing “tax” obligations suggests that Article 5(2)

describes a different kind of obligation. The terminology of

Article 15 of Law 8 underscores this inference: It refers to

payments that “constitute” corporate taxes, customs levies,

and the like, Law of the Republic of Indonesia Number

37a

8 Year 1971, Art. 15, which are distinguished from other

obligations.

Further, Article 5(2) of Government Regulation 41 and

Article 15 of Law 8 refer to different amounts. The former,

which creates the “Government’s portion,” refers to the

“difference between portions received by Pertamina accord-

‘ing to each Production Sharing Contract and the retention

(fee) received by Pertamina.” Government Regulation of the

Republic of Indonesia Number 41 of 1982, Art. 5 (emphasis

added). That is, the Government portion comprises, with

respect to each PSC, the total amount of the Net Operating

Income, /ess the amount to which the particular PSC con-

tractors are entitled, /ess five percent of the Net Operating

Income—a sum that depends upon the exact percentage to

which contractors are entitled under the PSC. And, as KBC’s

counsel explained at oral argument, this percentage varies

from contract to contract, so that the “Government’s portion”

also varies above and below sixty percent of Net Operat-

ing Income. Thus, the “Government’s portion” is a vary-

ing amount.

Article 14 of Law 8, in contrast, refers to a fixed “sixty

percent of the net operating income from the operations of

Production Sharing Contracts prior to the division between

the Enterprise and the Contractor.” Law of the Republic of

Indonesia Number 8 Year 1971, Art. 14. The fixed sixty

percent that is Law 8’s “indebted obligation” therefore cannot

be the same thing as the varying percentage of the Net

Operating Income that is the “Government’s portion. '*

'* Despite this discrepancy, KBC’s expert argues that “Article 14 and

15 [of Law 8] were implemented by [Government Regulation 41].” Decl.

of Robert Hornick § 27. But as a matter of Indonesian law, government

regulations are not implementing mechanisms for legislation. Indonesian

law contains “a bewildering variety of types of laws—statutes, regula-

tions, decrees, circulars, etc.”” Eddy Damian & -Robert N. Homnick, Indo-

nesia's Formal Legal System: An Introduction, 20 Am. J. Comp. L. 492,

523 (1972). Among the varieties of law enumerated in the aforementioned

38a

The record also contains uncontroverted evidence that

Pertamina’s share of the Net Operating Income is transferred

directly to the Ministry’s account at the Federal Reserve Bank

of New York.'? While this does not prove that the Republic

of Indonesia has an ownership interest in such funds, it is

consistent with such a conclusion.

We also agree with other Courts of Appeals that have

suggested that a foreign sovereign’s views regarding its own

laws merit—although they do not command—some degree of

deference. See, e.g.. Access Telecom, Inc..v. MCI Tele-

communications Corp., 197 F.3d 694, 714 (Sth Cir.1999),

cert. denied, 531 U.S. 917, 121 S.Ct. 275, 148 L.Ed.2d 200

(2000) (“Recognizing the difficulty of interpreting foreign

law, courts may defer to foreign government interpre-

tations.”); see also In re Oil Spill by the Amoco Cadiz, 954

F.2d 1279, 1312 (7th Cir.1992) (“A court of the United States

owes substantial deference to the construction France places

upon its domestic law.”). That Indonesia is a party to the case

article are “Government Regulation(s],” “Presidential Decision{s},” “Reg-

ulation[s] of the Minister,” and “internal memoranda.” Jd. at 524-25. This

plethora of legal instruments in part ensues because the Indonesian

executive branch has “considerably more executive law-making discretion

than is the case, e.g. in the legal system of the U.S.” /d. at 529. And under

Indonesian law, “[e]ven statutes passed by the House of Representative

commonly look[{] to the executive orders and Presidential speeches for

their inspiration and legal base.” /d. at 507. Given the discrepancy in

meaning between Law 8 and Government Regulation 41, we conclude

that these rules do not exist in the hierarchal relationship described by

KBC’s expert’s declaration.

' Pertamina introduced testimony that its long-standing practice has

been to hand over funds from PSCs directly to the Republic of Indonesia

through a transfer to the Federal Reserve Bank of New York. See Decl. of

Ainun Na’im 4 23 (noting that “standing instructions to [Bank of America

exist] to pay its Production Sharing Percentage to the account of the

Government of Indonesia”); Supp. Decl. of Sahala L. Gaol. 113 (same).

Such standing instructions were given in March 1997, prior to the Swiss

arbitration in the case at bar. /d.

39a

does not blunt this comity concern. See Société Nationale

Industrielle Aérospatiale v. United States Dist. Court for the

S. Dist. of lowa, 482 U.S. 522, 546, 107 S.Ct. 2542, 96

L.Ed.2d 461 (1987) (“[W]e have long recognized the de-

mands of comity in suits involving foreign states, either as

parties or as sovereigns with a coordinate interest in the

litigation.” (emphasis added) (citing Hilton v. Guyot, 159

U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95 (1895))). Where a choice

between two interpretations of ambiguous foreign law rests

finely balanced, the support of a foreign sovereign for one

interpretation furnishes legitimate assistance in the resolution

of interpretive dilemmas. The Republic of Indonesia, of

course, insists that Pertamina’s reading of the relevant Indo-

nesian law is correct. We thus conclude that Pertamina does

not own any portion of the disputed funds, with the exception

of the Retention. Like a trustee, Pertamina possesses the

remaining funds but has no ownership interest in hem. Cf

Wulff v. Roseville Trust Co., 164 A.D. 399, 404-05, 149

N.Y.S. 683, 687 (1st Dep’t 1914) (“Property which a debtor

holds in trust for others . . . is not subject to an attachment

issued against his property.”’).

C. The Retention

Pertamina also argues that it has no right to the Retention,

or, at 4 minimum, no right to eighty 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 allocation of ownership

interests. Pertamina has not identified any Indonesian statute

or regulation that grants the Republic of Indonesia ownership

rights in the Retention. “[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. Hewiett Packard Co., 970 F.Supp. 212,

217 (S.D.N.Y.1997) (citation and internal punctuation omit-

ted); accord Leon v. Martinez, 84 N.Y.2d 83, 88 n. 1, 638

40a

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 Re-

tention is validly subject to attachment.

CONCLUSION

The district court correctly adjudicated the relative owner-

ship interests of the Republic of Indonesia and Pertamina. We

therefore affirm the district court’s order granting KBC’s

motion to attach the Retention, and denying KBC’s motion to

attach the remainder of the disputed funds. Because this is not

an appeal from a final judgment, proceedings in the district

court will presumably move on to other matters. We direct

the district court, in the course of those proceedings, to

continue the stay presently in force or to substitute one sim-

ilar until such time as the parties’ rights to the disputed funds

are finally determined.

Ala

APPENDIX C

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

[Filed Nov 24, 2004]

No. M-18-302 (TPG)

In the Matter of an Arbitration Between

KARAHA BODAS COMPANY, L.L.C., ;

Petitioner,

against

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS

BUMI NEGARA (“Pertamina”),

Respondent.

OPINION

{

[2] THE COURT: Let me just dictate a ruling from the bench.

I want to in a sense incorporate by reference the statement I

made on the record yesterday beginning at page 159 and

concluding on page 164.

MR. PANOPOULOS: Your Honor, it is difficult to hear

you. I’m sorry.

THE COURT: I am sure that’s right. I wasn’t even looking

out.

I want to incorporate by reference in what I say now the

statement that I made beginning at page 159 of the transcript

yesterday and concluding on page 164.

What this proceeding is about is what we have referred to

as the unadjudicated accounts. The reason that terminology is

used is tha’? out of the several accounts at New York banks

42a

that were set up to handle sales of petroleum products coming

out of Indonesia, certain of those accounts were the subject of

a ruling which I made in April 2002 and were the subject of a

Court of Appeals ruling which was handed down in

December 2002.

At that time, meaning in April 2002, I was of the view that

there was not enough evidence to permit an adjudication of

property rights with respect to certain accounts, and they have

henceforth been called the “unadjudicated accounts.” That

terminology will no longer apply after this afternoon because

the court is proceeding to adjudicate these remaining ac-

counts. [3] To the extent that I am not making any ruling

about certain of the unadjudicated accounts, the reason is that

with respect to certain of them there are no issues.

The record reflects in prior rulings that the problem in this

litigation arises from the fact that petitioner KBC served

restraining notices on the banks with respect to the accounts

in question; that is, the adjudicated accounts and the so-

called unadjudicated accounts. These restraining notices were

served in February 2002.

[4] THE COURT: The purpose of the service of these re-

straining notices was to proceed with the enforcement of a

large judgment, which had been entered in a federal court in

Texas. That judgment was on appeal to the Fifth Circuit, but

no supersedeas bond had been posted, and therefore, KBC

was free to proceed with the enforcement of that judgment.

What I am putting on the record this afternoon will not in

any degree attempt to deal with the amounts of money which

have been at issue. It will not attempt to present a chronology

of all that has occurred in this enormously complicated

litigation. It will simply deal with the essential issue which

needs to he disposed of. From the very start, the principal

issue in controversy regarding these accounts has been the

result of the tact that KBC’s judgment in this case, obtained

43a

in the federal court in Texas, is against the respondent Per-

tamina, a company in Indonesia owned by the Indonesian

government. KBC of course can enforce its judgment only

against the property of Pertamina.

The main issue has been the degree to which the moneys in

the accounts were the property of Pertamina or were the

property of the Republic of Indonesia. The republic has been

permitted to appear in this proceeding to protect its rights. It

has been permitted to appear in the district court, and it has

been permitted to appear in the Court of Appeals for the

Second Circuit.

[5] In connection with the adjudicated accounts, what was

held by the district court and was affirmed by the Court of

Appeals was that funds in these accounts, nominally paid to

Pertamina, after the subtraction and payment by the banks of

expenses and also the share or shares of joint venturers, what

the Court held was that that amount belonged to the gov-

ernment of Indonesia except for what is called the retention

fee. The District Court and the Court of Appeals relied on a

regulation which provided that this amount of money less the

retention fee shall be the government’s portion. And I’m

quoting the English translation of the Indonesian law, and it

has this phrase “the government’s portion.”

It is of some interest now to note that under Indonesian

law, after Pertamina received the retentii1 fee, or was

credited with the retention fee, Pertamina was required to pay

a tax out of that retention fee and to pay a dividend to the

Republic of Indonesia. Both the tax and the dividend were to

be paid to the Republic of Indonesia. Despite the fact that

Indonesian law required the payment of the tax and the

dividend, the District Court and the Court of Appeals did not

hold that the tax and the dividend were the property of the

government. These courts did not hold that the tax and the

dividend were part of the government’s share of the moneys

in question. What was held in substance was that the

44a

obligation to pay the tax and the obligation to pay the

dividend meant [6] that Pertamina had to pay those amounts

out of the retention fee, but that did not mean that the full

retention fee was not the property of Pertamina. Those

amounts were not property of the government until they were

paid.

This is not an astonishing proposition. If a taxpayer earns a

salary, the salary belongs to the taxpayer. It doesn’t instantly

belong to the government, although the taxpayer may ulti-

mately owe the government a tax. If a corporation becomes

obligated by a corporate resolution to pay a dividend, the

revenues coming into the corporation are not the property of

the shareholders the minute they come in. They become the

property of the shareholders when the corporation pays the

dividend.

So the only thing that was held to be the property of the

government was what was referred to as the government’s

shame of those moneys which had come into the bank

accounts and were left after paying expenses to Mobil Oil or

shipping companies and so forth.

Now we come to the issues before us on the so-called

unadjudicated accounts. What constitutes the principal con-

troversy on the unadjudicated accounts, if not the sole con-

troversy, relates to products refined from crude oil at certain

refineries. The first of these is the Cilacap refinery, and there

is a claim that the total of $387 million has flowed into the

relevant bank accounts resulting from sales [7] of refined

products from the Cilacap refinery, and it is contended that

this $387 million was subject to the restraining notices. The

bank account or bank accounts involved in those Cilacap

funds are at the Bank of America. Was it one account or two

accounts?

MR. DUGAN: Just one account, I believe.

45a

THE COURT: One account. OK. So there was one account

in the Bank of America, relating to Cilacap. And EXOR, was

there one account or two accounts?

MR. DUGAN: One account there as well, your Honor.

THE COURT: What about MUSI?

MR. DUGAN: One account there as well. MUSI and

EXOR are at Bank of New York.

THE COURT: So we have an account at Bank of New

York relating to the refinery called EXOR, and, again, the

funds involved sales of refined petroleum products refined

from crude oil. The amount claimed to have flowed through

that account and that was subject to the restraining notices is

about $63 million. It appears that there is a controversy by the

government of Indonesia on the EXOR account only as to

about $38 million. But there is a substantial dispute never-

theless about the EXOR account.

Finally, there is the MUSI refinery account at the Bank of

New York, and it is claimed that the amount of funds there

which are subject to the restraining notices is about a [8]

million and a half.

The statement I’m making is not intended to be a complete

accounting of the unadjudicated accounts. There are certain

accounts where no money has been seized, certain accounts

where apparently there is no controversy. So the complete

accounting for the unadjudicated accounts will come in some

other form and I’m not going to attempt to deal with it in this

statement. What I am trying to deal with is merely the issues

in controversy about Cilacap, EXOR, and MUSI. And it can

be said 1n order to simplify things that the issues are exactly

the same with Cilacap, EXOR, and MUSI. So that I do not

need to draw any distinction among those three accounts.

KBC contends that all of the money that flowed into those

accounts was the property of Pertamina and, assuming a

46a

proper calculation of the time period and other subsidiary

matters perhaps, basically all of the funds flowing through

these accounts were the property of Pertamina and subject to

the restraining notices.

The government of Indonesia asserts that all of the funds

belonged to the government of Indonesia. Pertamina takes the

same position as the government. I don’t think there will be

any confusion on nomenclature. At various times in this

litigation, we have referred to the republic, At times we have

referred to the ministry of finance. In the hearings in the last

two days we have talked mainly in terms of the govern-

ment, [9] and I will probably speak in that fashion in my

statement now.

When resolving the question of who the funds belonged to,

the Court is looking to Indonesian law, as the Court did in

connection with the earlier adjudicated accounts. But when

the crucial factors are considered, Indonesian law is really no

different from New York law. This was made abundantly

clear the discussion held on the record yesterday morning,

and it is clear from the voluminous papers submitted on the

motions before the Court.

Incidentally, 1 neglected to say exactly what motions are

before the Court. However, it is sufficient to simply state that

there is a motion by KBC seeking to have the Court declare

that the moneys passing through the Cilacap, EXOR, and

MUSI accounts belonged to Pertamina and were subject to

the restraining notices. The republic for the government of

Indonesia has filed an appropriate motion secking a decla-

ration that those funds belonged entirely to the government.

Pertamina, as I have said, is on the same side of this con-

troversy with the government.

So we are at the question of, Who did the funds belong to. |

started to describe the basics of the law. I will continue with

that. Muck of what I will say now is so obvious that anyone

47a

reading this would hardly think it worth saying, but in the

context of the issues here, this has to be said. Although

Pertamina is a company owned by the government of [10]

Indonesia and although its activities in the oil industry are

subject to very thorough regulation, nevertheless, Pertamina

is a separate company, separate from the government of

Indonesia as an entity. This was recognized in the earlier

phases of this litigation, and the fact is still true. Pertamina

can enter into contracts. Pertamina has its own bank accounts,

in its own name. The contracts it enters into are in its own

name. Pertamina sells petroleum products in its own name. It

receives payments in its own name which go into its own

bank accounts. Parties in Indonesia and parties abroad can do

business with Pertamina. They can sell equipment and raw

materials to Pertamina. The government itself, according to

the record, sells crude oil to Pertamina. And Pertamina buys

crude oil from the government in Pertamina’s name, and

undoubtedly owes the government the price for that oil. If a

party enters into a transaction with Pertamina, for instance,

selling Pertamina equipment or building facilities for Per-

tamina, Pertamina will be obligated to pay for that equipment

or those facilities. If Pertamina should fail to pay, Indonesia

has a judicial system which will entertain a lawsuit if that is

necessary between the supplier and Pertamina.

It was conceded, as one would expect, that Indonesia has a

law system, the same as the rest of the civilized world. If

someone claims that Pertamina is wrongfully withholding

[11] payment on an obligation, for instance, for the sale of

equipment or for the construction of facilities, that party has

legal recourse against Pertamina in Indonesian courts. If that

party wins, that party can get a judgment against Pertamina.

That pavty does not sue the government of Indonesia. The

government of Indonesia would lodge the strongest possible

objection if the party sued the government on the basis of an

obligation of Pertamina. So if the supplier, the party I’m

‘48a

talking about, wins a lawsuit, the party can get a judgment

and can enforce that judgment. If Pertamina refuses to pay,

that party can enforce the judgment by levying on property of

Pertamina including bank accounts. This is of course in

accordance with legal systems throughout the civilized world

and Indonesia is no exception.

Pertamina has financial statements. These financial state-

ments are included in reports. These financial statements, like

the financial statements in the United States or elsewhere,

have balance sheets and income staternents. Pertamina has its

assets. And the assets are listed as such. They are not listed as

assets of the government of Indonesia.

Pertamina has liabilities, and they are listed as such. They

are not listed as liabilities of the government of Indonesia.

Pertamina has income listed as such. It is not listed as income

of the government of Indonesia. It has expenses listed as

such. These are not listed as expenses of the government of

[12] Indonesia.

Pertamina seeks financing, sometimes abroad. And these

financial statements are used to help obtain financing.

Needless to say, Pertamina does not seek financing by saying

it is not liable for anything and only the government is liable,

who is not a party to the contract in question.

Pertamina has debt obligations. And parties have a right to

look to. Pertamina on those debt obligations.

So all of this is in a¢cordance with Indonesian law, Indo-

nesian accounting practices. And these are the basics of the

law and the accounting practices which exist.

Now, Pertamina sold refined petroleum products out of the

refineries J mentioned. These products were exported and

sold abroad. Purchasers paid for these products, and they paid

Pertamina. And the funds that were paid were, according to

agreement, deposited in the account at the Bank of America

49a

‘and the accounts at the Bank of New York. Expenses were

paid under the administration of the banks. If there were any

joint venturers, the joint venturers’ shares were paid. In other

words, whatever was needed to pay parties other than

Pertamina was taken out of the funds and paid by the banks.

What was left was in Pertamina’s name and this was the net

receipts after paying outside parties whatever they were due.

The funds were duly transmitted, or were subject to trans-

mission, from the New York banks to bank accounts of [13]

Pertamina in Indonesia.

Here let me pause to reset to a complication which I do not

want to describe in detail, but let me try briefly to state the

necessaries. The amount of money which ended up literally

staying, or being lodged in the New York banks was limited

to the amount necessary to pay the judgment plus interest.

This was done under the guidance of the Court of Appeals

and also was implemented by the District Court and evolved

in various ways that are not necessary to be described. So the

amount actually lodged in New York banks pursuant to the

restraining notices is a little over $300 million.

There are no funds from Cilacap, EXOR, or MUSI literally

held up in New York banks. But the effect of court rulings

and agreements is that if the Court decides that these funds

were subject to restraint, the amounts that I have talked about

as having flowed through these accounts will be deemed to be

available to be applied to the judgment. This is not a perfect

description, but it is as far as I’m going to go now. But this is

why I have referred to the fact that amounts of money have

flowed through the accounts. And that’s what has happened.

And the issue is, when those moneys flowed through the

accounts, to whom did they belong? Pertamina or the gov-

ernment of Indonesia? If they belonged to Pertamina, they

were subject to the restraining aotices. If they belonged to the

government of Indonesia, they were not subject to the [14]

restraining notices.

50a

I’m going back to the flow of the funds. As | said, the

funds, after payment of expenses to outside parties, were in

Pertamina’s name. They were transmitted to Pertamina in

Indonesia. There is no suggestion that these funds or any

portion of them were paid to the government of Indonesia or

seized by the government of Indonesia in any way because of

some property interest asserted in these particular funds by

the government. That was not done. This is a completely

different picture from what was presented in connection with

the adjudicated accounts.

These funds, in connection with Cilacap, EXOR, and

MUSI, simply became part of the general funds of Pertamina,

as well as receipts from other sales, and were used to pay the

various expenses of Pertamina.

The record contains a financial statement of Pertamina for

the year 2001. It shows a balance sheet as of December 31,

2001, and it shows a consolidated statement of income for the

year ending December 31, 2901. There is also a statement for

an earlier period, but I’m going to concentrate on the 2001

balance sheet and income statement.

The balance sheet lists assets of Pertamina. They include

cash on hand in banks of about 20 trillion Indonesia rupiahs.

Various other assets that one would expect are listed. The

total assets are listed at what appears to be [15] about 96

trillion rupiahs. The figure is a little bit hard to read, but I

believe it’s about 96 trillion rupiahs.

The balance sheet, of course, lists liabilities and share-

holders equity. Total current liabilities are listed at about 30

trillion rupiahs. Other liabilities appear to be about 37 or 38

trillion rupiahs. Stockholders equity is listed as about 28

trillion rupiahs. Total liabilities and stockholders equity is

listed at about 96 trillion rupiahs. These are all listed as assets

and liabilities and equity of Pertamina. They are not listed

as assets and liabilities and equity of the government of

Indonesia.

Sla

Now, in the consolidated statement of income, there is, as

one would expect, a list ‘of revenues and a list of expenses.

The revenues for the year 2001 were about 212 or 213 trillion

rupiahs. The figure is hard to read, but that is about it.

These revenues for 2001 included, as one would expect,

the revenues from the export of oil products, the kinds of

things which were going on with the Cilacap, EXOR, and

MUSI accounts. The amount for 2001 was about 14 trillion

rupiahs. The income statement, of course, listed expenses.

The items under expenses total about 201 trillion rupiahs. The

item labeled “profit before government share” is listed as

about 10 1/2 trillion rupiahs. It appears that, pursuant to

certain legal provisions which came into effect when

Pertamina was [16] started, that the government was entitled

to a share of these profits. That share is listed for 2001 as

about 6 trillion rupiahs.

The net profit after all things are considered is listed as

about 4 1/2 trillion rupiahs. |

All of these items are listed as revenues, expenses, profits,

and so forth of Pertamina. And one would expect this to be

done, in view of the fact that Indonesian law, as | have

described, is not some weird concoction. It is in accordance

with the law of the civilized world, and its accounting

practices are of the same nature.

Now we come to the argument of the government. The

argument of the government was summarized by me to a very

substantial extent in the pages I referred to from yesterday’s

transcript, pages 159 through 164. Almost all of the factual

basis for the government’s argument is something that |

accept. Pertamina, as | have said, is a company owned by the

Indonesian government. It is heavily regulated by the Indo-

nesian government. But the argument of the government in

this proceeding is based on a quite specific set of circum-

stances. Indonesia, pursuant to clear law, has a program, or a

52a

policy, under which petroleum products are furnished to the

people of Indonesia at prices which are set by the government

and are based on a practice of government subsidies. This is

referred to as the BBM program or policy. Pertamina

participates in [17] this program, as it is directed to do by law.

And in participating in this program, Pertamina is obliged to

act for the benefit of the Indonesian government and the

people of Indonesia. Under this program, Pertamina refines

crude oil, turns it into products such as gasoline and fuel oil,

and Pertamina sells these products either directly or indirectly

to domestic purchasers in Indonesia. The record shows that to

some extent the crude oil used in this program is lifted out of

the ground by Pertamina, to some extent is lifted out of the

ground by other parties, including the government of Indo-

nesia or joint ventures between the government of Indonesia

and other parties. Where the government of Indonesia is

involved in lifting crude oil and selling it to Pertamina, this is

a sale by the government of Indonesia to Pertamina, and

Pertamina pays the government for that crude oil.

Pertamina must sell the refined products at prices which

accord with the regulations or policies of the BBM program.

The program has been described on the record here as being

for Pertamina a no-loss and no-profit situation. Although

there may be technical exceptions to this basic concept that

are suggested in parts of the evidence, the government and

Pertamina assert that the BBM program was indeed a no-loss

and no-profit program as far as Pertamina was concerned, and

the Court accepts that basic proposition. This means that if,

for a relevant period, Pertamina was selling [18] products to

domestic purchasers in Indonesia and was making a profit,

then that profit would need to be paid to the government of

Indonesia. On the other hand, if Pertamina was selling at

prices which resulted in a loss to Pertamina, then the gov-

ernment would pay a subsidy to Pertamina to cover that loss.

The calculation of profit or loss would be made by the

method one would expect—that is, taking the costs to

53a

Pertamina in connection with this program—that is, the cost

of raw materials, the cost of refining, etc.—and then taking

the revenues and determining which was larger. If the

revenues exceeded the costs, there was a profit. If the

revenues were less than the costs, there was a loss.

Now, here, it is necessary to deal with the circumstance,

which is basically the main factor in the government’s argu-

ment and Pertamina’s argument, that revenues from export

sales belonged to the government of Indonesia. The export

sales were non-BBM sales. They were not subsidized. There

were also some non-BBM domestic sales. All the non-BBM

revenues were used in the calculation of whether there was a

profit or loss in the BBM program. That is, even though the

export sales were not BBM sales, and even though there were

some domestic sales that were not BBM sales at the fixed

prices, nevertheless, the revenues for such non-BBM sales

were used in the calculation of whether there was a profit or a

loss on the BBM program. |

[19] One thing that has been said is that these revenues were a

proxy for BBM costs. I am not sure what that means, but

basically what happened is that these revenues were applied

to reduce the BBM costs. Another way to put it is simply that

they were added to the revenues on the BBM program. It’s all -

the same thing.

If one wonders what happened to the costs associated with

the non-BBM sales, the answer that has been given to the

Court is that there were unitary costs and there were no

specific costs associated, additional costs associated with the

non-BBM sales. Exactly how that was accomplished is an

accounting matter. It has not been gone into. But the Court

does not doubt that that type of accounting would be quite

legitimate.

So the non-BBM revenues were used as I have just

described, and since we are concerned in our proceedings

54a

here with the non-BBM revenues derived from export sales, I

will probably concentrate to some extent on those particular

revenues in further discussion.

Now, in the consolidated statement of income for the year

2001, there is an item listed under Revenues entitled

“reimbursement of fuel expenses from the government.” And

in the year 2001, that was about 61 trillion rupiahs. The

record does not show exactly how that was calculated, but it

is conceded by Pertamina that the method of calculation is

what I [20] described a few minutes ago—that is, taking the

costs of BBM sales and the revenues from the BBM sales,

and then taking the revenues from the non-BBM sales to add

to BBM revenues or reduce BBM costs and netting out what

results from those figures. And for 2001, what netted out was

61 trillion rupiahs.

Pertamina and the government urge that because the BBM

program was for the benefit of the government and for the .

people of Indonesia and because the export sales revenues

were used in the calculation of profit or loss from that

program, this means that the revenues from the export sales

were the property of the government of Indonesia from the

moment that they were earned.

This brings me to my conclusion. I conclude that Pertamina

and the government have drawn an incorrect conclusion. The

fact that the revenues from the export sales were used in the

calculation of BBM profit or loss in the way I have described.

this fact under no circumstances means that those revenues

belonged to the government of Indonesia at any time, when

they were passing through the banks in New York or at

any time.

The fact that these revenues from the export sales were

used to calculate Pertamina’s profit or loss on the BBM

program is indeed a very strong indication that these revenues

belonged to Pertamina. The government of Indonesia, in

55a

2001, [21] paid a very large subsidy. The reason the subsidy

was not 14 trillion rupiahs higher than the 61 trillion rupiahs

is because the government considered that the 14 trillion

rupiahs from the export sales belonged to Pertamina and re-

duced the costs of the BBM program to Pertamina that is,

reduced Pertamina’s costs. This is totally inconsistent with

any idea that the 14 trillion rupiahs belonged to the gov-

ernment of Indonesia.

There is nothing about the BBM program or the accounting

for it which takes away in the slightest from the fact that these

revenues from the export sales belonged to Pertamina, were

available to Pertamina to put in its bank accounts, were

available for use by Pertamina to pay its expenses. None of

that is in any degree contradicted by what has been asserted

and what I have found about the BBM program.

Now, in addition to the use of the revenues to calculate the

subsidy of 61 trillion, which is shown in the income statement

of 2001, the 14 trillion was a line item in the income

statement. The specific use of the 14 trillion in calculating the

subsidy is not shown. That calculation is not shown and is not

in any paper that is on the record here, although the method

of that calculation has been conceded.

But, in addition to using the 14 trillion in a perfectly

obvious way to calculate the subsidy due, the 14 trillion

rupiahs was listed as a line item in the consolidated statement

of income. The 14 trillion rupiahs had been received [22] by

Pertamina from the export sales. And those 14 trillion rupiahs

are shown as a line item on the statement of income. It’s

there. This is not something dreamed up by anybody. The

statement of income simply does include, in black and white,

14 trillion rupiahs as revenues from the export sales. That 14

trillion rupiahs is used as one of the items adding up to the

total revenues of 212 trillion rupiahs. It is used as part of the

calculation leading up to the ultimate figure of profit before

the government’s share, and so forth.

56a

This is in accordance with proper accounting practices.

Nobody suggests that this financial statement was in any way

fraudulent or incorrect. Nobody suggests that it is not in

accordance with both Indonesian law and Indonesian ac-

counting practices.

For these reasons, I conclude that it is clear beyond any

shadow of a doubt that the export revenues flowing through

the Cilacap, EXOR, and MUSI accounts were funds

belonging to Pertamina which were subject to the restraining

notices involved in this litigation. The matter indeed is not

really complicated. The arguments of Pertamina and the

government really made no showing of any substantial reason

why this conclusion is not the right conclusion.

That concludes my ruling on the law, and we will now go

to something else.

[23] SO ORDERED.

Dated: New York, New York

October 6, 2004

/s/ Thomas P. Griesa

THOMAS P. GRIESA

U.S.D.J.

57a

In the Matter of:

KARAHA BODAS CO., L.L.C., v.

PERUSAHAAN PERTAMBANGAN MINYAK

DAN GAS BUMI

Trial Volume 1

October 5, 2004

SOUTHERN DISTRICT REPORTERS, P.C.

500 PEARL STREET

NEW YORK, NY 10007

(212) 805-0300

[159] Now, let me address the issue we are about. | think that

the exhibits before me and the written materials establish that

there was and is this BBM program. I think the materials

establish that the operations of Pertamina were very largely in

furtherance of that program and that the program was [160]

established by the government of Indonesia and Pertamina’s

operations in that program are pursuant to the laws of

Indonesia, decrees, regulations, whatever. | think the materi-

als before me establish that the sales that are at issue here,

which yielded the funds that are now tied up, they came from

what has been referred to as non-BBM business. But I think

the materials establish that this business was not totally out-

side the BBM framework but that what was done and what

was intended, what was legally decreed is exactly what

Pertamina and the ministry say, that the revenues from those

sales were used, were in effect treated as BBM revenues so as

to offset BBM costs. And the purpose of this was to have that

type of application so as to ultimately determine the ultimate

question. That is, for some period in question, and I’m not

exactly sure whether the period is at the end of a month or the

end of a year or the end of a quarter, but at the end of some

period, it was intended and established by law that there

58a

would be a determination of whether Pertamina had made a

profit or incurred a loss after taking into account all Perta-

mina’s revenues, both from BBM sales and from non-BBM

sales, and taking into account all of Pertamina’s expenses.

And those revenues and those expenses are reflected in the

~—earings statements of Pertamina. And they involve very,

very large total amounts of money. I| think the materials

before me establish that if Pertamina incurred a loss, then the

[161] government of Indonesia in some way paid Pertamina

to cover that loss. Now, I’m not entirely sure of that, because

there is some evidence that the government may have made

up the difference between the BBM price, the fixed price to

the Indonesian consumers and the market price. So I’m not

completely sure of exactly what occurred in connection with

what I have just said. But the principle is really not different.

Regardless of the exact mechanics, I think the evidence

shows that the government was making up the loss.

Now, the. weight of the evidence is that if Pertamina made

a profit, then it had to pay the profit to the government,

although there is some question about that that is raised by a

document introduced by KBC. But, again, for our ultimate

question, in my view, that does not make a difference in the

principle that we have to deal with.

So what I’m saying to you is that theréis no reason, in my

view, to introduce further evidence to support what I have

said. 1 accept the idea that all of what I have said was done

for the benefit of the Indonesian government and the Indo-

nesian people, the Indonesian government representing the

Indonesian people, that all of the activities of Pertamina were

designed to further those governmental objectives. And |

don’t need to cite a great many specific instruments. There

are plenty of governmental legal instruments which display

what I have said, as far as I know.

[162] Now, what’s the issue that remains? In my view,

none of that solves the issue before the Court. And what I’m

59a

coming to now, of course, is in my view the controversy. The

question, in my view, is, what is the effect of this circum-

stance? Pertamina was and is a company. Pertamina, even

according to the documents most heavily relied on by Per-

tamina and the government, Pertamina, for one thing had

assets. This directive 105 has a section, section 3, about Per-

tamina’s balance sheet, and it speaks of Pertamina’s assets. It

speaks of Pertamina’s liabilities. Now, is the idea that these

were assets but not assets? Were they something, was this a

facade? Were these finarrcial statements created with some

hidden meaning that assets don’t mean assets? These finan-

cial statements were undoubtedly used for many purposes by

operations. Were they giving out these financial statements

and having some hidden meaning? The financial statements

have earning statements showing revenues of Pertamina,

showing expenses of Pertamina. Were these not revenues of

Pertamina? Were these financial statements, which were un-

doubtedly given to companies relying on them, was there

some hidden meaning so that the revenues did not mean

revenues of Pertamina and-expenses did not mean expenses

of Pertamina? Why does directive 105 talk about assets if

there were no assets?

So, granted that at the end of some day, whether it’s [163]

at the end of the month or the end of a quarter or the end of a

year, granted that there was to be a reckoning so that there

had to be figuring of whether there was a profit or a loss to

Pertamina, that profit and loss was figured on the basis of

calculating the revenues of Pertamina versus the expenses of

Pertamina. How else does one figure whether Pertamina has a

profit or loss? Now, if they weren’t revenues of Pertamina,

there would be a very odd accounting. I would not know quite

what kind of an animal to call that. Then I suppose you would

have to say, well, the costs were not costs to Pertamina. They

were simply the costs of the governement. Then why is the

60a

government figuring whether there’s a profit or a loss? It

would be a very, very odd arrangement.

So the issue in my mind is this. While the revenues were

coming in from these export sales and while they were going

to Pertamina and while, as we discussed this morning, while

they could be used as part of the funds to pay the obligations

of Pertamina, while they could be used to back up contracts

entered into by Pertamina, while Pertamina could spend that

money, could put it in Pertamina’s bank account, while all

that was going on, is it or is it not the case that Pertamina, that

it was Pertamina’s money and that Pertamina could use-it to

pay any obligation that Pertamina had? Can it not be used to

pay the obligation to KBC? And if such money is restrained

in a New York bank account or comes through a New [164]

York. bank account, can it not be restrained to pay this

obligation?

So what I’m trying to say is, most of what Pertamina and

the republic have presented I accept. You do not need to

spend any more time putting on evidence of that. What I do

not accept without further exploration is a conclusion that

because of those circumstances, Pertamina had no ownership

interest in those funds and the government had the sole

ownership of those funds. And that issue revolves, in my

view, upon what ocurred with respect to who had the ability

to spend the money, how the money was accounted for in a

financial statement, and so forth and so on. And none of that,

those issues are not even touched by this discussion of the

BBM arrangements and so forth.

So try to come back tomorrow and focus on these issues,

and don’t take time in having a lot of testimony about

things which I really accept. So we’ll see you at 10 o’clock

tomorrow.

MR. SLATER: Thank you, your Honor.

(Adjoured to 10:00 a.m., Wednesday, October 6, 2004)

6la

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

21-MC-00098 (7G)

In the Matter of an Arbitration Between

KARAHA BODAS COMPANY, L.L.C.,

Petitioner,

PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS

BUMI NEGARA (“Pertamina’”),

Respondents.

FINAL JUDGMENT

1. On December 4, 2001, the United States District

Court for the Southern District of Texas entered judgment

(the “Texas Judgment’) in an action between Karaha Bodas

Company, L.L.C. (“KBC”) and Perusahaan Pertambangan

Minyak Dan Gas Bumi Negara, now known as PT Pertamina

(Persero) (“Pertamina”), confirming an UNCITRAL arbitra-

tion award requiring Pertamina to pay KBC a total of

$261,166,654.92, plus interest at the rate of 4% per annum

from January 1, 2001 until full payment. The United States

Court of Appeals for the Fifth Circuit affirmed this j:.4gment,

and on October 4, 2004, the United States Supreme Court

denied Pertamina’s petition for writ of certiorari.

2. The Texas Judgment was registered in and became a

judgment of this Court on February 22, 2002. On February

22, 2002, this Court issued writs of execution and restraining

notices pursuant to Rule 69 of the Federal Rules of Civil

Procedure and Article 52 of the New York Civil Practice Law

and Rules requiring, inter alia, Bank of America, N.A. and

62a

The Bank of New York to restrain certain funds that flowed

through 24 trust accounts maintained in Pertamina’s name

at those banks in this District (such accounts, the “Trust

Accounts”). 3

3. Bank of America and The Bank of New York estab-

lished 24 restraining accounts corresponding to the Trust

Accounts in which to keep restrained funds (such accounts

the “Restrained Accounts’’).

4. The Ministry of Finance of the Republic of Indonesia

(“Ministry”) challenged the District Court’s jurisdiction under

the Foreign Sovereign Immunities Act to restrain the funds,

claiming that under Indonesian law the funds belonged to the

Government of Indonesia and not the judgment-debtor

Pertamina.

5. On April 24, 2002, the District Court issued a Final

Order determining ownership of the funds restrained in fif-

teen of the Restrained Accounts located at Bank of America

in New York (the “Adjudicated Accounts”). The April 24

Final Order held that with respect to these fifteen Adjudicated

Accounts, which restrained revenues from the sale of Indo-

nesian Liquefied Natural Gas (“LNG”): (1) Pertamina had a

property nght in those accounts to the extent of its Retention

Fee and KBC could execute only upon an amount of the

funds equal to the Retention Fee; and (2) the remaining LNG

revenues were the Government’s portion and cannot be exe-

cuted upon by KBC. The Court certified the ruling for inter-

locutory appeal and stayed its ruling pending the appeal. At

the time of the April 24 Final Order, the amount of revenues

restrained in the Adjudicated Trusts was $292,874,622.17.

6. The April 24 Final Order did not determine ownership

of the funds restrained in the remaining nine Restrained

Accounts because the record at the time was insufficient to

determine whether KBC was entitled to execution against

those accounts. These nine accounts were subsequently de-

nominated as the “Unadjudicated Accounts.” (the Adjudi-

63a

cated and Unadjudicated Accounts together make up the

Restrained Accounts.)

7. KBC, Pertamina, and the Ministry appealed the April

24 Final Order and the Ministry moved to lift the stay to the

extent of the amount of funds belonging to the Government.

On June 18, 2002, the U.S. Court of Appeals for the Second

Circuit issued an Order modifying the District Court’s stay to

apply only to sufficient funds to satisfy the judgment and

maintaining the stay only as to funds up to the amount of

KBC’s Judgment. As a result of the Second Circuit’s order,

the amount of funds restrained in the Adjudicated Accounts

over and above the amount of the judgment, plus interest, was

released. The amount of revenues left restrained in the 15

Adjudicated Accounts on that date equaled $276,633,524.59.

The Second Circuit’s order did not affect the nine Un-

adjudicated Accounts, and the amount of funds in those

accounts continued to grow as funds payable to Pertamina

from the corresponding Trust Accounts were restrained in

the Unadjudicated Accounts pending adjudication of the

funds’ ownership.

8. In an opinion issued on December 10, 2002, the

Second Circuit affirmed the District Court’s April 24 Final

Order. Because the appeal was interlocutory and proceedings

in the District Court would continue, the Second Circuit

directed the District Court to continue the stay in force or to

substitute one similar until such time as the parties’ rights

to the disputed funds were finally determined. The Dis-

trict Court then undertook to determine the amount of the

Retention Fee associated with the funds restrained in the

Adjudicated Accounts that could be executed upon, and to

adjudicate ownership of the funds restrained in the nine

Unadjudicated Accounts.

9. On March 18, 2004, this Court issued an Order modi-

fying the restraining notices and requiring Bank of America

to restrain funds equal only to the amount of the Texas

64a

Judgment plus accrued interest. The March 18 Order was

entered without prejudice to the parties’ positions in the

litigation for the purpose of maintaining sufficient security for

KBC’s judgment and releasing to the Ministry funds not

required for such security. The March 18 Order required,

inter alia, (1) the release to the Ministry of all funds re-

Strained in excess of the amount of KBC’s judgment plus

interest, and (2) that only funds equal to the amount of the

Texas Judgment plus accrued interest was to be left restrained

in the fifteen Adjudicated Accounts at Bank of America, plus

whatever additional amounts would be necessary to true up

accrued interest. The funds kept restrained were to be treated

as security for such amounts, if any, as were finally held in

further proceedings in this Court and on appeal to belong to

Pertamina and to be subject to execution against Pertamina

from among the funds that passed through the Trust Accounts

since February 22, 2002.

10. The March 18, 2004 Order further provided that if the

Texas Judgment is finally affirmed, the amount restrained at

Bank of America would be paid to KBC to the extent it is

finally determined on appeal that funds passing through the

Trust Accounts or restrained in the Restrained Accounts

which belong to Pertamina and are subject to restraint are at

least equal to the amount of the Texas Judgment plus interest.

If it is determined that the amount belonging to Pertamina and

subject to restraint is less than the amount of the Texas

Judgment plus interest, the March 18 Order provided that the

difference would be paid to the Ministry.

11. At various times, this Court has ruled that certain of

the funds flowing through the Trust Accounts or restrained in

the Restrained Accounts are the property of Pertamina and

properly restrained and executable by legal process (such

funds, “Executable Funds”’). Specifically:

(a) On January 29, 2004, this Court issued an opinion

ruling, among other things, that the restraining notices

65a

on the Trust Accounts corresponding to the Adjudicated

Accounts continued to be effective under N.Y.C.P.L.R.

§ 5222(b) even after the Bank of America trustee

stopped restraining further amounts in the Adjudicated

Accounts as a result of the amounts restrained in those

accounts reaching double the amount of the judgment or

the Second Circuit’s June 18, 2002 Order. According to

the Opinion, as Retention Fees passed through the corre-

sponding Trust Accounts, they would be deemed re-

strained even though the trustee did not literally with-

hold those funds in the Adjudicated Accounts, such that

an equivalent amount from the funds already restrained

in the Adjudicated Accounts would be considered as

becoming Retention Fees. Thus, the January 29 Opinion

held that the restraints applied to $178,161,403, which

the Court determined to be the amount of Retention Fees

earned in respect of the funds that passed through the

Trust Accounts corresponding to the Adjudicated Trusts

from February 22, 2002 to the end of 2002, as well as to

any Retention Fees earned thereafter, and that KBC was

entitled to restrain and execute on this amount.

(b) On May 19, 2004, this Court issued an Opinion

ruling, among other things, that Pertamina continued to

earn a Retention Fee with respect to the Adjudicated

Accounts, albeit in a reduced amount, until Novem-

ber 21, 2003. The May 19 Opinion further held that

$132,992,871 of the funds that had passed through the

corresponding Trust Accounts in 2003 represented the

Retention Fees earned in respect of the those accounts in

2003 and, for the same reasons provided in the January

29 Opinion, that amount was deemed restrained in the

Adjudicated Accounts and executable.

Pertamina had a property interest in an additional

$8,384,679 and $3,690,000 of the revenues in the

66a

Unadjudicated Accounts that had been restrained from

the sale of natural gas products because such amounts

constituted, respectively, the amount of the 2002 Reten-

tion Fee earned in respect of the West Natuna, Corridor,

and KMI Trust Accounts and the amount of Pertamina’s

participating interest in the contractors’ share of the

West Natuna Kakap Block PSC.

(d) On October 6, 2004, this Court also orally ruled

released from the Unadjudicated Accounts correspond-

ing to the Cilacap, EXOR I, and MUSI II Trust Accounts

and, after release, passing through the Cilacap and MUSI

II Trust Accounts, through the date of this judgment,

totaling $452,736,910, belong to Pertamina.

12. The amount of the judgment as of October 6, 2004,

including simple interest at the rate of 4%, was

$300,498,637.52. The amount as of October 6, 2004 re-

Strained in the Adjudicated Accounts at Bank of America

pursuant to the Court’s March -18, 2004 Order was

$301,051,979.84.

13. As a result of the above-described rulings, this Court

hereby finds that the amount of Pertamina property re-

Strained and/or deemed restrained in the Adjudicated and

Unadjudicated Accounts’ since February 22, 2002 totals

$775,965,863, and that this amount of Executable Funds

exceeds the Texas Judgment plus accrued interest.

14. On October 6, 2004, this Court ordered Bank of

America to release immediately $29,318,992—representing

the $3,690,000 held to be Pertamina’s participating interest in

the West Natuna Kakap Block PSC, and $25,628,992 of the

funds from the EXOR | account—to KBC. The amount of

the judgment on October 12, 2004 (the date of the release

of $29,318,992) is $300,669,894.32. Consequently, the un-

paid amount of the judgment, as of October 12, 2004, is

$271,350,902.32.

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15. As a result of the above rulings, Bank of America

is hereby ORDERED, pursuant to Rule 69 of the Federal

Rules of Civil Procedure and Article 52 of the New York

Civil Practice Law and Rules, to tum over to KBC

$271,350,902.32, plus all accrued interest from October 13,

2004 to the date of full payment.

16. However, Bank of America’s obligation to turn over

such funds to KBC is hereby stayed until all U.S. appeals and

review (if any) by the U.S. Supreme Court of this Final

Judgment have been adjudicated or otherwise exhausted, or

until further order of this Court.

17. During the period that the foregoing stay is in effect,

simple interest at the rate of 4% per annum shall continue to

accrue on the unpaid amount of the judgment, and Bank of

America shall continue to restrain funds sufficient to pay the

unpaid amount of the judgment and all interest that accrues in

the future.

Dated this 22nd day of October, 2004.

/s/ Thomas P. Griesa

THOMAS P. GRIESA

United States District Judge

68a

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

THIS SUMMARY ORDER WILL NOT BE PUBLISHED

IN THE FEDERAL REPORTER AND MAY NOT BE

CITED AS PRECEDENTIAL AUTHORITY TO THIS OR

ANY OTHER COURT, BUT MAY BE CALLED TO THE

ATTENTION OF THIS OR ANY OTHER COURT IN A

SUBSEQUENT STAGE OF THIS CASE, IN A RELATED

CASE, OR IN ANY CASE FOR PURPOSES OF COL-

LATERAL ESTOPPEL OR RES JUDICATA.

At a stated term of the United States Court of Appeals for

the Second Circuit, held at the Thurgood Marshall United

States Courthouse, Foley Square, in the City of New York, on

the 9th day of March, two thousand and six.

PRESENT:

Hon. John M. Walker, Jr.,

Chief Judge,

Hon. Pierre N. Leval,

Hon. Sonia Sotomayor,

Circuit Judges.

69a

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Docket Nos.

04-655 1-cv(L)

04-6672-cv(C)

In the Matter of an Arbitration Between

KARAHA BODAS COMPANY, L.L.C.,

Petitioner-Appellee,

BANK OF INDONESIA, Non-Party- Witness,

Garnishee,

MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA,

Non-Party-Respondent-Appellant,

PERUSAHAAN PERTAMBANGAN MINYAK w AN

GAS BUMI NEGARA,

APPEARING FOR APPELLANT

PERUSAHAAN PERTAMBANGAN

MINYAK DAN GAS BUMI NEGARA:

APPEARING FOR APPELLANT

MINISTRY OF FINANCE OF THE

REPUBLIC OF INDONESIA:

APPEARING FOR APPELLEE:

Respondent-Appellant.

HENRY WEISBURG, Shearman &

Sterling LLP, New York, NY

(Pieter Van Tol, Scott Horton, and

Victoria Paladino, Lovells, New York,

NY, on the brief).

FRANK PANOPOULOS (Carolyn B.

Lamm, R. Shawn Gunnarson, and f

Eric Grannon, on the brief), White

& Case LLP, Washington, DC.

CHRISTOPHER F. DUGAN (James E.

Berger, Matthew S. Dunne,

Danielle W. Pierce, and Carolyn

E. Morris, on the brief), Paul.

Hastings, Janofsky & Walker LLP,

Washington, DC.

70a

Appeal from a judgment of the United States District Court

for the Southern District of New York.

UPON DUE CONSIDERATION, IT IS HEREBY OR-

DERED that the district court’s judgment is AFFIRMED.

Respondent-appellant Perusahaan Pertambangai Minyak

Dan Gas Bumi Negara (“Pertamina”) and non-party-re-

spondent-appellant Ministry of Finance of the Republic of

Indonesia (“Indonesia”) appeal from the November 19, 2004

judgment of the United States District Court for the Southern

District of New York (Thomas P. Griesa, Judge) directing the

Bank of America to turn over to petitioner-appellee Karaha

Bodas Company, L.L.C. (“KBC”) funds restrained to secure a

money judgment against Pertamina.

We assume familiarity with the facts and procedural his-

tory and provide only a selective recitation here. On Feb-

ruary 22, 2002, the district court issued restraining notices

requiring several banks in the Southern District of New York

to restrain funds deposited into certain trust accounts held in

Pertamina’s name. Of those, the “refinery accounts” received

funds from Pertamina’s export sale of refined petroleum

products. The parties dispute whether funds flowing through

the refinery accounts (the “refinery funds”) were Pertamina’s,

and therefore subject to restraint and execution, or Indo-

nesia’s, and therefore not subject to restraint or execution.

Because the amount that flowed through the refinery ac-

counts, roughly $452 million, excceds the current size of the

underlying money judgment, roughly $319 million, a deter-

mination that the refinery funds belonged to Pertamina would

afford KBC full recovery. We note that the precise funds

deposited into the refinery accounts are no longer restrained.

As reflected in the district court’s March 18, 2004 order, and

as confirmed at oral argument, the parties agreed that banks

subject to the restraining notices would release all restrained

funds to Indonesia except for an amount held in certain

restrained accounts at the Bank of America that would be

Tla

sufficient to satisfy the underlying money judgment. The

parties agreed that these funds would secure KBC’s recovery

of whatever funds passing through any of the accounts at

issue, including the refinery accounts, the court determined to

belong to Pertamina.

To determine the ownership of property, we first consider

possession. Because the refinery accounts were held in Per-

tamina’s name, Pertamina is their presumptive owner. See

Karaha Bodas Co. v. Pertamina, 313 F.3d 70, 86 (2d Cir.

2002). “[T]his presumption may be rebutted by evidence that

the Republic of Indonesia actually controlled the disputed

funds, or that Pertamina merely held the funds for the

Republic of Indonesia, in the manner of a trustee.” Jd. Such a

relationship would be “established . . . by provisions of

Indonesian law uniquely applicable,” so we now look to that

law. Id. at 87.

The appellants contend that the Indonesian “BBM” system

establishes Indonesia’s ownership of the refinery funds. We

disagree. First, although the no-profit-no-loss subsidy of the

BBM regime does establish that Indonesia acts like a guar-

antor of Pertamina’s BBM operation, it does not deprive

Pertamina of control over the refinery funds. Pertamina is

allowed to spend those funds for any purpose, such as

building asphalt plants, subject only to budgetary limitations.

Second, we find no inconsistency in the fact that Pertamina

operates the refineries on behalf of Indonesia for the benefit

of the Indonesian people and the proposition that Pertamina

owns revenues generated from the sale of its output. In short,

Pertamina points to no Indonesian legal directive that deems

the refinery funds Indonesia’s, cf id. at 90-92, or indicates

that upon their receipt, they are anything other than “property

within Pertamina’s control, which only Pertamina controls.”

Id. at 92. Because the presumption that Pertamina owns the

refinery funds is unrebutted, the district court correctly held

that those funds belonged to Pertamina and ordered the Bank

72a

of America to turn over the balance of the underlying money

judgment to KBC.

For the foregoing reasons, the district court’s judgment is

AFFIRMED. Because the appellants may seek review in the

Supreme Court, KBC’s pending motion of July 5, 2005,

to vacate the district court’s stay of execution and turnover

is DENIED. |

FOR THE COURT:

Roseann B. MacKechnie, Clerk

By:

Lucille Carr, Deputy Clerk

73a

APPENDIX F

EXCERPTS FROM THE

FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976

§ 1603. Definitions

(a) A “foreign state”, except as used in section 1608 of

this title, includes a political subdivision of a foreign state or

an agency or instrumentality of a foreign state as defined in

subsection (b).

(b) An “agency or instrumentality of a foreign state”

means any entity—

(1) which is a separate legal person, corporate or other-

wise, and

(2) which is an organ of a foreign state or political

subdivision thereof, or a majority of whose shares or other

Ownership interest is owned by a foreign state or political

subdivision thereof, and

(3) which is neither a citizen of a State of the United

States as defined in section 1332(c) and (d) of this title, nor

created under the laws of any third country.

* * *

§ 1604. Immunity of a foreign state from jurisdiction

Subject to existing international agreements to which the

United States is a party at the time of enactment of this Act a

foreign state shall be immune from the jurisdiction of the

courts of the United States and of the States except as

provided in sections 1605 to 1607 of this chapter.

§ 1606. Extent of liability

As to any claim for relief with respect to which a foreign

state is not entitled to immunity under section 1605 or 1607

of this chapter, the foreign state shall be liable in the same

manner and to the same extent as a private individual under

74a

like circumstances; but a foreign state except for an agency or

instrumentality thereof shall not be liable for punitive

damages; if, however, in any case wherein death was caused,

the law of the place where the action or omission occurred

provides, or has been construed to provide, for damages only

punitive in nature, the forergn state shall be liable for actual

or compensatory damages measured by the pecuniary injuries

resulting from such death which were incurred by the persons

for whose benefit the action was brought.

§ 1609. Immunity from attachment and execution of

property of a foreign state

Subject to existing international agreements to which the

United States is a party at the time of enactment of this Act

the property in the United States of a foreign state shall be

immune from attachment arrest and execution except as

provided in sections 1610 and 1611 of this chapter.

§ 1610. Exceptions to the immunity from attachment or

execution

(a) The property in the United States of a foreign state, as

defined in section 1603(a) of this chapter, used for a

commercial activity in the United States, shall not be immune

from attachment in aid of execution, or from execution, upon

a judgment entered by a court of the United States or of a

State after the effective date of this Act, if-—

(1) the foreign state has waived its immunity from

attachment in aid of execution or from execution either

explicitly or by implication, notwithstanding any withdrawal

of the waiver the foreign state may purport to effect except in

accordance with the terms of the waiver, or

(2) the property is or was used for the commercial

activity upon which the claim is based, or

* * *

75a

(6) the judgment is based on an order confirming an

arbitral award rendered against the foreign state, provided

that attachment in aid of execution, or execution, would not

be inconsistent with any provision in the arbitral agree-

ment, or

* %* *

(b) In addition to subsection (a), any property in the

United States of an agency or instrumentality of a foreign

state engaged in commercial activity in the United States

shall not be immune from attachment in aid of execution, or

from execution, upon a judgment entered by a court of

the United States or of a State after the effective date of this

Act, if—

(1) the agency or instrumentality has waived its im-

munity from attachment in aid of execution or from execu-

tion either explicitly or implicitly, notwithstanding any with-

drawal of the waiver the agency or instrumentality may

purport to effect except in accordance with the terms of the

waiver, or

* * *

(a) and (b) of this section shall be permitted until the court

has ordered such attachment and execution after having

determined that a reasonable period of time has elapsed

following the entry of judgment »«’ “ie giving of any notice

required under section 1608(e) oft. chapter.

eee

§ 1611. Certain types of property immune from execution

(a) Notwithstanding the provisions of section 1610 of this

chapter, the property of those organizations designated by the

President as being entitled to er.“ the privileges, exemp-

tions, and immunities provided b: the International Organiza-

tions Immunities Act shall not be subject to attachment or any

76a

other judicial process impeding the disbursement of funds to,

or on the order of, a foreign state as the result of an action

brought in the courts of the United States or of the States.

(b) Notwithstanding the provisions of section 1610 of

this chapter, the property of a foreign state shall be immune

from attachment and from execution, if—

(1) the property is that of a foreign central bank or

monetary authority held for its own account, unless such bank

or authority, or its parent foreign government, has explicitly

waived its immunity from attachment in aid of execution,

or from execution, notwithstanding any withdrawal of the

waiver which the bank, authority or government may purport

to effect except in accordance with the terms of the waiver; or

(2) the property is, or is intended to be, used in con-

nection with a military activity and

(A) is of a military character, or

(B) is under the control of a military authority or

defense agency.

chapter, the property of a foreign state shall be immune from

attachment and from execution in an action brought under

section 302 of the Cuban Liberty and Democratic Solidarity

(LIBERTAD) Act of 1996 to the extent that the property is a

facility or installation used by an accredited diplomatic mis-

sion for official purposes.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.