Karaha Bodas Co LLC v. Perusahaan Pertamban

; see Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc.,

126 F.3d 15, 23

(2d Cir. 1997). 12 Karaha Bodas Co.,

15 other [countries] where recognition and enforcement are sought."13

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.14 All other

signatory states are secondary jurisdictions, in which parties can

only contest whether that state should enforce the arbitral award.15

It is clear that the district court had secondary jurisdiction and

considered only whether to enforce the Award in the United States.

Article V enumerates specific grounds on which a court with

secondary jurisdiction may refuse enforcement.16 In contrast to the

13 Alghanim,

126 F.3d at 23

(quoted in Karaha Bodas Co.,

). 14 Karaha Bodas Co.,

. 15

16 Article V, Section 201 of the New York Convention provides:

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

16 limited authority of secondary-jurisdiction courts to review an

arbitral award, courts of primary jurisdiction, usually the courts

of the country of the arbitral situs, have much broader discretion

to set aside an award. While courts of a primary jurisdiction

country may apply their own domestic law in evaluating a request

to annul or set aside an arbitral award, courts in countries of

the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country.

9 U.S.C. § 201

, Art. V(1)-(2). See generally Alghanim,

126 F.3d at 23

; Susan Choi, Judicial Enforcement of Arbitration Awards Under the ICSID and New York Conventions, 28 N.Y.U. J. Int’l L. & Pol. 175 (1996).

17 secondary jurisdiction may refuse enforcement only on the grounds

specified in Article V.17

The New York Convention and the implementing legislation,

Chapter 2 of the Federal Arbitration Act (“FAA”), provide that a

secondary jurisdiction court must enforce an arbitration award

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

recognition or enforcement specified in the Convention.18 The court

may not refuse to enforce an arbitral award solely on the ground

that the arbitrator may have made a mistake of law or fact.19

“Absent extraordinary circumstances, a confirming court is not to

reconsider an arbitrator’s findings.”20 The party defending against

enforcement of the arbitral award bears the burden of proof.21

Defenses to enforcement under the New York Convention are construed

narrowly, “to encourage the recognition and enforcement of

17 Alghanim,

126 F.3d at 23

(cited in Karaha Bodas Co.,

335 F.3d at 368

). 18

9 U.S.C. § 207

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

156 F.3d 310, 315

(2d Cir. 1998); Nat’l Wrecking Co. v. Int’l Bhd. of Teamsters,

990 F.2d 957

, 960 (7th Cir. 1993). 20 Europcar Italia,

. 21 Imperial Ethiopian Gov’t v. Baruch-Foster Corp.,

535 F.2d 334, 336

(5th Cir. 1976); see Czarina, L.L.C. v. W.F. Poe Syndicate,

2004 WL 205611

, at *6 n.3 (11th Cir. Feb. 4, 2004).

18 commercial arbitration agreements in international

contracts . . . .”22

B. The Choice-of-Law Issues

In the JOC and ESC, the parties stipulated that “the site of

the arbitration shall be Geneva.” The Tribunal concluded that

under the arbitration agreements, Swiss procedural law applied as

the law of the arbitral forum.23 From 1998 to April 2002, Pertamina

consistently and repeatedly took the position before the Tribunal,

the Swiss courts, and the United States district court, that Swiss

procedural law applied to the arbitration.24 In April 2002, after

22 Imperial Ethiopian Gov’t,

535 F.2d at 335

; Parsons & Whittemore Overseas Co., Inc. v. Societe Generale de L’Industrie du Papier,

508 F.2d 969

, 974, 976 (2d Cir. 1974). 23 The Tribunal specifically cited Swiss procedural law in its Preliminary Award. The Tribunal first cited Swiss law regarding the intentions of parties to a contract to help guide its determination whether the government of Indonesia was a party to the JOC and ESC. The Tribunal cited the Swiss concept of “connexity” in concluding that KBC could consolidate its claims under the contracts into a single arbitration proceeding. Finally, the Tribunal referred to Swiss common law suggesting that arbitrators are not agents in determining that the selection of Tribunal arbitrators was appropriate under the agreements. The Final Award stated that it was “[m]ade in Geneva.” 24 See, e.g., Prelim. Award, § B(1) (“The Respondents support this conclusion by making reference to Swiss law as the JOC and the ESC provide for UNCITRAL Arbitration in Geneva between the parties which are neither Swiss nor Swiss resident. As a result, and under both contracts, the arbitration proceedings are governed by Chapter 12 of the Swiss Private International Law Statutes. Under Swiss law, [Respondent contends] the Arbitral Tribunal is lacking jurisdiction because KBC failed to comply with the contractual prerequisites to arbitration.”); id. at § C(1) (“The Respondents also state that, under the arbitration agreements and Swiss law, the arbitrators have no power to consolidate . . . .”); id. at § C(3) (citing a Swiss federal tribunal case in support of its decision that a consolidated arbitration was appropriate); id. at § D(1) (Respondents contend that “[s]uch solution is not acceptable under the applicable Swiss law”). The district court found that Pertamina “specifically, repeatedly

19 the Swiss court had rejected Pertamina’s annulment proceeding and

the district court had held the Award enforceable in the United

States, Pertamina moved in the district court for a stay of the

Award pending the outcome of the annulment proceeding Pertamina had

filed in Indonesia. For the first time, Pertamina raised in the

district court the argument that Indonesian, not Swiss, procedural

law had applied to the arbitration. Pertamina took this position

in the district court as part of its argument that Indonesia had

primary jurisdiction over the Award and therefore had the authority

to set it aside rather than merely decline to enforce it.

Article V(1)(e) of the Convention provides that a court of

secondary jurisdiction may refuse to enforce an arbitral award if

it “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.”25

Courts have held that the language, “‘the competent authority of

the country . . . under the law of which, that award was made’

refers exclusively to procedural and not substantive law, and more

and unequivocally” argued that Swiss arbitration law applied in the arbitration. Pertamina opened its motion to stay the district court proceedings pending appeal to the Swiss judiciary by stating: “The arbitration award . . . was conducted subject to the arbitration laws of Switzerland, and the Swiss court is empowered to vacate an award rendered in Switzerland. . . . KBC is asking this Court to act prematurely to confirm an award that might be overturned in the country whose law governed the arbitration.” Pertamina added that “it is fundamental that the courts of the originating nation are in the best position to pass on issues under their own law. . . . Here, Pertamina’s appeal encompasses questions of Swiss law.” Pertamina made similar arguments under Swiss procedural law in its responses to KBC’s motion for summary judgment. 25

9 U.S.C. § 201

, Art. V(1)(e).

20 precisely, to the regimen or scheme of arbitral procedural law

under which the arbitration was conducted, and not the substantive

law . . . applied in the case.”26 In this appeal, Pertamina and the

Republic of Indonesia (the “Republic”), as amicus, argue that the

Tribunal and the district court erred in finding that Swiss

procedural law, rather than Indonesian procedural law, applied.

Pertamina and the Republic argue that in the arbitration

agreements, the parties chose Indonesian procedural, as well as

substantive, law to govern the arbitration. Pertamina and the

Republic assert that, as a result: (1) the arbitration must be

examined for compliance with Indonesian procedural law; and (2) the

Indonesian court had primary jurisdiction to annul the Award,

providing a defense to enforcement in the United States. KBC

responds that the Tribunal properly interpreted the parties’

contracts in deciding that Swiss procedural law applied and the

district court properly applied the New York Convention in

affirming that decision. This court agrees with KBC.

Under the New York Convention, the rulings of the Tribunal

interpreting the parties’ contract are entitled to deference.27

26 Int’l Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, Indus. y Comercial,

745 F. Supp. 172, 178

(S.D.N.Y. 1990); see Alghanim,

126 F.3d at 21

; M & C Corp. v. Erwin Behr GmbH & Co., KG,

87 F.3d 844, 848

(6th Cir. 1996). 27 Europcar Italia,

; Nat’l Wrecking Co., 990 F.2d at 960; see James Ford Inc. v. Ford Dealer Computer Serv. Inc.,

56 Fed. Appx. 324, 325

(9th Cir. 2003) (giving broad deference to an arbitrator’s choice-of-law decision).

21 Unless the Tribunal manifestly disregarded the parties’ agreement

or the law, there is no basis to set aside the determination that

Swiss procedural law applied.28 The parties’ arbitration agreements

specified that the site of the arbitration was Geneva, Switzerland

and that the arbitration would proceed under the UNCITRAL rules.

Those rules specify that the “arbitral tribunal shall apply the law

designated by the parties as applicable to the substance of the

dispute.”29 It is undisputed that the parties specified that

Indonesian substantive law would apply.30 It is also undisputed

that the contracts specified the site of the arbitration as

Switzerland. The contracts did not otherwise expressly identify

the procedural law that would apply to the arbitration. The

parties did refer to certain Indonesian Civil Procedure Rules in

the contracts.31 Pertamina and the Republic argue that these

28 Europcar Italia,

; Nat’l Wrecking Co., 990 F.2d at 960. 29 UNCITRAL Arbitration Rules, G.A. Res. 31/98, U.N. GAOR Comm’n Int’l Trade L., at Art. 33(1) (1976), http://www.uncitral.org/english/texts/arbitration/arb-rules.htm. 30 Article 20 of the JOC and Section 12.1 of the ESC each provided: “This Contract shall be governed by the laws and regulations of [the] Republic of Indonesia.” 31 Pertamina and the Republic rely on the following contractual provisions for their position:

The parties expressly agree to waive the applicability of (a) Article 650.2 of the Indonesian Code of Civil Procedure so that the appointment of the arbitrators shall not terminate as of the sixth (6th) Month after the date(s) of their appointments and (b) the second sentence of Article 620.1 of the Indonesian Code of Civil

22 references evidence an intent that while Switzerland would be the

place of the arbitration, Indonesian procedural law would apply as

the lex arbitri.

Under the New York Convention, an agreement specifying the

place of the arbitration creates a presumption that the procedural

law of that place applies to the arbitration.32 Authorities on

Procedure so that the arbitration need not be completed within the specific time.

JOC at Art. 13.2(a); ESC at § 8.2(a).

In accordance with Section 631 of the Indonesian Code of Civil Procedure, the Parties agree that the Tribunal need not be bound by strict rules of law where they consider the application thereof to particular matters to be inconsistent with the spirit of this Contract and the underlying intent of the Parties, and as to such matters their conclusion shall reflect their judgment of the correct interpretation of all relevant terms hereof and the correct and just enforcement of this Contract in accordance with such terms.

JOC at Art. 13.2(b); ESC at § 8.2(b).

The parties hereby renounce their right to appeal from the decision of the arbitral panel and agree that in accordance with Section 641 of the Indonesian Code of Civil Procedure neither Party shall appeal to any court . . . and accordingly the Parties hereby waive the applicability of Articles 15 and 108 of the Law No. 1 of 1950 and any other provision of Indonesian law and regulations that would otherwise give the right to appeal the decisions of the arbitral panel.

JOC at Art. 13.2(d); ESC at § 8.2(d). 32 Albert Jan van den Berg, “The Application of the New York Convention by the Courts,” ICCA Congress Series No. 9 25, 26 (Kluwer 1999); Sir Michael J. Mustill & Stewart C. Boyd, The Law and Practice of Commercial Arbitration in England 64 (Butterworths 2d ed. 1989); Alain Hirsch, The Place of the Arbitration and the Lex Arbitri, 34 Arb. J. 43, 46 (1979); Alan Scott Rau, The New York Convention in American Courts, 7 Am. Rev. Int’l Arb. 213, 224 (1996). In their reports filed

23 international arbitration describe an agreement providing that one

country will be the site of the arbitration but the proceedings

will be held under the arbitration law of another country by terms

such as “exceptional”; “almost unknown”;33 a “purely academic

invention”;34 “almost never used in practice”;35 a possibility “more

theoretical than real”; and a “once-in-a-blue-moon set of

circumstances.”36 Commentators note that such an agreement would

be complex, inconvenient, and inconsistent with the selection of a

neutral forum as the arbitral forum.37

in the district court, recognized authorities on international arbitration retained by both Pertamina and KBC, including Albert Jan van den Berg, Sudargo Guatama, Alan Scott Rau, and Eric A. Schwartz, agreed that under the Convention, arbitration clauses designating the site of the arbitration presumptively designate that site as the source of the applicable procedural law. 33 Mustill and Boyd, Commercial Arbitration at 64. 34 Van den Berg, The Application of the New York Convention at 26. 35 Id. 36 Martin Hunter, Case and Comment: International Arbitration, [1988] Lloyd’s Mar. & Comm. L. Q. 23, 26. 37 See, e.g., Gary B. Born, International Commercial Arbitration: Commentary and Materials 761 (2d ed. 2001). Few reported cases involve arbitration clauses that separate the law of the forum state and the lex arbitri. In two such English cases, Naviera Amazonica Peruana S.A. v. Compania Internacional de Seguros del Peru, [1988] 1 Lloyd’s L. Rep. 116 (C.A. 1987), and Union of India v. McDonnell Douglas Corp., [1993] 2 Lloyd’s Rep. 48 (Q.B. 1992), the courts applied the presumption that the procedural law of the place specified as the forum for the arbitration would govern. Naviera Amazonica Peruana, [1988] 1 Lloyd’s L. Rep. at 119; Union of India, [1993] 2 Lloyd’s Rep. at 50. The Hong Kong court also relied upon this presumption in determining that Swiss procedural law governed the arbitration proceeding at issue in this case. Hong Kong decision at 7-8.

24 In the JOC and ESC, the parties expressly agreed that

Switzerland would be the site for the arbitration. This agreement

presumptively selected Swiss procedural law to apply to the

arbitration. There is no express agreement in the JOC or ESC that

Indonesia would be the country “under the law of which” the

arbitration was to be conducted and the Award was to be made.38 The

Tribunal recognized the parties’ selection of Switzerland by

issuing the Award as “[m]ade in Geneva.” In selecting Switzerland

as the site of the arbitration, the parties were not choosing a

physical place for the arbitration to occur, but rather the place

where the award would be “made.” Under Article 16(1) of the

UNCITRAL rules, the “place” designated for an arbitration is the

legal rather than physical location of the forum.39 The arbitration

proceeding in this case physically occurred in Paris, but the Award

was “made in” Geneva, the place of the arbitration in the legal

sense and the presumptive source of the applicable procedural law.40

The references in the contracts to certain Indonesian civil

procedure rules do not rebut the strong presumption that Swiss

9 U.S.C. § 201

, Art. V(1)(e). 39 See Jacomijn J. van Hof, Commentary on the UNCITRAL Arbitral Rules: The Application by the Iran-U.S. Claims Tribunal 109-10 (Kluwer 1991); see also UNCITRAL Arbitration Rules at Art. 16(1). Rules 16(2) and (3) expressly permit proceedings to be conducted at a location different from the designated “place” of the arbitration. UNCITRAL Arbitration Rules at Art. 16 (2)-(3). Rule 16(4) provides that “[t]he award shall be made at the place of arbitration.”

Id.

at Art. 16(4). 40 Van Hof, Commentary on the UNCITRAL Arbitral Rules at 109-110.

25 procedural law applied to the arbitration.41 These references fall

far short of an express designation of Indonesian procedural law

necessary to rebut the strong presumption that designating the

place of the arbitration also designates the law under which the

award is made.

Pertamina and the Republic have belatedly asserted 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, rather than analyze the contracts under the New

York Convention. Pertamina and the Republic assert that the result

of such an analysis would have been to identify Indonesian law as

the decisional law under which to interpret the contracts. This

argument is inconsistent with the position Pertamina – and its

experts on interpreting international commercial arbitration

agreements – took earlier in this case, that the district court

should review the Tribunal’s interpretation of the contracts under

the New York Convention. A court conducts the multifactor choice-

of-law analysis Pertamina now advocates in the absence of an

41 Robert N. Hornick, one of the authorities on international arbitration and Indonesian law who submitted an affidavit and report in the district court, provided an explanation for the references to the Indonesian laws in the arbitration clauses unrelated to any intent to designate Indonesia as the country under the law of which the Award would be made. Hornick explained that each article of Indonesian law cited in the contracts imposes a requirement inconsistent with the contemplated arbitration. (Hornick Decl. ¶¶ 28-32). These articles could have been invoked to oppose later enforcement of the Award in Indonesia unless waived. By waiving in advance provisions that could later be invoked to block enforcement of the Award in an Indonesian court, the parties facilitated future enforcement efforts in Indonesia. (Id.).

26 effective choice of law by the parties to an arbitration

agreement.42 In the JOC and ESC, 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.43

As the district court, another panel of this court, and the

Hong Kong Court of First Instance have all recognized, Pertamina’s

previous arguments that Swiss arbitral law applied strongly

evidence the parties’ contractual intent.44 Pertamina represented

to the Tribunal that Swiss procedural law applied.45 As but one

example, Pertamina cited Swiss procedural law in arguing that the

42 REST. (2D) CONFL. §§ 187, 188, & 218 (1971). 43 Certain sections and comments of the Restatement also support a determination that Swiss law applied to the arbitration agreement. See, e.g. id. at § 188 (incorporating R EST. (2D) CONFL. § 6, which requires consideration of the relevant policies of the forum); id. at § 218 cmt. b (suggesting that the arbitration forum may have the most significant relationship to the arbitration and that a contractual provision requiring arbitration to occur in a certain forum may evidence an intention by the parties that the local law of this forum should govern). 44 Karaha Bodas Co.,

335 F.3d at 371

; Hong Kong decision at 12. 45 See, e.g., Prelim. Award, § B(1) (“The Respondents support this conclusion by making reference to Swiss law as the JOC and the ESC provide for UNCITRAL Arbitration in Geneva between the parties which are neither Swiss nor Swiss resident. As a result, and under both contracts, the arbitration proceedings are governed by Chapter 12 of the Swiss Private International Law Statutes. Under Swiss law, [Respondent contends] the Arbitral Tribunal is lacking jurisdiction because KBC failed to comply with the contractual prerequisites to arbitration.”); id. at § C(1) (“The Respondents also state that, under the arbitration agreements and Swiss law, the arbitrators have no power to consolidate . . . .”); id. at § C(3) (citing a Swiss federal tribunal case in support of its decision that a consolidated arbitration was appropriate); id. at § D(1) (Respondents contend that “[s]uch solution is not acceptable under the applicable Swiss law”).

27 Tribunal could not consolidate the claims under the JOC and ESC

into one proceeding. Pertamina at no point argued to the Tribunal

that Indonesian procedural law applied. Pertamina initially sought

to set aside the Award in a Swiss court.46 Pertamina asked the

Texas district court to stay its enforcement proceeding until

Pertamina’s appeal in Switzerland was resolved. In making this

argument, Pertamina stated that “[t]he arbitration . . . was

conducted according to the laws of Switzerland, and the Swiss court

is empowered to vacate an award rendered in Switzerland . . . .

KBC is asking this Court to act prematurely to confirm an award

that might be overturned in the country whose law governed the

arbitration.”47

The Tribunal’s decision that Swiss arbitral law applied does

not make the Award unenforceable.48 The combination of the parties’

selection of Switzerland as the site of the arbitration; the

46 In the district court, Pertamina presented an affidavit and report from an expert on international commercial arbitration that weakly attempted to explain the appeal to the Swiss court as a mistake. The theory that Pertamina’s lawyers erred and applied to the wrong court for annulment – and then moved for reconsideration when that court dismissed the appeal – is utterly without support in the record. 47 See Major League Baseball Players Ass’n v. Garvey,

532 U.S. 504, 509

(2001) (citations omitted) (“[I]f an ‘arbitrator is even arguably construing or applying [a] contract and acting within the scope of his authority,’ the fact that ‘a court is convinced he committed serious error does not suffice to overturn his decision.’”). 48 Europcar Italia,

; Nat’l Wrecking Co., 990 F.2d at 960; see Garvey,

532 U.S. at 509

(“Courts are not authorized to review [an] arbitrator’s decision on the merits despite allegations that the decision rests on factual errors or misinterprets the parties’ agreement.”).

28 failure clearly or expressly to choose Indonesian arbitral law in

their agreements, as required to select arbitral law other than

that of the place of the arbitration; and the clear evidence

provided by the parties’ own conduct that they intended Swiss law

to apply to the arbitration, amply supports the district court’s

determination that the Tribunal properly applied Swiss procedural

law.

The district court also found that under the doctrine of

judicial estoppel, Pertamina’s prior conduct precluded it from

arguing against the application of Swiss procedural law. The

doctrine prevents a party from asserting a position in a legal

proceeding that is contrary to a position previously taken in the

same or earlier proceedings.49 “The policies underlying the

doctrine include preventing internal inconsistency, precluding

litigants from ‘playing fast and loose’ with the courts, and

prohibiting parties from deliberately changing positions according

to the exigencies of the moment.”50 Fifth Circuit courts have

identified two limitations on judicial estoppel: (1) the position

of the party to be estopped must be clearly inconsistent with its

49 Hall v. GE Plastic Pac. PTE Ltd.,

327 F.3d 391, 396

(5th Cir. 2003); see In re Coastal Plains, Inc.,

179 F.3d 197, 205

(5th Cir. 1999) (quoting Brandon v. Interfirst Corp.,

858 F.2d 266, 268

(5th Cir. 1988)) (describing judicial estoppel as “a common law doctrine by which a party who has assumed one position in his pleadings may be estopped from assuming an inconsistent position”); see also Ahrens v. Perot Sys. Corp.,

205 F.3d 831, 833

(5th Cir. 2000); Ergo Sci., Inc. v. Martin,

73 F.3d 595, 598-600

(5th Cir. 1996). 50 United States v. McCaskey,

9 F.3d 368, 378

(5th Cir. 1993).

29 prior position; and (2) the court must have accepted that prior

position.51 Judicial acceptance requires that the court adopted the

position previously urged by a party, whether as a preliminary

matter or as part of a final disposition.52

The district court did not abuse its discretion in imposing

judicial estoppel to preclude Pertamina from arguing against the

application of Swiss procedural law. Pertamina repeatedly

represented to the Tribunal and to the district court that Swiss

procedural law controlled the arbitration.53 Both the Tribunal and

the district court relied on these representations in their

decisionmaking. In the Award, the Tribunal accepted Pertamina’s

argument that Swiss procedural law applied. The district court

adopted Pertamina’s position that Swiss law applied in delaying the

enforcement proceedings pending the Swiss court’s resolution of the

appeal.54 Pertamina’s argument that Indonesian procedural law

governed the arbitration is clearly inconsistent with its prior

position that Swiss procedural law controlled.55 Pertamina

belatedly suggests that its positions are not inconsistent because

51 Hall, 327

F.3d at 396; Ahrens,

205 F.3d at 833

; Coastal Plains,

. 52 Coastal Plains,

. 53 See note 24. 54 See Coastal Plains,

(noting that the acceptance prong of judicial estoppel can be satisfied by a court’s acceptance of a party’s position “as a preliminary matter”). 55 See Hall,

327 F.3d at 396

; Ahrens,

205 F.3d at 833

; Coastal Plains,

30 the New York Convention permits multiple primary jurisdictions. As

addressed more fully below, this record makes it clear that only

the Swiss courts had primary jurisdiction over this Award.

Judicial estoppel provides an additional ground for concluding that

Swiss procedural law applied to the arbitration proceeding.56

C. The Procedural Challenges to the Arbitral Award

1. Consolidation of the Claims under the JOC and ESC into One Arbitration Proceeding

Under Article V(1)(d) of the New York Convention, a court may

refuse to enforce an arbitration award if “[t]he composition of the

arbitral authority or the arbitral procedure was not in accordance

with the agreement of the parties, or, failing such agreement, was

not in accordance with the law of the country where the arbitration

took place.”57 Pertamina argues that because the JOC and ESC were

separate contracts with separate arbitration clauses, and because

neither contract expressly allowed the consolidation of claims, the

Tribunal improperly consolidated the claims into one arbitration

proceeding. Pertamina also contends on appeal that because

Indonesian rather than Swiss procedural law governed the

56 See Hall,

327 F.3d at 396

; Coastal Plains,

; Ahrens,

205 F.3d at 833

. The High Court of Hong Kong Court estopped Pertamina from asserting application of Indonesian procedural law for the same reasons. Hong Kong decision at 9-12. The High Court also emphasized the dilatoriness of Pertamina’s argument: “Pertamina’s position on the [applicable procedural law] only changed 30 months after the preliminary award was published, 15 months after the Final award (December 2000) and seven months after the Swiss Court dismissed the petition for revision (August 2001).” Id. at 11. 57

9 U.S.C. § 201

, Art. V(1)(d).

31 arbitration, the Tribunal’s reliance on Swiss procedural law to

consolidate the claims was erroneous.

The Tribunal carefully analyzed the parties’ contracts in

concluding that a consolidated arbitration of KBC’s claims against

Pertamina and PLN under the JOC and ESC was appropriate. In

factual findings set out in the Preliminary Award, the Tribunal set

out the basis for concluding that the two contracts were integrated

such that “the parties did not contemplate the performance of two

independent contracts but the performance of a single project

consisting of two closely related parties.”58 The Tribunal

continued:

In such circumstances, the conclusion of this Arbitral Tribunal is that KBC’s single action should be admitted, provided it is appropriate. The Arbitral Tribunal has not the slightest doubt in this respect. Due to the integration of the two contracts and the fact that the Presidential Decrees, the consequences of which are at the origin of the dispute, affected both of them, the initiation of two separate arbitrations would be artificial and would generate the risk of contradictory decisions. Moreover, it would increase the costs of all the parties involved, an element of special weight in the light of difficulties faced by the Indonesian economy, to which counsel for [Pertamina]

58 Article 15.3 of the ESC provided that “the terms of [the ESC] and the Joint Operation Contract constitute the entire agreement between the parties hereto.” Article 1.2 of the JOC stated that “[e]ach such Energy Sales Contract shall be an integral part of this contract, and to the extent the provisions of the Energy Sales Contract obligate the parties hereto, shall be deemed incorporated into this contract for all purposes.” Pertamina and KBC entered into the JOC and ESC on the same day. The JOC and the ESC contained virtually identical arbitration provisions.

32 legitimately drew the Arbitral Tribunal’s attention.

The record provides ample support for the Tribunal’s findings and

conclusion that the two contracts were integrated such that the

parties contemplated a single arbitration.

The Tribunal cited the Swiss law concept of “connexity” in

analyzing the legal relations among KBC and Pertamina under the JOC

and KBC, Pertamina, and PLN under the ESC as one of the factors

justifying the consolidation of claims under the two contracts into

one arbitration proceeding. The Tribunal concluded that the

relationship of the JOC and ESC exceeded the standard of

“connexity” under Swiss law. “The use of the word ‘connexity’ to

describe the relationship between the JOC and the ESC would be an

understatement. In reality, the two contracts are integrated.”

Courts and arbitration tribunals have recognized that claims

arising under integrated contracts may be consolidated into single

arbitrations.59 The Tribunal cited one other factor that supported

59 See, e.g., Conn. Gen. Life Ins. Co. v. SunLife Assur. Co. of Canada,

210 F.3d 771, 774

(7th Cir. 2000); Maxum Found., Inc. v. Salus Corp.,

817 F.2d 1086, 1087-88

(4th Cir. 1987). Pertamina cites cases decided under the FAA and the law of different American jurisdictions for the proposition that courts do not have the authority to order arbitrations without the parties’ approval. See, e.g., Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213, 221

(1985) (“The preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered, and that concern requires that we rigorously enforce agreements to arbitrate, even if the result is ‘piecemeal’ litigation . . . .”); Gov’t of the United Kingdom and N. Ireland v. Boeing Co.,

998 F.2d 68

, 74 (2d Cir. 1993); Protective Life Ins. Co. v. Lincoln Nat. Life Ins. Corp.,

873 F.2d 281

, 282 (11th Cir. 1989). These cases do not involve contracts so closely related as to manifest the parties’ agreement to be joined in arbitration proceedings involving parties and claims under those integrated contracts.

33 consolidation: “appropriateness.” The parties agreed to the

application of the UNCITRAL Rules, which permit a tribunal to

conduct an arbitration “in such manner as it considers

appropriate.”60 Pertamina does not dispute the application of the

UNCITRAL Rules to the arbitration proceeding.

Courts are reluctant to set aside arbitral awards under the

New York Convention based on procedural violations, reflected in

cases holding that the Convention embodies a proenforcement bias.61

The Tribunal emphasized in its Preliminary Award that although the

claims would be consolidated, “the position of each party has to be

considered independently when discussing the substance of the case,

on the basis of their respective legal and contractual situations.”

The record reflects that the Tribunal kept this promise. There is

no prejudice arising from the consolidation that would justify a

refusal to enforce the Award.

2. The Composition of The Tribunal

Under Article V(1)(d), a court may refuse enforcement of an

arbitral award if the composition of the tribunal is not in

60 UNCITRAL Arbitration Rules at Art. 15(1). 61 See, e.g., China Minmetals Materials Imp. and Exp. Co., Ltd. v. Chi Mei Corp.,

334 F.3d 274, 282-83

(3d Cir. 2003); Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co.,

284 F.3d 1114, 1120

(9th Cir. 2000); Alghanim,

126 F.3d at 20

; Parsons & Whittemore Overseas, 508 F.2d at 973; Compagnie des Bauxites de Guinee v. Hammermills, Inc.,

1992 WL 122712

, at *5 (D.D.C. May 29, 1992); Am. Constr. Mach. & Equip. Corp. Ltd. v. Mechanised Constr. of Pakistan, Ltd.,

659 F. Supp. 426, 428

(S.D.N.Y. 1987).

34 accordance with the parties’ agreement.62 The JOC provided for the

appointment of arbitrators, as follows:

Each Party [KBC and Pertamina] will appoint an arbitrator within thirty (30) days after the date of a request to initiate arbitration, who will then jointly appoint a third arbitrator within thirty (30) days of the date of the appointment of the second arbitrator, to act as Chairman of the Tribunal. Arbitrators not appointed within the time limits set forth in the preceding sentence shall be appointed by the Secretary General of the International Center for Settlement of Investment Disputes.

The ESC procedure for arbitrators’ appointment was slightly

different:

PLN on one hand, and [KBC] and PERTAMINA, on the other hand, will each appoint one arbitrator, in each case within thirty (30) days after the date of a request to initiate arbitration, who will then jointly appoint a third arbitrator within thirty (30) days of the date of the appointment of the second arbitrator, to act as Chairman of the Tribunal. Arbitrators not appointed within the time limits set forth in the preceding sentence shall be appointed by the Secretary General of the International Center for Settlement of Investment Disputes, upon the request of any Party.

Each contract required the appointment of arbitrators within thirty

days of the notice of arbitration and provided for appointment by

the ICSID in the event that a party did not do so.

In its notice of arbitration sent to Pertamina, KBC appointed

Professor Piero Bernardini to serve as an arbitrator. Pertamina

did not designate an arbitrator within thirty days, nor did it

9 U.S.C. § 201

, Art. V(1)(d). 35 object to KBC’s selection at that time. By letter dated June 2,

1998, KBC notified the ICSID of Pertamina’s inaction and requested

the appointment of a second arbitrator under the default

appointment provisions of the contracts. Pertamina did not respond

to this letter. The ICSID questioned KBC about the consolidation

of claims under the JOC and the ESC and KBC’s unilateral

appointment of an arbitrator. KBC responded by letter dated June

22, 1998. The ICSID confirmed receipt of KBC’s letters and in a

June 29, 1998 letter to all parties, recapped the prior

correspondence, noted Pertamina’s failure to respond, and expressed

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

The ICSID Secretary-General identified Dr. Ahmed El-Kosheri as its

candidate and asked for any objections by July 13, 1998. The ICSID

sent all the preceding correspondence to PLN by courier and to

Pertamina by fax and courier. Despite the Secretary-General’s

invitation to do so, neither Pertamina nor PLN lodged objections or

responses to the proposed appointment. On July 13, 1998, having

received no communications from Pertamina, the ICSID notified

Pertamina and PLN of its intent to appoint Dr. El-Kosheri and made

the appointment on July 15, 1998. Under the JOC and ESC, Professor

Bernardini and Dr. El-Kosheri then selected the chairman of the

arbitration panel, Yves Derains.

In its Preliminary Award, the Tribunal rejected Pertamina’s

argument that KBC’s selection of an arbitrator violated the ESC’s

requirement that KBC and Pertamina jointly make the nomination.

36 The Tribunal found that the parties intended to limit that

requirement to disputes in which PLN was opposed to KBC and

Pertamina. Because the ESC did not expressly address the method

for appointing arbitrators when KBC and Pertamina opposed each

other, the Tribunal found that UNCITRAL Arbitration Rules for

appointment applied. The Tribunal ruled that the appointment

procedures used did not violate these rules or create an inequality

of treatment. The Tribunal emphasized Pertamina’s failure to

nominate an arbitrator or object to those nominated. The district

court agreed with the Tribunal’s reasoning and added that Pertamina

had failed to demonstrate any prejudice from the appointment

proceedings.

On appeal, Pertamina reasserts its argument that KBC’s

unilateral selection of an arbitrator violated the ESC’s

requirement that “PLN on the one hand and [KBC] and Pertamina, on

the other hand, will each appoint one arbitrator.” Pertamina

contends that its interests would always be aligned with KBC under

the ESC, which required PLN to purchase from Pertamina the

electricity that KBC provided, and that this explains the

contractual requirement that KBC and Pertamina agree on an

arbitrator in a dispute arising under that contract. In response,

KBC argues that the Tribunal correctly found that a dispute between

KBC and Pertamina was possible under the ESC, but in the event of

such a dispute, the ESC did not provide a procedure for choosing an

arbitrator. KBC asserts that the Tribunal correctly found that the

37 general UNCITRAL rules for selecting an arbitrator would apply,

under which KBC, Pertamina, and PLN would each appoint an

arbitrator. In addition, KBC argues that the district court

correctly found that Pertamina had failed to object to KBC’s

selection of Professor Bernardini as an arbitrator and failed to

nominate an arbitrator despite the ICSID’s requests. Finally, KBC

argues that Pertamina cannot show prejudice that would make the

Award unenforceable.

The ESC arbitration clause refers to “any dispute or

difference of any kind whatsoever” arising among “the Parties.”

Section 2 of the ESC defines “parties” to include PLN, Pertamina,

and KBC. By its terms, the arbitration clause covers a dispute

between KBC and Pertamina arising under the ESC, as well as a

dispute in which the interests of KBC and Pertamina are aligned.

If the ESC required KBC and Pertamina jointly to select an

arbitrator for disputes in which KBC and Pertamina were opposed, as

Pertamina contends, Pertamina could effectively block arbitration

under the ESC simply by refusing to agree with KBC to the selection

of an arbitrator. Such an interpretation would make the ESC

arbitration clause illusory. In addition, Pertamina had numerous

opportunities early in the proceedings to object to KBC’s selection

of Professor Bernardini as an arbitrator and to nominate its own

arbitrator. Pertamina did not challenge the composition of the

arbitral panel until after the entire panel had been selected and

seated. Pertamina’s failure timely to object to Professor

38 Bernardini’s selection and to nominate its own arbitrator was, as

the district court noted, a strategic decision that Pertamina

should not now be able to assert as a defense to enforcing the

Award.63

Pertamina has failed to meet its burden of showing that the

Tribunal was improperly constituted. The Tribunal reasonably

interpreted the ESC’s arbitration provisions and reasonably applied

the UNCITRAL arbitration rules. Despite numerous opportunities,

Pertamina failed to challenge the Tribunal’s composition until

after the arbitrators were selected. The procedural infirmities

Pertamina alleges do not provide grounds for denying enforcement of

the Award.

D. The Due Process Challenges to the Arbitral Award

Under Article V(1)(b), enforcement of a foreign arbitral award

may be denied if the party challenging the award was “not given

proper notice of the appointment of the arbitrator or of the

arbitration proceedings or was otherwise unable to present [its]

case.”64 Article V(1)(b) “essentially sanctions the application of

the forum state’s standards of due process,” in this case, United

63 Pertamina apparently argued to the Tribunal that it did not name an arbitrator because it was contesting the legitimacy of the arbitration and further contended that it did not receive certain correspondence from ICSID regarding KBC’s request that the ICSID appoint a second arbitrator. Pertamina, however, did not make these arguments before the district court. 64

9 U.S.C. § 201

, Art. V(1)(b). 39 States standards of due process.65 A fundamentally fair hearing

requires that a party to a foreign arbitration be able to present

its case.66 A fundamentally fair hearing is one that “meets ‘the

minimal requirements of fairness’ – adequate notice, a hearing on

the evidence, and an impartial decision by the arbitrator.”67 The

parties must have an opportunity to be heard “at a meaningful time

and in a meaningful manner.”68 “The right to due process does not

include the complete set of procedural rights guaranteed by the

Federal Rules of Civil Procedure.”69

1. The Claim that the Final Award “Reversed” the Preliminary Award

Pertamina first contends that the Tribunal reversed the

Preliminary Award in the Final Award without notice, denying

Pertamina the opportunity to be “meaningfully heard.” Pertamina

emphasizes the Tribunal’s ruling that “a governmental decision

which prevents KBC [from] perform[ing] its obligations is not

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

65 Iran Aircraft Indus. v. Avco Corp.,

980 F.2d 141, 145

(2d Cir. 1992) (quoting Parsons & Whittemore Overseas, 508 F.2d at 975). 66 Slaney v. Int’l Amateur Athletic Fed’n,

244 F.3d 580, 592

(7th Cir. 2001); Generica, Ltd. v. Pharm. Basics, Inc.,

125 F.3d 1123, 1130

(7th Cir. 1997). 67 Slaney,

244 F.3d at 592

(quoting Sunshine Mining Co. v. United Steelworkers,

823 F.2d 1289, 1295

(9th Cir. 1987)); Generica,

125 F.3d at 1130

(quoting same). 68 Iran Aircraft Indus.,

980 F.2d at 146

(citations omitted). 69 Matter of Arbitration Between Trans Chem. Ltd. and China Nat. Mach. Imp. & Exp. Corp.,

978 F. Supp. 266, 310

(S.D. Tex. 1997), aff’d,

161 F.3d 314

(5th Cir. 1998). 40 Majeure event excusing KBC’s nonperformance.”

The Tribunal stated in the Preliminary Award that the force

majeure clause in the JOC and ESC made a “government-related event”

an event of force majeure only with respect to KBC. The Tribunal

stated that Pertamina and PLN were so closely related to the

Indonesian government that a decision by the Indonesian government

was not a force majeure event as to them. In its briefing before

the Tribunal made its Final Award, KBC argued that under the

contract language and given the close relationship between

Pertamina and the Indonesian government, Pertamina bore the risk of

loss from a force majeure event under the JOC and ESC. Pertamina

responded that in the Preliminary Award, the Tribunal had ruled

that acts of force majeure by the Indonesian government are not

breaches of the JOC and ESC and that to award KBC damages would be

incompatible with that ruling. In the Final Award, the Tribunal

found that the Indonesian government’s actions were an event of

force majeure that excused KBC’s failure to perform under the JOC

and ESC. The Tribunal stated that this finding did not contradict

its ruling in the Preliminary Award that the Indonesian government

was not a party to the JOC or ESC, because that ruling “was not

meant to express any view as to the consequences to

Pertamina . . . of a Governmental decision which prevents the

performance of the Contracts.”

The record shows that Pertamina knew it could be found liable

for nonperformance after the Preliminary Award had issued. After

41 the Preliminary Award issued, KBC argued to the Tribunal that

Pertamina bore the risk of nonperformance under the JOC and ESC in

the event of force majeure. KBC’s argument clearly assumed that

the Preliminary Award allowed the Tribunal to find that the

contracts placed the risk of, and liability for, such

nonperformance on Pertamina. In response to that argument,

Pertamina had, and took, the opportunity fully to present its

arguments against KBC’s theory of liability.

The Final Award shows that the Tribunal considered and

rejected Pertamina’s argument in making its liability decision.

The Tribunal concluded that the JOC and ESC allocated the risk of

government interference with the project solely to Pertamina and

PLN. In this enforcement proceeding, Pertamina is essentially

repeating the arguments it made to the Tribunal. The fact that

those arguments were presented to and considered by the Tribunal is

inconsistent with Pertamina’s claim that it had no notice of the

need to make the argument to that Tribunal or the opportunity to do

so. Pertamina did not suffer the fundamental unfairness it claims,

so as to support a refusal to enforce the Award.70

2. The Tribunal’s Denial of a Continuance and Request for Additional Discovery

To challenge KBC’s contention that FPL was willing to finance

the project, Pertamina sought in the arbitration proceeding a

70 See Europcar Italia,

(“Absent extraordinary circumstances, a confirming court is not to reconsider the arbitrator’s findings.”). 42 continuance and discovery of the following documents from KBC, FPL,

and Caithness regarding the financing of the KBC project:

(1) All documents relating to efforts to obtain financing for the Karaha-Bodas project during the period September 1997 through June 1998.

(2) All documents showing any consideration of providing direct financing (whether through bridge financing, a loan guarantee, or direct equity investment) for the Karaha-Bodas project during the period September 1997 through June 1998.

(3) All documents relating to FPL’s, its subsidiaries’, or its predecessors’ consideration of whether to invest in the Karaha-Bodas project.

(4) All documents relating to FPL’s, its subsidiaries’, or its predecessors’ decision to invest in the Karaha-Bodas project, stated variously to have occurred in mid-1996 or mid-1997.

(5) All documents sent by KBC to FPL, its subsidiaries, or its predecessors following the investment identified in ¶ 4 and concerning geothermal exploration and development in the Karaha-Bodas concession area (whether such exploration occurred before or after the investment).

(6) All documents relating to evaluation by each, any and all of KBC, FPL (or subsidiaries or predecessors), and Caithness whether to proceed with the Karaha-Bodas project during the period September 1997 through June 1998.

The Tribunal denied Pertamina’s request.

After Pertamina discovered that FPL and certain other

investors in KBC owned a political risk insurance policy

underwritten by Lloyd’s of London, which had paid $75 million after

43 the project suspension, Pertamina sought reconsideration of the

district court’s summary judgment enforcing the Award under Rule

60(b). The district court found that Pertamina’s inability to

introduce evidence of the insurance policy at the arbitration did

not prevent the presentation of its case to the Tribunal. The

district court also held that KBC’s failure to bring the insurance

policy to the Tribunal’s attention did not make enforcing the Award

a violation of public policy. We agree.

“An ‘arbitrator is not bound to hear all of the evidence

tendered by the parties . . . . [He] must give each of the parties

to the dispute an adequate opportunity to present its evidence and

arguments.’”71 It is appropriate to vacate an arbitral award if the

exclusion of relevant evidence deprives a party of a fair hearing.72

“Every failure of an arbitrator to receive relevant evidence does

not constitute misconduct requiring vacatur of an arbitrator’s

award. A federal court may vacate an arbitrator’s award only if

the arbitrator’s refusal to hear pertinent and material evidence

prejudices the rights of the parties to the arbitration

proceedings.”73

71 Generica,

125 F.3d at 1130

(quoting Hoteles Condado Beach, La Concha and Convention Ctr. v. Union de Tronquistas Local 901,

763 F.2d 34, 39

(1st Cir. 1985)); see Slaney,

244 F.3d at 592

(cautioning that “parties that have chosen to remedy their disputes through arbitration rather than litigation should not expect the same procedures they would find in the judicial arena”). 72 Generica,

125 F.3d at 1130

; Slaney,

244 F.3d at 592

. 73 Hoteles Condado Beach,

763 F.2d at 40

(internal citations omitted). 44 Although the Tribunal denied Pertamina the specific discovery

it sought on the issue of FPL financing, Pertamina was able to

cross-examine the KBC witnesses who testified that FPL was willing

to provide financing for the project, Leslie Gelber and Robert

McGrath. Before those witnesses testified, Pertamina had already

presented substantial evidence in its response to KBC’s Statement

of Claim as to why KBC would not have been able to secure financing

for the project, emphasizing the depressed state of the Indonesian

economy and its unattractiveness to investors. Pertamina argued to

the Tribunal that KBC had presented no documentary evidence of

FPL’s willingness to finance the project and asserted that FPL

would have required such a high rate of interest because of the

risk involved as to make the KBC venture unprofitable.

The Tribunal found that “the issue remained open in 1998 of

the terms and conditions upon which financing could have been

obtained for the Project development.” The Tribunal noted that

“the worsening of the economic and political situation in Indonesia

at the time has to be taken into account as regards both the

conditions at which financing could have been obtained and possible

delays in arranging the same.” The Tribunal, however, noted that

the parties contemplated the possibility of a delay in arranging

financing, because the ESC provided that the contract could be

suspended for up to two years if KBC was unable to arrange

financing for the project. The Tribunal also noted KBC’s efforts

to reinstate the project after the initial government suspension

45 order, finding that KBC was ready and willing to secure financing

for the project. The Tribunal found the testimony of KBC’s

witnesses on financing credible, stating that it had “no

reason . . . to cast doubts about KBC’s readiness, directly and/or

through its shareholders, to make provision thereof.” In

determining the lost profits, the Tribunal considered all the risks

of the project, including the potential difficulties in arranging

financing that Pertamina cited, and “significantly reduc[ed]” the

amount of lost profits claimed by KBC.

In Generica, Ltd. v. Pharmaceutical Basics, Inc.,74 the party

opposing enforcement of an international arbitration award argued

that the tribunal curtailed cross-examination of a witness, in

violation of the party’s due process right to present its case.75

The tribunal, recognizing that it had curtailed the cross-

examination, placed diminished reliance on the witness’s

testimony.76 The court found that by limiting the reliance on the

witness’s testimony, the arbitrators eliminated the possibility of

prejudice to the party claiming a due process violation.77 The

court confirmed the award.78 As in Generica, the Tribunal appears

to have given all the evidence as to damages, including the

(7th Cir. 1997). 75

. 76

. 77

46 availability of financing, appropriate weight in determining

liability and damages.

In Tempo Shain Corp. v. Bertek, Inc.,79 the arbitral panel did

not allow a potential witness to testify on the basis that the

witness’s testimony was cumulative.80 The court vacated the

arbitral award.81 The record showed that the witness would have

testified to facts that only he could have known, making his

testimony essential.82 Similarly, in Hoteles Condado Beach, La

Concha and Convention Center v. Union de Tronquistas Local 901,83

the court vacated an award because the arbitral panel refused to

give any weight to the only evidence available to the losing

party.84 In the present case, by contrast, the Tribunal’s language

in the Final Award and the record show that the testimony about

FPL’s willingness to provide financing was only one factor relevant

to damages. KBC raised the possibility of FPL’s direct financing

only in response to Pertamina’s affirmative defense that KBC could

not have financed the project. Pertamina did not seek discovery on

KBC’s efforts to finance the project in the arbitration proceeding

until after KBC filed its rebuttal to the response to the Statement

(2d Cir. 1997). 80

. 81

. 82

. 83

(1st Cir. 1985). 84

. 47 of Claim, despite the fact that Pertamina raised the issue as an

affirmative defense.

The record shows that the Tribunal’s refusal to grant a

continuance and additional prehearing discovery did not “so affect

the rights of [Pertamina] that it may be said that [it] was

deprived of a fair hearing.”85 Pertamina was able to present

comprehensive evidence of investment conditions in Indonesia and

expert opinions on the availability of financing, as well as cross-

examine Gelber and McGrath on FPL’s asserted willingness and

ability to provide financing.86

Pertamina contends that the late revelation of the political

risk insurance policy refutes KBC’s contention in the arbitration

that FPL was willing to finance KBC to protect the $40 million it

had previously invested in KBC. The existence of the political

insurance policy was not “central or decisive” to Pertamina’s

case.87 In order to show damages, KBC had to show that if the

project had not been suspended, KBC could have proceeded to perform

85 Newark Stereotypers’ Union No. 18 v. Newark Morning Ledger Co.,

397 F.2d 594, 599

(3d Cir. 1968). 86 Pertamina acknowledges that it specifically examined Gelber and McGrath about the existence of documents regarding FPL’s willingness to finance the project. Pertamina states that the Tribunal had to instruct McGrath to answer the question directly, demonstrating that McGrath was an “evasive” witness. The Tribunal observed McGrath testify and was able to make the credibility judgment that he either lacked knowledge of such documents or was unwilling to discuss them. Cf. United States v. Garza,

118 F.3d 278, 283

(5th Cir. 1997) (noting that a district court is in the best position to judge the credibility of witnesses and refusing to “second-guess” the lower court’s judgment on the issue). 87 Cf. Hoteles Condado Beach,

763 F.2d at 40

(denial of party’s only evidence was ground for vacating award). 48 by obtaining financing. The record amply supports KBC’s position

that KBC and FPL had already invested substantial money before the

Indonesian government issued its suspension order. The existence

of the political risk insurance policy is not inconsistent with the

testimony of Gelber and McGrath that FPL intended to finance the

project and would have done so but for the suspension decreed by

the government of Indonesia. The existence of political risk

insurance for the project is not inconsistent with FPL’s

willingness to invest had the project not been suspended, that is,

if the risk insured against had not occurred. The Tribunal’s

damages analysis and the lost profits award depended on the

assumption that the project continued, that is, that the suspension

had not taken place.

Pertamina’s argument that KBC’s political risk insurance

policy undermines the Tribunal’s finding that the JOC and ESC

placed the risk of a government-related event on Pertamina is also

unavailing. The Tribunal determined that the JOC and ESC placed

the risk of nonperformance due to a government-related event on

Pertamina based on a well-reasoned, detailed analysis of the

contract terms.88 The existence of a political risk policy does not

88 See, e.g., Talman Home Fed. Sav. & Loan Ass’n of Ill. v. Am. Bankers Ins.,

924 F.2d 1347, 1351

(5th Cir. 1991) (quoting Republic Nat’l Bank of Dallas v. Nat’l Bankers Life Ins. Co.,

427 S.W.2d 76, 79

(Tex. App. – Dallas 1968, writ ref’d)) (“The cardinal rule of construction as applied to all contracts is to ascertain the intention of the parties as expressed in the language used in the instrument itself. It is the intention and purpose of contracting parties, as disclosed within the four corners on the instrument which should control.”). 49 undermine this result. Moreover, the political risk policy

contained a subrogation provision that required KBC to reimburse

the insurer if KBC recovered its losses from another source.89 The

existence of the political risk policy is not inconsistent with the

contractual allocation of risk.

The Tribunal asked McGrath whether FPL had purchased “OPIC

insurance,” a form of political risk insurance. McGrath responded

that he did not know the answer to the question. Pertamina’s

counsel did not follow up on the Tribunal’s questioning. At the

conclusion of the hearing, the Tribunal chair asked the parties

whether the discovery requests were “maintained, all of them, part

of them, because we would like to know on what we have to decide.”

The response from counsel for Pertamina was as follows:

[T]he purpose of discovery is to prepare for the hearing, it is not to supplement the record after the hearing. So I think the discovery requests are moot, and if discovery is now permitted, then you have to re-open the proceedings and so on. So I treated, notwithstanding the fact that it was theoretically open, I treated this request as effectively being denied, and we went forward.

89 This subrogation provision undermines Pertamina’s additional argument that, in the alternative, it is entitled to a $75 million offset from the political risk insurance payout. Pertamina argues that enforcement of the judgment, in combination with the insurance proceeds, will permit KBC double recovery in violation of the single-satisfaction rule. See Tompkins v. Cyr,

202 F.3d 770, 785

(5th Cir. 2000). The subrogation provision of the political risk insurance policy, however, requires that to the extent the insured obtains any recovery from a judgment against Pertamina, the insured is obligated to repay the insurer. In addition, payment by a collateral source does not typically diminish a judgment debt. See Global Petrotech, Inc. v. Engelhard Corp.,

58 F.3d 198, 202

(5th Cir. 1995). There will be no double recovery, and Pertamina is not entitled to a credit. 50 Our request went to the purported financial ability, the purported financing that would have been made available and other things, and I think the record on that has been fully made. I am prepared to rest on that record, and so I think the discovery requests should no longer be in the picture.

The parties submitted extensive posttrial briefs. In the Final

Award, issued in December 2000, the Tribunal stated that all

parties had “waived their respective requests for discovery” at the

conclusion of the hearing.

Pertamina asserts that it did not waive its requests for

discovery because the Tribunal denied the request before the

hearing, when the discovery could have been of use. Pertamina

ignores the fact that in international commercial arbitration, it

is not uncommon to ask for additional discovery or information

after a hearing, to request additional sessions of a hearing to

submit more evidence, or to file posthearing submissions.90 Rather

than renew its requests for discovery into FPL’s willingness to

finance the project or to assert a request for discovery into FPL’s

political risk insurance, Pertamina’s counsel expressly stated that

90 See, e.g., UNCITRAL Arbitration Rules at Art. 15(2), 29(2) (stating that a party may request at any stage of the proceeding a hearing for presentation of evidence and that a tribunal may reopen hearings at any time upon request of a party); Jay E. Grenig, Alternative Dispute Resolution with Forms, § 5.76 (2d ed. 1997) (including in a description of the customary order of arbitration proceedings the “submission of post-hearing briefs”). See also Lincoln Nat’l Life Ins. Co. v. Payne,

286 F.Supp.2d 1023, 1026

(S.D. Ia. 2003); Techcapital Corp. v. Amoco Corp.,

2001 WL 267010

, at * 2 (S.D.N.Y. March 19, 2001); Mays v. Lanier Worldwide, Inc.,

115 F.Supp.2d 1330, 1342

(M.D. Ala. 2000); I. Appel Corp. v. Katz,

1999 WL 287370

, at * 3 n.2 (S.D.N.Y. May 6, 1999); United Foods, Inc. v. W. Conference of Teamsters Pension Trust Fund,

816 F. Supp. 602, 607

(N.D. Ca. 1993). 51 the record had been “fully made” and that he was “prepared to rest

on the record.” The record supports the Tribunal’s conclusion that

the discovery requests made before the hearing had been waived.

Pertamina did not ask for discovery into political risk insurance

until it filed its Rule 60(b) motion in the district court.

The Tribunal’s denial of a continuance and additional

discovery did not prevent Pertamina from presenting its case, so as

to deprive it of a fair hearing. Pertamina presented ample

evidence in support of its position that KBC would be unable to

find financing. The Tribunal considered Pertamina’s evidence and

gave it considerable weight, awarding KBC damages substantially

lower than the amount it sought.91 Pertamina has failed to show the

prejudice required to decline enforcement of the Award on this

ground.

3. The District Court’s Denial of Pertamina’s Rule 56(f) Discovery Request

In the district court, after KBC moved for summary judgment on

its application to enforce the Award, Pertamina moved for a

continuance under Rule 56(f) and sought the same discovery on

FPL’s willingness and ability to provide project financing that it

had sought in the arbitration. The district court denied the Rule

56(f) motion.

91 KBC sought $512.5 million in lost profits. The Tribunal awarded KBC $150 million in lost profits. The Tribunal also awarded KBC $111.1 million in lost expenditures. 52 The denial of a Rule 56(f) discovery request is reviewed for

abuse of discretion.92 The district court may not simply rely on

vague assertions that additional discovery will produce needed, but

unspecified, facts.93 “If it appears that further discovery will

not produce evidence creating a genuine issue of material fact, the

district court may, in the exercise of its discretion, grant

summary judgment.”94 As one court has explained:

In judging discovery requests in this context [of an arbitration award confirmation proceeding], the court must weigh the asserted need for hitherto undisclosed information and assess the impact of granting such discovery on the arbitral process. The inquiry is an entirely practical one, and is necessarily keyed to the specific issues raised by the party challenging the award and the degree to which those issues implicated factual questions that cannot be reliably resolved without some further disclosure.95

The record shows that in the arbitration, Pertamina was able

to present substantial evidence regarding the Indonesian economy,

the problems in securing financing for projects in Indonesia, and

the projected electrical generating capacity of the project. The

Tribunal took Pertamina’s arguments into account in awarding

92 Resolution Trust Corp. v. Sharif-Munir-Davidson Dev. Corp.,

992 F.2d 1398

, 1401 (5th Cir. 1993). 93 Int’l Shortstop v. Rally’s, Inc.,

939 F.2d 1257, 1267

(5th Cir. 1991). 94 Krim v. BancTexas Group, Inc.,

989 F.2d 1435, 1442

(5th Cir. 1993). 95 Lummus Global Amazonas S.A. v. Aguaytia Energy del Peru S.R. Ltda.,

256 F.Supp.2d 594, 626

(S.D. Tex. 2002) (citations omitted). 53 significantly less in lost profits than KBC had sought. The

Tribunal did not solely rely on FPL’s willingness to finance the

project in determining that KBC was ready to “directly, and/or

through its shareholders,” finance the project. The Tribunal also

looked to KBC’s efforts to convince the Indonesian government to

restart the project in making this finding. The record supports

the district court’s denial of a continuance to permit further

discovery on KBC’s ability to finance the project.

The district court also noted Pertamina’s counsel’s statement

at the conclusion of the arbitration hearing that “the record on

[the financing issue] ha[d] been fully made.” Pertamina has failed

to show that the discovery it sought in the district court would

have created disputed fact issues material to determining whether

Pertamina received a fundamentally fair hearing before the

Tribunal.96 Because the issue of financing could be reliably

resolved without the requested discovery, the district court did

not abuse its discretion in denying Pertamina’s Rule 56(f) motion.97

96 See Krim,

989 F.2d at 1442

. 97 See Lummus Global Amazonas,

256 F.Supp.2d at 626

; Resolution Trust Corp., 992 F.2d at 1401. For the same reasons, the district court did not err by refusing to permit additional discovery or host an evidentiary hearing before ruling on Pertamina’s Rule 60(b) motion. See Provident Life and Accident Ins. Co. v. Goel,

274 F.3d 984, 999

(5th Cir. 2001) (noting that the only issues on an appeal of a Rule 60(b) motion are the propriety of the denial of relief and whether the district court abused its discretion in denying relief). 54 E. The Public Policy Challenge to the Arbitral Award

Pertamina asserts that the Award violated public policy

because it violated the international law doctrine of abuse of

rights. Pertamina contends that the Award imposes punishment for

obeying a government decree. Pertamina also asserts that KBC’s

failure to disclose the political risk insurance policy during the

arbitration makes enforcement of the Award a violation of public

policy.

Under Article V(2)(b) of the New York Convention, a court may

refuse to recognize or enforce an arbitral award if it “would be

contrary to the public policy of that country.”98 The public policy

defense is to be “construed narrowly to be applied only where

enforcement would violate the forum state’s most basic notions of

morality and justice.”99 “The general pro-enforcement bias

informing the convention . . . points to a narrow reading of the

public policy defense.”100 Erroneous legal reasoning or

misapplication of law is generally not a violation of public policy

within the meaning of the New York Convention.101

9 U.S.C. § 201

, Art. V(2)(b). 99 M & C Corp.,

87 F.3d at 851

n.2 (quoting Fotochrome, Inc. v. Copal Co., Ltd.,

517 F.2d 512, 516

(2d Cir. 1975)); see Parsons & Whittemore Overseas, 508 F.2d at 974; Slaney,

244 F.3d at 593

. 100 Parsons & Whittemore Overseas, 508 F.2d at 973. 101 Coutinho Caro & Co. U.S.A., Inc. v. Marcus Trading, Inc.,

2000 WL 435566

, at *12 (D. Conn. March 14, 2000). 55 An action violates the abuse of rights doctrine if one of the

following three factors is present: (1) the predominant motive for

the action is to cause harm; (2) the action is totally unreasonable

given the lack of any legitimate interest in the exercise of the

right and its exercise harms another; and (3) the right is

exercised for a purpose other than that for which it exists.102 The

abuse of rights doctrine is not established in American law103 and

KBC’s actions do not meet the factors required to trigger its

application. The evidence in the record is that KBC pursued the

arbitration to recover its costs, expenses, and lost profits from

the nonperformance of the JOC and ESC.104 The record does not

support Pertamina’s argument that enforcing the Award penalizes

obedience to a governmental decree. The Tribunal explained in the

Final Award that the JOC and ESC shifted the risk of loss resulting

from a government-ordered suspension onto Pertamina and PLN.

Pertamina is challenging the substance of the Tribunal’s

interpretation of the JOC and ESC. An arbitration tribunal’s

contract interpretation does not violate public policy unless it

“violates the most basic notions of morality and justice.”105 The

102 Joseph M. Perillo, Abuse of Rights: A Pervasive Legal Concept, 27 Pac. L. J. 37, 47 (Fall 1995). 103 The abuse of rights doctrine is not even fully established in Louisiana, the American jurisdiction that has invoked it. See Lloyd v. Georgia Gulf Corp.,

961 F.2d 1190

, 1193 n.4 (5th Cir. 1992). 104 See Perillo, 27 Pac. L. J. at 47. 105 Slaney,

244 F.3d at 593

. 56 Tribunal’s interpretation of the JOC and ESC does not approach this

steep threshold.

KBC’s failure to disclose the political risk insurance policy

does not provide a basis for refusing to enforce the Award.

Enforcement of an arbitration award may be refused if the

prevailing party furnished perjured evidence to the tribunal or if

the award was procured by fraud.106 Courts apply a three-prong test

to determine whether an arbitration award is so affected by fraud:

(1) the movant must establish the fraud by clear and convincing

evidence; (2) the fraud must not have been discoverable upon the

exercise of due diligence before or during the arbitration; and (3)

the person challenging the award must show that the fraud

materially related to an issue in the arbitration.107 It is not

necessary to establish that the result of the arbitration would

have been different if the fraud had not occurred.108 Courts,

however, have held that an arbitration award is not fraudulently

obtained when the protesting party had an opportunity to rebut his

opponent’s claims at the hearing.109

106 Karppinen v. Karl Kiefer Mach. Co.,

187 F.2d 32, 34

(2d Cir. 1951). 107 Bonar v. Dean Witter Reynolds, Inc.,

835 F.2d 1378, 1383

(11th Cir. 1988). 108

109 See Biotronik Mess-Und Therapiegeraete GmbH & Co. v. Medford Med. Instrument Co.,

415 F. Supp. 133, 137-38

(D.N.J. 1976). 57 In Biotronik Mess-Und Therapiegeraete GmbH & Co. v. Medford

Medical Instrument Co.,110 the party opposing enforcement of the

award argued that the prevailing party knowingly withheld evidence

of an agreement that undermined its case.111 The court stated that

while the party opposing enforcement urged fraud, the real

complaint was that the party prevailing in the arbitration should

have presented evidence favorable to its opponent’s case.112 The

court rejected this argument, stating that “a party cannot complain

about the nonproduction of evidence when it failed to offer such

evidence itself.”113 In Catz American Co. v. Pearl Grange Fruit

Exchange Inc.,114 the party opposing enforcement did not ask the

arbitrators to bring certain witnesses before the panel, although

the prevailing party offered to make the witnesses available.115

The panel never called for the witnesses’ testimony.116 The party

opposing enforcement of the award argued that the prevailing party

should nonetheless have produced the witnesses.117 The court

rejected this argument, stating that “[a]rbitrators must be given

110

415 F. Supp. 133

(D.N.J. 1976). 111

. 112

. 113

114

(S.D.N.Y. 1968). 115

Id. at 553

. 116

117

58 discretion to determine whether additional evidence is necessary or

would simply prolong the proceedings.”118 Because the witnesses

were not solely within the prevailing party’s control and there was

other evidence in the record supporting the other party’s position,

the court rejected the challenge to the award.119

Pertamina argues that KBC’s failure to reveal its political

risk insurance policy amounts to misconduct warranting a refusal to

enforce the Award. There is no evidence in the record that KBC

deliberately misled the Tribunal. When the question of political

risk insurance arose and was not clearly resolved, Pertamina had

the opportunity to ask additional questions, which it chose not to

pursue. The Tribunal gave Pertamina an opportunity to pursue

discovery requests, which it declined. KBC’s failure to produce

evidence of political risk insurance, given Pertamina’s decisions

not to pursue the subject, does not violate public policy. The

district court did not err in refusing to deny enforcement of the

Award on the basis of a public policy violation or in refusing to

grant a new trial on the basis of Rule 60(b).120

F. The Effect of the Indonesian Court’s Annulment of the Arbitral Award

118

119

120 Cf. Biotronik,

; Catz American,

; see Goel,

(noting that the only issues on an appeal of a Rule 60(b) motion are the propriety of the denial of relief and whether the district court abused its discretion in denying relief). 59 Pertamina filed an annulment action in the Central District

Court of Jakarta, Indonesia in March 2002. That court annulled the

Award on August 27, 2002. Pertamina now contends that the

Indonesian court’s annulment is a defense to enforcement under the

New York Convention. KBC responds that Indonesia cannot be a

proper forum for annulment because Switzerland is the country of

primary jurisdiction.

Pertamina argues that the New York Convention permits more

than one country to have primary jurisdiction over an arbitration

award. Pertamina contends that the Convention’s language

permitting annulment by a court in “the country in which, or under

the law of which, that award was made” allows for two potential

primary jurisdiction countries – the country who hosted the

arbitration proceeding, and the country whose arbitral procedural

law governed that proceeding.121 Using this reasoning, Pertamina

suggests that both Switzerland (the host country) and Indonesia

(the country of governing law) have primary jurisdiction over the

arbitration in this case.

Pertamina correctly observes that the Convention provides two

tests for determining which country has primary jurisdiction over

an arbitration award: a country in which an award is made, and a

121 The language, “‘the competent authority of the country . . . under the law of which, that award was made’ refers exclusively to procedural and not substantive law, and more precisely, to the regimen or scheme of arbitral procedural law under which the arbitration was conducted, and not the substantive law . . . applied in the case.” Int’l Standard Elec. Corp.,

745 F. Supp. at 178

; see Alghanim,

126 F.3d at 21

; M & C Corp.,

87 F.3d at 848

. 60 country under the law of which an award is made.122 The New York

Convention suggests the potential for more than one country of

primary jurisdiction. Courts and scholars have noted as much.123

Pertamina cites one such scholar as support for its position:

[A]mbiguity is derived from the fact that the formula does not indicate whether the party seeking the annulment of the award must choose between the court at the seat of the arbitration and the one located in the country under the law of which the award is made – if the two are distinct – or whether it may seek annulment jointly or alternatively before both courts. . . . Article V(1)(e) of the New York Convention could [ ] be construed as referring to the courts of only one country while giving the party seeking the annulment the possibility to choose between the two countries should the two be distinct.124

Although an arbitration agreement may make more than one country

eligible for primary jurisdiction under the New York Convention,

the predominant view is that the Convention permits only one in any

given case.125 “[M]any commentators and foreign courts have

concluded that an action to set aside an award can be brought only

122

9 U.S.C. § 201

, Art. V(1)(e). 123 See, e.g., Int’l Standard Electric Corp.,

745 F. Supp. at 177

(quoting Albert Jan van den Berg, The New York Arbitration Convention of 1958 350 (Kluwer 1981)); Paul Sanders, The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 6 Netherlands Int’l L. Rev. 43, 56 (1956). 124 Hamid G. Gharavi, The International Effectiveness of the Annulment of An Arbitral Award (2002). 125 “The reality, however, seems to be that the Article V(1)(e) formula enables enforcement courts to refuse enforcement of an award annulled by the competent court of the country in which the award was made even if (i) the award was rendered pursuant to the laws of a third State and (ii) annulment proceedings were pending before the court of the country under the law of which the award was made.”