Amicus Curiae Brief — Pt Pertamina (Persero), Fka Perusahaan Pertambangan Minyak Dan Gas Bumi Negara v. Karaha Bodas Co., L. L. C

Supreme Court, U.S.

FILED

AUG - 6 2004

OFFICE OF THE CLERK

zh

No. 03-1688

IN THE

Supreme Court of the United States

PT PERTAMINA (PERSERO), F/K/A/ PERUSAHAAN

PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA,

Petitioner,

v.

KARAHA BODAS COMPANY, L.L.C.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF FOR THE REPUBLIC OF

INDONESIA AS AMICUS CURIAE

IN SUPPORT OF THE PETITIONER

CAROLYN B. LAMM*

FRANK PANOPOULOS

R. SHAWN GUNNARSON

WHITE & CASE LLP

601 Thirteenth Street, N.W.

Suite 600 South

Washington, D.C. 20005

(202) 626-3600

*Counsel of Record Counsel for Amicus Curiae

the Republic of Indonesia

A Dee SE APRA iD PIO ek SU i REARS SRSA SES IES RL REL LT IE EEE ILLES

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20001

MOTION FOR LEAVE TO FILE BRIEF

AS AMICUS CURIAE

Pursuant to Rule 37.2 of the Rules of this Court, the

Republic of Indonesia (“Republic”) moves for leave to file

the accompanying brief as amicus curiae in support of the

petition for a writ of certiorari. Counsel for Petitioner has

consented to the filing of this brief, but counsel for the

Respondent has withheld consent.

The Republic is a sovereign state that has a direct

interest in this case for several reasons. It is the sole

owner of Petitioner PT Pertamina (Persero)

(“Pertamina”)! and, by law, has directed Pertamina to

help manage on the nation’s behalf the exploration,

development, and exploitation of Indonesia’s oil and gas

resources. As a state-owned company, Pertamina must

turn over revenues it derives from the sale of Indonesia’s

oil and gas to the Indonesian treasury for the welfare of

the Indonesian people. The Republic owns most of the

hundreds of millions of dollars in oil and gas revenues in

trust accounts in the United States that Respondent

Karaha Bodas Company L.L.C. (“KBC”) has restrained in

its indiscriminate efforts to enforce its arbitral award

against Pertamina.

For purposes of the Republic’s appearance as an

amicus curiae before this Court, however, its most

pressing interest is to vindicate its status as a co-equal

signatory to the United Nations Convention on the

Recognition and Enforcement of Foreign Arbitral Awards,

June 10, 1958, 21 U.S.T. 2517, 330 U.N.T'S. 38, codified

in the Federal Arbitration Act at 9 U.S.C. §§ 201-208

(“New York Convention” or “Convention”). Applying

governing Indonesian law to interpret the arbitration

' Pertamina was formerly known as Perusahaan Pertambangan

Minyak Dan Gas Bumi Negara.

2

clause at issue, the Central Jakarta District Court

(“Jakarta Court”) determined that Indonesia has primary

jurisdiction, 1.e., competence to set aside or annul the

arbitral award issued in favor of KBC, within the

meaning of Article V(1)(e) of the New York Convention.

In August 2002, the Jakarta Court issued an order

annulling the award as a matter of public policy,

reasoning that under Indonesian principles of contract

interpretation the arbitration agreements clearly

manifest the parties’ choice of Indonesian law to govern

the arbitration.

The Fifth Circuit disregarded the decision of the

Jakarta Court, however, holding that Switzerland and not

Indonesia had primary jurisdiction under the Convention.

The Court of Appeals rested its decision on a

presumption, unsupported in the language of the

Convention, “that designating the place of the arbitration

also designates the law under which the award is made.”

Pet. App. 22a. Because the parties selected Switzerland

as the place of the arbitration proceedings, the Fifth

Circuit inferred that Swiss law governed the arbitration

and that Switzerland had primary jurisdiction.

The Fifth Circuit’s decision merits review because it

conflicts with this Court’s precedents and with decisions

of other federal courts of appeals. Even more

fundamentally, the Fifth Circuit's decision warrants

review because it raises serious issues for U.S. foreign

relations. By confirming an arbitral award already set

aside by the Jakarta Court, on the basis of a presumption

and without conducting any reasoned choice of law

analysis, the decision below presents an affront to the

Republic. The Jakarta Court’s decisions recognizing its ©

own jurisdiction and annulling the arbitral award are

entitled to deference under the terms of the New York

Convention and the principle of international comity. Yet

the Fifth Circuit cast aside the Jakarta Court’s

determination of its own jurisdiction, along with its order

3

setting aside the arbitral award in accordance with

Indonesian law and public policy and in full compliance

with the terms of the Convention—a treaty acceded to by

the United States as well as by Indonesia. That such

disregard for the judicial decisions of a co-equal signatory

to the New York Convention resulted from the application

of a legal presumption unsupported by the Convention’s

text seriously undermines the Convention’s foundational

principle of international comity.

The Fifth Circuit’s decision to confirm KBC’s arbitral

award raises the question whether the parties’ choice of

arbitral law—and, by extension, the place of primary

jurisdiction under the New York Convention—should be

determined according to a presumption in favor of the

place where the arbitral proceedings will be held that can

be rebutted only if the parties designate another law

expressly. This question presents an independent basis

for review, in addition to Pertamina’s arguments

(endorsed by the Republic) that the Fifth Circuit

incorrectly confirmed an arbitral award rendered by a

tribunal constituted contrary to the parties’ intent. Pet. i,

15-17. The Republic exclusively addresses this choice of

law question in the accompanying brief.2

? Although the Court does not “ordinarily address issues raised

only by amici,” Kamen v. Kemper Fin. Serv., Inc., 500 U.S. 90, 97 n.4

(1991), it has done so before. See generally Gilmer v. Interstate/

Johnson Lane Corp., 500 U.S. 20, 37-38 (1991) (Stevens, J., dissenting)

(discussing cases where the Court has addressed issues not presented

in the petition for certiorari). The Court should consider the choice of

law question raised by the Republic here, because that question

presents decisional conflicts on an important question of federal law

and implicates serious issues of U.S. foreign relations. Unlike the

situation in Knetch v. United States, 364 U.S. 361, 370 (1960) and

related decisions, this question was fully briefed by the parties below

(and by the Republic appearing as amicus curiae) and addressed by the

Fifth Circuit in its opinion. Pet. App. 15a—26a.

Accordingly, the Republic’s motion for leave to file the

accompanying brief as amicus curiae should be granted.

*Ceunsel of Record

Respectfully submitted,

CAROLYN B. LAMM*

FRANK PANOPOULOS

R. SHAWN GUNNARSON

WHITE & CASE LLP

601 Thirteenth Street, N.W.

Suite 600 South

Washington, D.C. 20005

(202) 626-3600

Counsel for Amicus Curiae

the Republic of Indonesia

I.

II.

III.

TABLE OF CONTENTS

THE FIFTH CIRCUIT’S DECISION

CONFLICTS WITH THIS COURT'S

PRECEDENTS HOLDING THAT

COURTS MUST ENFORCE ARBITRA-

TION AGREEMENTS ACCORDING

SS BSMAOE BONING ociesccissccxtssensessnsonerserizass

THE FIFTH CIRCUIT'S DECISION

PRESENTS A CONFLICT IN PRINCI-

PLE WITH THE DECISIONS OF

OTHER FEDERAL COURTS OF

PE sega debieoconaaidihpantvgin sid ches vadcedisvenvcc

THIS CASE INVOLVES A QUESTION

OF NATIONAL IMPORTANCE .................

THE NEW YORK CONVENTION

DOES NOT SUPPORT A PRESUMP-

TION IN FAVOR OF THE LAW OF

THE PLACE WHERE THE ARBITRAL

PROCEED-INGS ARE HELD.....................

THE FIFTH CIRCUIT DECISION

VIOLATES THE PRINCIPLE OF

INTER-NATIONAL COMITY AND

IMPLICATES SERIOUS ISSUES OF

FOREIGN RELATIONG.........0.0.cccccceeseeees

CONCLUSION

(1)

eee eee eee eS 2 2 2 2

SOPH HHH HEHEHE EEO EEE EEE EE HOS

POOOCHOOOSOOOHHOOOSEHOOSHHOEHEEHOTCHHOCOEEEE EO CEEE OOO OOO CCECS

CeCe ee ereeseeesreseeeesesseseseseses

COCO OHOOOOOOHOHOOSOHSOEHEOHOOOEHH OOOO OCO ECE SOHO E OSC EEO ODO CEOS

TOSCO MS OLS SC OC OE DEC CCE HC OHSCOOHOS 0600600696006 6066066060608

11

12

18

19

TABLE OF AUTHORITIES

Page

CASES

Air France v. Saks, 470 U.S. 392 (1985).......... 15

Baker Marine (Nig.) Ltd. v. Chevron (Nig.)

Ltd., 191 F.3d 194 (2d Cir. 1999)............... 13

Curtin v. United Airlines, Inc., 275 F.3d 88

is i ccuiinaeila 16

Day & Zimmermann, Inc. v. Challoner, 423

STEEL a ET Ul ncacaindduntvedansdecséedtecnnvibeuiensemubes 6

Diorinou v. Mezitis, 237 F.3d i133 (2d Cir.

RSS nn ls eka ne ae eee 18

Europcar Italia, S.p.A. v. Maiellano Tours,

Inc., 156 F.3d 310 (2d Cir. 1998)................ 13

Four Seasons Hotels & Resorts, BV. v.

Consorcio Barr S.A., Nos. 02-16794, 03-

13418, 2004 WL 1615611 (11th Cir. July

a eae aia oe cached saaeses 13

Gau Shan Co., Ltd. v. Bankers Trust Co., 956

F.2d 1349 (6th Cir. 1992) ....................ceeeeee 18

InterGen N.V. v. Grina, 344 F.3d 134 (1st Cir.

CSTE RAO Eee AE NN OO ROD 9-10

Int'l Standard Elec. Corp. v. Bridas Sociedad

Anonima Petrolera, Indus. Y Comercial,

745 F. Supp. 172 (S.D.N.Y. 1990) .............. 2

James Miller & Partners Ltd. v. Whitworth

St. Estates, [1970] 1 Lloyd’s Rep. 269

SII Si citi pbetissiidhaicaistabbainisddlidddcouisaenoatacbines 15-16

JPMorgan Chase Bank v. Traffic Stream

(BVI) Infrastructure Ltd., 536 U.S. 88

SRT RAEI A WN or ee ne NONE a mT P 19

Kamen v. Kemper Fin. Servs., Inc., 500 U.S.

SI cn usb nie ca casonisaicha couidabedicditeantenencetenns 16

il

TABLE OF AUTHORITIES—Continued

Page

Karaha Bodas Co., L.L.C. v. Perusahaan

Pertambangan Minyak Dan Gas Bumi

Negara, 335 F.3d 357 (5th Cir. 2003) ........ 1

M & C Corp. v. Erwin Behr GmbH & Co., 87

F.3d 844 (6th Cir. 1996) 00.00... 14, 17

Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 52 (1995) .............ccccccccccccseee. 6, 7

McAllister Bros., Inc. v. A & S Transp. Co.,

621 F.2d 519 (2d Cir. 1980)...........0.....cccc.. 10

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) .......... passim

New Hampshire v. Maine, 532 U.S. 742

| EERE Seen OORT 8

Scarano v. Cent. R.R. Co., 203 F.2d 510 (3d

RC WE dciaticuctb asec 8

Scherk v. Alberto-Culver Co., 417 U.S. 506

Se tinibcudunteveiiiaussaudiaicitcaecete sete Lae 11, 14-15

Société Nationale Industrielle Aérospatiale v.

United States Dist. Ct. for the S. Dist. of

Towa, 482 U.S. 522 (1987) 20.0.0... . ccc cccccccceeceee 15, 18

Smith/Enron Cogeneration Ltd. P’ship, Inc.

v. Smith Cogeneration Int'l, Inc., 198 F.3d

ey I Sn ctecncncihieencstocsemectasivcescecss, 10

Verlinden, B.V. v. Cent. Bank of Nigeria, 461

UF es eT ee 19

Volt Info. Sci., Inc. v. Bd. of Trustees, 489

Pee a passim

iV

TABLE OF AUTHORITIES—Continued

Page

Yusuf Ahmed Alghanim & Sons, W.L.L. v.

Toys “R” Us, Inc., 126 F.3d 15 (2d Cir.

SI sc ichiseentnonserasierecidecouudeed adacdadammauaresen 15

STATUTES AND RULES

Federal Arbitration Act, 9 U.S.C. §§ et seq....... 6

United Nations Convention on _ the

Recognition and Enforcement of Foreign

Arbitral Awards, June 10, 1958, 21 U.S.T.

2517, 330 U.N.T.S. 38, codified at 9

Se Se POI cn snchundquadviancecsbereneptnvaabansext passim

MISCELLANEOUS

2003 Statistical Report, 15 1CC INT’L COURT

OF ARBITRATION BULLETIN No. 1, Spring

HAMID G. GHARAVI, THE INTERNATIONAL

EFFECTIVENESS OF THE ANNULMENT OF

AN ARBITRAL AWARD (2002) ...........::cceeeeeeeeees 16

Elena V. Helmer, Jnternational Commercial

Arbitration: Americanized, “Civilized,”

or Harmonized?, 19 OHIO S1. J. ON

eo ae | >) ne 12

Martin Hunter, Case and Comment:

International Arbitration, [1988]

LLOYD'S MAR. & COMM. L.Q. 23........cccccceeee. 15

Jenny S. Martinez, Towards an

International Judicial System, 56 STAN.

Bs ee ye SE das biscnncasvoitacsiaccosctaintadevisase 12

Vv

TABLE OF AUTHORITIES—Continued

MICHAEL J. MUSTILL & STEWART C. Boyp,

THE LAW AND PRACTICE OF

COMMERCIAL ARBITRATION IN ENGLAND

Pe HII exis cipeievnetehssnicdesescssaesSnteinessciaiinns

3 DRUIRCERGAIAEET icc ae eae

i ser idliscutvasetnige oe videcunlisainisiosicis uk sasericoes

W. MICHAEL REISMAN, SYSTEMS OF

CONTROL IN INTERNATIONAL ADJUDIC-

ATION AND ARBITRATION (1992) ................

ROBERT L. STERN ET AL., SUPREME COURT

PRACTICE (8th ed., 2002) .o......ceeccecccccceceees

U.S. Dept. of State, Fact Sheet,

“Independent States in the World,”

available at http://www.state.gov/s/inr/rl

s/4250.htm (last visited July 19, 2004).....

ALBERT JAN VAN DEN BERG, THE NEW YORK

ARBITRATION CONVENTION OF 1958

I i eaairaieicpvcvedonansisacksesiaces cebocsascannicdens

Albert Jan van den Berg, When Is an

Arbitral Award Nondomestic Under the

New York Convention of 1958?, 6 PACE

Se a

Page

INTEREST OF THE AMICUS CURIAE

The interest of the amicus curiae is described in the

accompanying motion for leave to file this brief.3

STATEMENT

This case arises out of proceedings brought by

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

against Petitioner PT Pertamina (Persero) (“Pertamina’”)

under the United Nations Convention on the Recognition

and Enforcement of Foreign Arbitral Awards, June 10,

1958, 21 U.S.T. 2517, 330 U.N.T.S. 38, codified in the

Federal Arbitration Act at 9 U.S.C. §§ 201-208 (“New

York Convention” or “Convention”), to confirm an arbitral

award now totaling approximately $300 million.

Statutory Background. The New York Conven-

tion’s “carefully structured framework for the review and

enforcement of international arbitral awards,” Pet. App.

12a, rests on a key distinction between courts of primary

and secondary jurisdiction. “Under the Convention, ‘the

country in which, or under the [arbitration] law of which,

[an] award was made’ is said to have primary jurisdiction

over the arbitration award. All other signatory states are

secondary jurisdictions, in which parties can only contest

whether that state should enforce the arbitral award.” Jd.

at 13a (quoting Karaha Bodas Co., L.L.C. v. Perusahaan

Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d

357, 364 (5th Cir. 2003) (footnotes omitted)). Primary

jurisdiction is determined by “the regimen or scheme of

arbitral procedural law under which the arbitration was

conducted, and not the substantive law . . . applied in the

3 Pursuant to Supreme Court Rule 37.6, Amicus Curiae Republic of

Indonesia hereby affirms that no counsel for a party authored this

brief in whole or part and that no one besides the Republic and its

counsel made a monetary contribution to the preparation and

submission of this brief.

2

case.”4 Id. at 17a (quoting Int’ Standard Elec. Corp. v.

Bridas Sociedad Anonima Petrolera, Indus. Y Comercial,

745 F. Supp. 172, 178 (S.D.N.Y. 1990)). Because only a

court of primary jurisdiction can annul an arbitral award,

the parties’ choice of law governing the arbitration (i.e.,

the lex arbitri) is perhaps the central question for

enforcement proceedings under the Convention. See W.

MICHAEL REISMAN, SYSTEMS OF CONTROL IN INTER-

NATIONAL ADJUDICATION AND ARBITRATION 116 (1992)

(describing the distinction between primary and

secondary jurisdiction as “central to the control system of

the New York Convention’).

The Agreements Between Pertamina and KBC.

In November 1994, KBC and Pertamina entered into two

contracts for the development of geothermal power in the

Republic of Indonesia (“Republic”). The Joint Operation

Contract (“JOC”), signed by KBC and Pertamina,

concerned the development of geothermal energy in the

West Java region of Indonesia. The Energy Sales

Contract (“ESC”), entered into by KBC, Pertamina, and

PT PLN (Persero) (“PLN”), Indonesia’s state-owned

electric utility, governed the sale to PLN of electricity

produced from geothermal energy at facilities constructed

by KBC.

The arbitration clauses in the JOC and ESC

incorporated certain provisions of Indonesian arbitration

law and modified the parties’ rights thereunder. Among

other things, the parties waived their rights under the

Indonesian Code of Civil Procedure to the arbitrators’

term limit, the time for completing the arbitration, and a

judicial appeal from the arbitral panel’s decision. Pet.

App. 19a n.31 (discussing references to Indonesian law in

the JOC and ESC). By incorporating these references, the

parties indicated their choice of Indonesian law to govern

4 It is undisputed that the parties selected Indonesian substantive

law to govern the merits of the arbitration. Pet. App. 18a.

3

the arbitration, notwithstanding their selection of

Switzerland as the place of the arbitration proceedings.

The Arbitration Proceedings. Upon suspension of

the JOC and ESC projects by presidential decree as a

result of the economic crisis that swept Asia in the 1990s,

KBC initiated a single arbitration against Pertamina and

PLN for the alleged breach of both contracts. The arbitral

tribunal awarded KBC approximately $261 million plus

judgment interest for costs and lost profits. Id. at 8a. As

one of several enforcement actions around the world, KBC

brought the present action to confirm the arbitral award

pursuant to the New York Convention in the U.S. District

Court for the Southern District of Texas.

Judicial Proceedings in the U.S. and Indonesia.

KBC’s motion for summary judgment to confirm the

award was granted on December 4, 2001. Id. at 56a—90a.

Pertamina appealed to the U.S. Court of Appeals for the

Fifth Circuit, which affirmed the district court judgment

in an opinion dated March 23, 2004. Id. at la—55a.

Before the Fifth Circuit could decide the appeal, the

Central Jakarta District Court (“Jakarta Court”) issued

an order in April 2002 holding that it had jurisdiction

under Article 67(1) of Indonesia’s new Arbitration Law

No. 30/1999 to hear Pertamina’s application for

annulment of the award under the New York Convention.

In August 2002, after full briefing and hearing, the

Jakarta Court ordered the award annulled. The court

held that (1) the JOC and ESC indicated the parties’

intent that Indonesian law would govern the arbitration;

(2) Indonesia was the primary jurisdiction to set aside or

annul the award within the meaning of Article V(1)(e) of

the New York Convention, and Indonesian law authorized

the court to do so; (3) the award was annulled, pursuant

to Article V(2)(b) of the Convention, because it violated

Indonesian public policy by holding Pertamina liable for

the suspension of projects governed by the JOC and ESC

4

despite the nature of that suspension as force majeure

under Indonesian law.

The Republic appeared before the Fifth Circuit as

amicus curiae in support of Pertamina’s appeal. Both the

Republic and Pertamina argued that the award should

not be enforced, among other reasons, because it had been

set aside by the Jakarta Court. Pet. App.:2a n.3 (“One of

the issues before this panel is whether the Indonesian

court's order is a defense to the enforcement of the

Award.”). In particular, the Republic argued that, as a

matter of federal common law, Indonesian law governed

the arbitration because of the parties’ references to

Indonesian arbitration law in the JOC and ESC. Given

that evidence of the parties’ intent, the Republic argued

that the award was rendered under the law of Indonesia.

The Republic further argued, based on the language of

Article V(1)(e), “that the New York Convention permits

more than one country to have primary jurisdiction over

an arbitration award.” Id. at 5la. Accordingly, the

Republic maintained that Indonesia, and thus the

Jakarta Court, had primary jurisdiction and that that

court’s decision “provid[es] a defense to enforcement in

the United States.” Jd. at 17a—18a.

The Fifth Circuit rejected the Republic’s choice of law

analysis. Rather than looking to the parties’ agreements

and conducting a choice of law analysis under federal

common law to determine the parties’ choice of law

governing the arbitration, the Court of Appeals relied on

a textually unsupported “strong presumption”

purportedly under the New York Convention “that

designating the place of the arbitration also designates

the law under which the award is made.” Jd. at 22a. The

court emphasized that “an express designation of

Indonesian procedural law [would be] necessary to rebut”

this presumption. Jd. Reasoning that the multiple

references to Indonesian law in the contracts “fall far

short” of the “express designation” required to rebut the

5

presumption, id. at 2la—22a, the Fifth Circuit concluded -

(based on this presumption) that the parties’ selection of

Switzerland as the place of the arbitration proceedings

meant that Switzerland has primary jurisdiction under

the New York Convention to annul the arbitral award.

Id. While acknowledging that the language of Article

V(1)(e) “suggests the potential for more than one country

of primary jurisdiction,” the Fifth Circuit nonetheless

held that “the predominant view is that the Convention

permits only one in any given case.” Id. at 5la—52a. For

these reasons, the Court of Appeals concluded that only

“Swiss procedural law applied,” id. at 18a, and declined to

recognize the Jakarta Court’s decision annulling the

award. Id.

SUMMARY OF ARGUMENT

Review should be granted for several reasons in

addition to those set forth in the petition. The Fifth

Circuit’s decision conflicts with this Court’s precedents

and with decisions of other federal circuits concerning the

correct rule to identify the place of primary jurisdiction

under the New York Convention. Moreover, those

conflicts arise from a holding—that the law governing an

arbitration and, by extension, the place of primary

jurisdiction is determined by an inflexible presumption in

favor of the law of the place where the arbitral

proceedings will be held—not supported by the

Convention’s text or precedent. By declining to apply a

reasoned choice of law analysis and recognize as a result

of that analysis the valid judgment of an Indonesian court

that properly exercised primary jurisdiction under the

Convention, the decision below presents an affront to the

Republic of Indonesia that undermines the principle of

international comity on which the Convention’s structure

is built. Such an affront implicates serious issues of U.S.

foreign relations and thus presents another reason to

grant review.

6

ARGUMENT

I. THE FIFTH CIRCUITS DECISION

CONFLICTS WITH THIS COURT'S

PRECEDENTS HOLDING THAT COURTS

MUST ENFORCE ARBITRATION AGREE-

MENTS ACCORDING TO THEIR TERMS

1. Review is merited because the Fifth Circuit's

decision conflicts with this Court’s_ precedents

emphasizing that the Federal Arbitration Act, 9 U.S.C.

§§ 1, et seq. (“FAA”), requires a court to enforce arbitral

agreements according to their terms. See, e.g.,

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.

52, 57 (1995) (holding that “courts are bound to interpret

contracts in accordance with the expressed intentions of

the parties—even if the effect of those intentions is to

limit arbitration”); Volt Info. Sci., Inc. v. Bd. of Trustees,

489 U.S. 468, 478 (1989) (holding that the FAA “simply

requires courts to enforce privately negotiated

agreements to arbitrate, like other contracts, in

accordance with their terms”); Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)

(stating that “as with any other contract, the parties’

intentions control”).5

This Court has explained that enforcing the parties’

intent implements “the central purpose” of the FAA.

Mastrobuono, 514 U.S. at 53-54; accord Volt, 489 U.S. at

478 (describing “Congress’ principal purpose of ensuring

that private arbitration agreements are _ enforced

according to their terms”). Indeed, the Court has long

adhered to the principle of enforcing arbitration

5 In its willful refusal to apply the correct choice of law rule and its

apparent bias toward foreign law, the decision below resembles Day &

Zimmermann, Inc. v. Challoner, 423 U.S. 3 (1975) (per curiam). There

the Court summarily reversed a Fifth Circuit decision that refused to

apply the controlling Texas choice of law rule, in part, because it would

require the application of Cambodian law. Id. at 4.

7

agreements according to their terms, even when that

principle appeared to conflict with other strong federal

policies. See, e.g., id. at 479 (“Where, as here, the parties

have agreed to abide by state rules of arbitration,

enforcing those rules according to the terms of the

agreement is fully consistent with the goals of the FAA,

even if the result is that arbitration is stayed where the

Act would otherwise permit it to go forward.”); Mitsubishi

at 636 (“[W]here the international cast of a transaction

would otherwise add an element of uncertainty to dispute

resolution, the prospective litigant may provide in

advance for a mutually agreeable procedure whereby he

would seek his antitrust recovery as well as settle other

controversies.”). Enforcing arbitration agreements

according to their terms harmonizes these apparently

clashing aims by permitting courts to “give effect to the

contractual rights and expectations of the parties, without

doing violence to the policies behind the FAA.” Volt, 489

U.S. at 479.

Such an unwavering focus on the terms of an

arbitration agreement follows from the axiom that

“[a]rbitration under the [FAA] is a matter of consent, not

coercion, and parties are generally free to structure their

arbitration agreements as they see fit.” Id. The Court

has expressly recognized that this principle of party

autonomy extends to the choice of law. Id. (“Just as [the

parties] may limit by contract the issues which they will

arbitrate . . . so too may they specify by contract the rules

under which that arbitration will be conducted.”).

Identifying which jurisdiction’s law the parties chose to

govern the arbitration thus “comes down to what the

contract has to say.” Mastrobuono, 514 U.S. at 58.

2. Plenary review is warranted because the Fifth

Circuit’s decision contradicts this Court’s precedents in

Masitrobuono, Volt, and Mitsubishi. The Court of Appeals

did not simply enforce the JOC and ESC, “like other

contracts, in accordance with their terms.” Volt, 489 U.S.

8

at 478. Instead, the court applied a “strong presumption

that designating the place of the arbitration also

designates the law under which the award is made.” Pet.

App. 22a. By design, this presumption misdirects a court

away from “giv[ing] effect to the contractual rights and

expectations of the parties.” Volt, 489 U.S. at 479.

Moreover, the Fifth Circuit fortified this untenable

presumption by requiring “an express designation of

Indonesian procedural law” as the only effective form of

rebuttal. Pet. App. 22a (emphasis added). On that basis,

the Court of Appeals managed to trivialize or dismiss the

parties’ incorporation of Indonesian arbitration law in the

JOC and ESC, concluding that such references “fall far

short” of rebutting the presumption and establishing

Indonesia as the place of primary jurisdiction under the

New York Convention. Jd. Because the Fifth Circuit’s

all-but-irrebuttable presumption requires a court to

disregard the terms of the parties’ agreement when

deciding the central question of primary jurisdiction, the

conflict with this Court’s precedents under the FAA could

not be sharper.®

6 The Fifth Circuit’s holding that “{j]udicial estoppel provides an

additional ground for concluding that Swiss procedural law applied to

the arbitration proceeding,” Pet. App. 26a, does not provide an

uncontroversial basis on which “to decide the case on another ground

and thus not reach the point upon which there is conflict.” ROBERT L.

STERN ET AL., SUPREME COURT PRACTICE 231 (8th ed. 2002). Judicial

estoppel requires a showing that a party’s statements are “clearly

inconsistent,” Pet. App. 25a, or mired in “intentional sel’

contradiction.” New Hampshire v. Maine, 532 U.S. 742, 751 (2001)

(quoting Scarano v. Cent. R.R. Co., 203 F.2d 510, 513 (3d Cir. 1953))-

Pertamina’s statements regarding the applicability of Swiss and

Indonesian law are neither clearly inconsistent nor intentionally self-

contradictory. Switzerland and Indonesia both meet the test of a

primary jurisdiction under Article V(1)(e), and the Fifth Circuit itself

recognized that the New York Convention “suggests the potential for

more than one country of primary jurisdiction.” Pet. App. 5la—52a.

Until the court decided “that the Convention permits only one

{primary jurisdiction] in any given case,” the question was one of first

impression on which scholarly opinion was divided. See id. at 52a &

9

Il. THE FIFTH CIRCUITS —- DECISION

PRESENTS A CONFLICT IN PRINCIPLE

WITH DECISIONS OF OTHER FEDERAL

COURTS OF APPEALS

Review is warranted because the Fifth Circuit’s

decision presents a conflict in principle with decisions of

the First and Second Circuits on the question of whether

federal common law governs the choice o% law under the

New York Convention. The Fifth Circuit decided which

law governed the arbitration by applying “the strong

presumption that designating the place of the arbitration

also designates the law under which the award is made.”

Pet. App. 22a. The Court of Appeals purported to find

this presumption “[u]nder the New York Convention,” but

cited only commentary and not any language in the

Convention itself. Jd. at 19a-20a & n.32. Based on its

“strong presumption,” the court rejected the argument by

Pertamina and the Republic “that the district court

should have conducted a choice of law analysis to

determine the law that would apply to the interpretation

of the parties’ contracts,” id. at 22a, and thereby their

intended choice of governing law. Instead, the Fifth

Circuit concluded that “the parties presumptively chose

Swiss procedural law as the lex arbitri when they

designated Switzerland as the site of the arbitration, and

that presumption is unrebutted.” Id. at 22a—23a (footnote

omitted).

The First Circuit took a contrary approach in InterGen ~

N.V. v. Grina, 344 F.3d 134 (1st Cir. 2003). There the

Court of Appeals applied federal common law to decide

under the New York Convention whether nonsignatories

to arbitration agreements could compel the arbitration of

certain claims against them. Jd. at 143. The court held

n.123. Because the application of judicial estoppel on this record is

dubious, this Court may reach the choice of law question presented by

the Republic.

10

that “[t]his is a federal question case . . . and we therefore

look to federal choice of law principles.” Jd. Further, the

court approached the task of devising a rule of decision

“mindful that federal common law incorporates general

principles of contract and agency law.” Jd. at 144.

Similarly, the Second Circuit decided under the New

York Convention that assignments made after the

effective date of agreements containing arbitration

clauses did not deprive the assignees of the right to

compel arbitration. Smith/Enron Cogeneration Ltd.

P’ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88,

95 (2d Cir. 1999). Like the First Circuit, the Second

Circuit had no difficulty concluding that federal common

law applied: “When we exercise jurisdiction under

Chapter Two of the FAA, we have compelling reasons to

apply federal law, which is already well-developed, to the

question of whether an agreement to arbitrate is

enforceable.” Jd. at 96. Again like the First Circuit, the

Second Circuit looked to “ordinary principles of contract

and agency.” Id. at 97 (quoting McAllister Bros., Inc. v.

A & S Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980)).

The Fifth Circuit’s decision conflicts in principle with

InterGen and Smith/Enron with respect to whether

federal common law governs the determination of the

parties’ choice of governing arbitral law under the New

York Convention. Where the Fifth Circuit declined to

conduct a choice of law analysis, the First and Second

Circuits conducted one. Even more significantly, where

the Fifth Circuit concluded that the Convention itself

supplied the correct source of law, in the form of a legal

presumption in favor of applying the law of the place of

the arbitration proceedings, the First and Second Circuits

adopted federal common law and looked to traditional

principles of contract and agency law.

This conflict over the correct choice of law rule under

the New York Convention is outcome-determinative in

this case. As explained in greater detail below, applying a

11

federal common law choice of law analysis under the

Restatement would have led the Fifth Circuit to conclude

that Indonesian law governs any arbitration under the

JOC and ESC. Given that conclusion, the Court of

Appeals would have had to deny confirmation of the

arbitral award in the United States based on the Jakarta

Court’s order annulling the award.

Ill. THIS CASE INVOLVES A QUESTION OF

~ NATIONAL IMPORTANCE

The cheice of law question presented by the Republic

is an issue of national importance that only this Court can

finally resolve. The importance of the question presented

has been noted as the sole reason prompting review in a

previous New York Convention case. See Scherk v.

Alberto-Culver Co., 417 U.S. 506, 510 (1974).

Deciding the correct choice of law rule used to identify

the law governing an arbitration agreement is

intrinsically important by virtue of the central role played

by the distinction between primary and _ secondary

jurisdiction under the New York Convention. REISMAN at

116 (“The distinction between primary and secondary

jurisdictions is, in my view, central to the control system

of the New York Convention and has been an important

reason for the attractiveness of the regime to its various

consumers.”). This question substantially determines the

rights of the parties to enforce or resist enforcement of the

arbitral award. Pet. App. 12a—l5a (explaining the

distinction between primary and secondary jurisdiction

under the Convention and the effect of that distinction on

the rights of arbitral parties).

Deciding the choice of law rule to identify the law

governing an arbitration holds great practical importance

given the growing use of international arbitration.

Mitsubishi, 473 U.S. at 638 (“As international trade has

expanded in recent decades, so too has the use of

international arbitration to resolve disputes arising in the

12

course of that trade.”). Arbitration now provides the

“normal, rather than alternative, way of settling

international commercial disputes.” Elena V. Helmer,

International Commercial Arbitration: Americanized,

“Civilized,” or Harmonized?, 19 OHIO ST. J. ON DISP.

RESOL. 35, 39 (2003). “[S]tatistics from twelve of the

major clearinghouses for arbitration show that the

number of cases submitted to international arbitration

almost doubled between 1992 and 2000.” Jenny S.

Martinez, Towards an International Judicial System, 56

STAN. L. REV. 429, 441 (2003). This trend toward

international arbitration includes many cases (like this

one) where at least one of the parties is a foreign state or

state-owned entity. See, e.g., 2003 Statistical Report, 15

ICC INT’L COURT OF ARBITRATION BULLETIN No. 1, Spring

2004 (stating that in 2003, foreign states and state-owned

entities were parties to 11% of cases registered before the

International Chamber of Commerce International Court

of Arbitration).

The New York Convention has played a lead role in

this development. More than 70% of the world’s nations

have acceded to the Convention,’ and “dispute resolution

by nonstate entities, backed up by enforcement in

national courts under the New York Convention, is now

an essential part of the global dispute resolution system.”

Martinez at 441.

IV. THE NEW YORK CONVENTION DOES NOT

SUPPORT A PRESUMPTION IN FAVOR OF

THE LAW OF THE PLACE WHERE THE

ARBITRAL PROCEEDINGS ARE HELD

The Fifth Circuit’s decision below—“that designating

the place of the arbitration also designates the law under

7 Out of 192 independent nation-states in the world, U.S. Dept. of

State, Fact Sheet, “Independent States in the World,” available at

http://www.state.gov/s/inr/rls/4250.htm (last visited July 19, 2004), 135

nations have acceded to the Convention. See N.Y. Convention.

13

which the award is made,” Pet. App. 22a—not only

presents multiple decisional conflicts that warrant

review, but the decision is incorrect. The presumption in

favor of the law of the place of the arbitral proceedings

applied by the Court of Appeals is unsupported by the

language or precedent of the New York Convention. By

applying this presumption, the Court of Appeals managed

to-avoid a necessary choice of law analysis. If the court

had applied a correct federal common law choice of law

rule, the court would have concluded that Indonesian law

supplies the governing law under the contracts.

Moreover, the Fifth Circuit’s presumption effectively

deprived Pertamina of a lawful and complete defense to

confirmation of KBC’s arbitral award.

1. Here, “the district court had secondary

jurisdiction” within the meaning of the New York

Convention. Id. at 13a. That authority required che court

to refuse enforcement based on any of “the grounds

specified in Article V,” id. at 14a—15a,® including when

8 The duty not to enforce an award set aside by a court of primary

jurisdiction is obligatory. Baker Marine (Nig.) Ltd. v. Chevron (Nig.)

Lid., 191 F.3d 194, 197 (2d Cir. 1999) (declining to construe Article

V(1)(e)—“[r]ecognition and enforcement of the award may be refused,”

N.Y. Convention art. V(1)—as imposing a permissive duty under which

arbitral awards can be confirmed “notwithstanding the Nigerian

judgments vacating them”); Europcar Italia, S.p.A. v. Maiellano Tours,

Inc., 156 F.3d 310, 318 (2d Cir. 1998) (stating that “under Article V of

the Convention, an award should not be enforced if it is set aside or

suspended in the originating country”); accord REISMAN at 114 (stating

that “once an award has been set aside in a primary jurisdiction, it is

not supposed to be enforceable anywhere else”); Albert Jan van den

Berg, When Is an Arbitral Award Nondomestic Under the New York

Convention of 1958?, 6 PACE L. REV. 25, 42 (1985) (stating that “if the

arbitral award has been set aside in the country of origin, foreign

courts are bound by that decision. In that case they must refuse

recognition and enforcement of the award.”). However, on this point

the Second Circuit conflicts with the decision below and the Eleventh

Circuit. See Pet. App. 17a; Four Seasons Hotels and Resorts, B.V. v.

Consorcio Barr S.A., Nos. 02-16794, 03-13418, 2004 WL 1615611, slip

op. at 17 n.6 (11th Cir. July 22, 2004).

14

the arbitral award “has been-set aside or suspended by a

competent authority of the country in which, or under the

law of which, that award was made.” N.Y. Convention

art. V(1)(e).

Pertamina and the Republic argued that the decision

of the Jakarta Court annulling the arbitral award

provides a valid defense to confirmation of the award.

They pointed out that Article V(1)(e) vests primary

jurisdiction in two places: “the country in which ... that

award was made” and “the country . . . under the law of

which, that award was made.” See Pet. App. 5la (quoting

N.Y. Convention art. V(1)(e)); accord M&C Corp. v.

Erwin Behr GmbH & Co., 87 F.3d 844, 849 (6th Cir. 1996)

(holding that “a motion to vacate may be heard only in the

courts of the country where the arbitration occurred or in

the courts of the country whose procedural law was

specifically invoked in the contract calling for arbitration

of contractual disputes”). Because the JOC and ESC

contain no choice of law clause designating the source of

governing law expressly, Pertamina and the Republic

insisted that the district court should have applied a

federal common law rule under Section 187 of the

Restatement (Second) of Conflict of Laws and inferred

from numerous references to the Indonesian Civil

Procedure Code (including the arbitration law) in the JOC

and ESC’s arbitration provisions that the contracting

parties intended Indonesian law to govern any arbitration

arising from those contracts. Pet. App. 19a.

2. The Fifth Circuit disagreed. Despite its limited

authority under the New York Convention as a court of

secondary jurisdiction, the Court of Appeals declined to

recognize the validity of the Jakarta Court’s decision

annulling the arbitral award on the basis of a legal

presumption that lacks any support in the language of the

Convention.2 Unmoored from the language of the

9 Scherk does contain dicta that “[uJnder some circumstances, the

designation of arbitration in a certain place might also be viewed as

ee ee ee a ee toes

15

Convention, this presumption violates the first rule of

treaty interpretation that a court must “begin ‘with the

text of the treaty and the context in which the written

words are used.” Société Nationale Industrielle

Aérospatiale v. United States Dist. Ct. for S. Dist. Iowa,

482 U.S. 522, 534 (1987) (quoting Air France v. Saks, 470

U.S. 392, 397 (1985)). The Fifth Circuit cited no case law

in support of its presumption, Pet. App. 20a n.32, and

relevant decisions run contrary to that presumption. See

Mitsubishi, 473 U.S. at 625 (rejecting a “presumption

against arbitration of statutory claims”); Yusuf Ahmed

Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d

15, 21 n.3 (2d Cir. 1997) (recognizing that the New York

Convention permits parties to elect a governing law other

than that of the state where arbitral proceedings are

held). Commentaries cited by the Court of Appeals offer

only tepid support for its presumption: most of them

characterize an agreement to conduct arbitration in one

country but applying the law of another country as

unusual without inferring that there is a legal

presumption against such an agreement mandated by the

Convention.!° Pet. App. 20a. Indeed, commentators

implicitly selecting the law of that place to apply to that transaction.”

417 US. at 519 n.13. However, the Court has never reiterated or

followed this statement. On the contrary, since deciding Scherk the

Court has repeatedly held that arbitration agreements must be

enforced according to contract principles, see, e.g., Volt, 489 U.S. at

476, an interpretive rule that forecloses the application of any

presumption that would defeat the parties’ intent.

10 Two of the commentaries cited by the Fifth Circuit do rely on a

legal presumption equating the place of an arbitration with the

- application of that nation’s procedural law. See MICHAEL J. MUSTILL &

STEWART C. BOYD, COMMERCIAL ARBITRATION 64 (2d ed. 1989); Martin

Hunter, Case and Comment: International Arbitration, [1988] LLoyp’s

Mar. & Comm. L.Q. 23, 26. However, the force of the English

precedent on which these sources rely is diminished by other English

decisions holding that the parties’ choice of procedural law may be

“inferred from the choice of seat or from the other terms and

circumstances of the transaction.” MUSTILL & BOYD at 65 (citing James

Miller & Partners Ltd. v. Whitworth St. Estates, [1970] 1 Lloyd’s Rep.

16

recognize that the place of the arbitration proceedings can

be chosen for the sake of convenience and not to provide

the governing law. See HAMID G. GHARAVI, THE

INTERNATIONAL EFFECTIVENESS OF THE ANNULMENT OF

AN ARBITRAL AWARD 107—08 (2002) (discussing the trend

that has reduced the importance of the place of

arbitration as a “seat” because it “is chosen by the parties

and arbitral institutions mainly based on commodity or

logistic related considerations’).

3. The Fifth Circuit’s “strong presumption” in favor

of the law of the arbitral forum is no substitute for a

reasoned choice of law analysis under the federal common

law; it is simply a device for avoiding such an analysis.

Because the Court of Appeals could not .dentify what

arbitral law applies and, by extension, the place of

primary jurisdiction without conducting a_ threshold

choice of law analysis, such an analysis was unavoidable.

By failing to conduct a reasoned choice of law analysis,

the court defaulted on its fundamental duty to “identify

and apply the proper construction of governing law.” See

Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991).

If the Fifth Circuit had conducted a choice of law

analysis, it would have applied federal common law

which, in turn, would have led the Court of Appeals to the

Restatement (Second) of Conflict of Laws. See, e.g.,

Curtin v. United Airlines, Inc., 275 F.3d 88, 93 n.6 (D.C.

Cir. 2001) (stating in a case under the Warsaw Act that

“(clourts also often look to the U.C.C. and Restatement

when deciding questions of federal common law”). Section

218 of the Restatement (Second) of Conflict of Laws

269 (1970) (emphasis added). The leading commentator on the New

York Convention has written that this presumption would-only apply

absent “any indication” in the arbitration agreement of another law

governing the arbitration. ALBERT JAN VAN DEN BERG, THE NEW YORK

ARBITRATION CONVENTION OF 1958, at 292-93 (1981) (discussing the

term “failing any indication thereon” under the New York Convention

in the context of Articles V(1)(a) and (e)).

17

addresses the “Validity and Effect of Arbitration

Agreement” and provides that the rights created by an

arbitration agreement are determined by reference to the

choice of law principles set forth in Section 187. Under

Section 187, “[t]he law of the state chosen by the parties

to govern their contractual rights and duties” under their

agreement will be applied. Restatement (Second) of

Conflict of Laws § 187. The parties’ choice of law

governing that agreement need not be express: “the fact

that the contract contains legal expressions, or makes

reference to legal doctrines, that are peculiar to the local

law of a particular state may provide persuasive evidence

that the parties wished to have this law applied.” Jd.

§ 187, cmt. a.

Here, the JOC and ESC arbitration agreements not

only incorporate numerous provisions of Indonesian civil

procedure, those references purport to alter the ordinary

effect of Indonesian law. Pet. App. 19a n.31. These

provisions were peculiar to Indonesian law and foreign to

Swiss law. Under Section 187, the Fifth Circuit should

have concluded that KBC and Pertamina chose

Indonesian law to govern their arbitration.

4. The Fifth Circuit’s disregard for the parties’

incorporation of Indonesian law and application of an

unfounded presumption in favor of Swiss law deprived

Pertamina of a lawful and complete defense to

confirmation of KBC’s arbitral award. The FAA and the

New York Convention “recognize a party’s right to object

to confirmation on specified grounds.” M &C Corp., 87

F.3d at 849. Article V(1)(e) specifically entitles a party to

challenge confirmation in a court of secondary jurisdiction

based on an order from a court of primary jurisdiction

setting aside the arbitral award. N.Y. Convention art.

V(i)(e). The decision below deprived Pertamina of a

defense that the New York Convention expressly

provides, based on a purported presumption with no basis

in the text of the Convention.

18

Vv. THE FIFTH CIRCUITS DECISION

VIOLATES THE PRINCIPLE OF INTER-

NATIONAL COMITY AND IMPLICATES

SERIOUS ISSUES OF FOREIGN

RELATIONS

The Fifth Circuit’s incorrect choice of law analysis led

the court to violate the principle of international comity

by failing to defer to the Jakarta Court's decision

annulling KBC’s arbitral award. See Diorinou v. Mezitis,

237 F.3d 133, 142 (2d Cir. 2001) (“American courts will

normally accord considerable deference to foreign adjudi-

cations as-a matter of comity.”). This Court has “long

recognized the demands of comity in suits involving

foreign states, either as parties or as sovereigns with a

coordinate interest in the litigation” and has enjoined

courts to “take care to demonstrate due respect... for any

sovereign interest expressed by a foreign state.” Société

Nationale, 482 U.S. at 546. Yet the Court of Appeals

failed to accord the Republic such respect when it

disregarded the parties’ choice of governing law and

treated the Jakarta Court’s decision as a legal nullity,

based on an unfounded presumption that misidentified

Switzerland as the place of primary jurisdiction.

This violation of international comity undermines the

structure of the New York Convention. The Fifth

Circuit’s results-driven presumption in favor of the place

of the arbitration proceedings and bias against

Indonesian law invites reciprocal disrespect for U.S.

judgments abroad. See Gau Shan Co., Ltd. v. Bankers

Trust Co., 956 F.2d 1349, 1355 (6th Cir. 1992) (where U.S.

courts fail to recognize the jurisdiction of foreign courts,

“[floreign courts can be expected to reciprocate such

disrespect.”). Without mutual recognition of valid foreign

judgments, the New York Convention’s central distinction

between primary and secondary jurisdiction will fall

apart.

19

Failing to recognize the Jakarta Court’s judgment also

presents an affront to the Republic that threatens to

impair U.S. foreign relations. Cf. Verlinden, B.V. v. Cent.

Bank of Nigeria, 461 U.S. 480, 493 (1983) (“Actions

against foreign sovereigns in our courts raise sensitive

issues concerning the foreign relations of the United

States... .”). Such a detrimental effect on this country’s

foreign relations furnishes an additional reason to grant

review. JPMorgan Chase Bank v. Traffic Stream (BVI)

Infrastructure Ltd., 536 U.S. 88, 91 (2002) (granting

review, in part, hecause the Second Circuit’s decision

“implicates serious issues of foreign relations”).

CONCLUSION

For the foregoing reasons, and those stated in the

petition for a writ of certiorari, the petition should be

granted and the judgment below reversed.

Respectfully submitted,

CAROLYN B. LAMM*

FRANK PANOPOULOS

R. SHAWN GUNNARSON

WHITE & CASE LLP

601 Thirteenth Street, N.W.

Suite 600 South

Vashington, D.C. 20005

(202) 626-3600

*Counsel of Record Counsel for Amicus Curiae

the Republic of Indonesia

August 6, 2004