By  Dr.  Ir.  Madjedi  Hasan,  FCBarb  

Kalimantan  Coal  Conference  4  September  2013,  Balikpapan  

•  Overview  of  modern  commercial  arbitration  as  a  

mean  to  resolve  commercial  dispute.  

•  Relevance  of  arbitration  to  the  coal  mining.  

�  Dispute  resolution  processes:  �  Litigation  in  national  courts;  �  No  international  court  to  deal  with  international  disputes,  therefore  

dispute  resolution  is  through:  �  International  arbitration;    �  Alternative  Dispute  Resolution  (ADR)  &  Expert  Determination.  

�  Dispute  resolutions  between  States  and  corporation:  �  Investment  arbitration:  related  to  investment  (BIT  and  MIT);    �  Commercial  arbitration:  related  to  commercial  contract.  

�  Need  to  plan  and  implement  dispute  resolution  strategy:  �  To  maximize  their  potential  benefits;  �  To  minimize  their  potential  losses;  �  Key  junctures  in  any  transaction  where  companies  can  have  a  

significant  impact:  �  Dispute  resolution  clause  in  their  agreement;  and    �  Select  their  dispute  counsel  and  the  arbitrators,  mediator  or  other  dispute  

resolution  facilitators.      

•  Advantages:  •  Preferred  initial  method  for  the  settlement  of  commercial  disputes.  •  Less  undesirable  characteristics  of  court  litigation  .  •  Parties  have  privilege  of  contractually  determining  manner  &  procedure.  •  Flexibility  :  free  to  choose  manner  in  which  the  arbitration  is  conducted.  •  Speed:  fixed  and  stringent  timelines.  •  Confidentiality  :  can  avoid  intrinsic  complexities  &  technicalities  of  the  

litigation  process.  •  Informal:  freely  select  their  arbitrator,  applicable  laws,  seat  of  arbitration.  •  Final  and  Binding  Award.  

•  Downsides:  •  Somewhat  expensive  (dependent  on  amount  of  claim),  but  it  is  

measurable  or  known  beforehand.  •  May  not  be  practical  or  cost-­‐effective  for  small  claims.  •  It  offers  an  alternative  to  parties  as  opposed  to  the  somewhat  more  

hostile  and  confrontational  method  of  civil  litigation.    

�  Important  provision  in  an  international  contract  with  the  Government:  �  Company’s  right  to  claim  waiver  of  sovereign  immunity,  i.e.    a  judicial  doctrine  

that  prevents  the  government  or  its  political  subdivisions,  departments,  and  agencies  from  being  sued  without  its  consent.  

�  Rights  and  obligations  are  of  a  commercial  and  not  a  government  act.    �  State  Sovereign  Immunity:  

�  Absolute  Immunity  �  Restrictive  or  qualified  immunity  (1976  Foreign  Sovereignty  Act):  

�  Jure  imperii  (government  public  acts)  and    �  Jure  gestionis  (i.e.  commercial  activities).  

�  GOI  still  upholds  absolute  immunity  approach,  but  in  Joint  Operation  Contract  (JOC)  and  Energy  Sales  Contract  (ESC)  for  Geothermal  undertaking  has  agreed  with  clauses:  �  Acknowledging  that  the  execution,  delivery  and  performance  of  the  contract  

constitute  private  and  commercial  acts  rather  public  or  governmental  acts.  �  Agree  with  the  clause  Force  Majeure  caused  by  GOI  action  will  be  applicable  

only  for  the  Company  (not  for  PLN  or  PERTAMINA).  

�  International  Centre  for  the  Settlement  of  Investment  Dispute  (ICSID)  provides  the  arbitration  facilities  to  resolve  disputes  between  Contracting  States  versus  National  of  Other  States  (Indonesia’s  ratification:  Law  Nr.  5/1968);  

•  Objective  of  ICSID  is  to  foster  conducive  climate  for  investment  that  will  facilitating  the  flow  of  natural  resources  to  the  developing  nation  with  reasonable  terms.  

•  ICSID  Arbitration  is  to  maintain  balances  between  the  investors  and  host  states  ’  interests.  �  Government  significantly  change    terms  of  original  deal/expropriate  an  investment.  �  These  disputes  do  not  often  happened  to  international  oil  companies  (IOC).  

•  Number  of  State  participating  in  ICSCID  =  158  �  Parties  must  consent  in  writing  to  submit  disputes  to  the  ICSID  and  such  

consent  may  be  expressed  in  Bilateral  Investment  Treaty  (BIT)  or  Multilateral  Investment  Treaty  (MIT)  and  foreign  investment  laws  as  well  as  in  contracts.    

�  Multilateral  Investment  Treaty  (MIT):  �  Energy  Charter  Treaty  (Europe);  �  ASEAN  Agreement  for  the  Promotion  and  Protection  of  Investments.  

�  Company  versus  Company:  �  Dispute  amongst  the  joint  venture  participants  in  contracts  (Joint  Operating  

Agreement,  Unitization  Agreement,  Farm-­‐out  Agreement,  Area  of  Mutual  Interest  Agreement,  Study  and  Bid  Agreement  and  Confidentiality  Agreement).  

�  Dispute  between  operators  and  contractors  for  the  services  (drilling  ,  mining  construction,  equipment  leasing  and  facilities  contracts,  etc)  .    Potential  for  dispute  is  immense.  

�  In  Coal  Contract  (Contract  of  Work):  �  Contractual  arrangement  between  foreign  company  (Contractor)  &  State  

enterprise  (State  party)  authorizing  the  Contractor  to  conduct  coal  mining  activities  within  a  certain  area  in  accordance  with  the  agreement.  

�  The  State  party  owns  the  resources  and  Contractor  is  responsible  for  funding  the  exploration  and  exploitation  work.  

�  Dispute  resolution  is  arbitration  (commercial).  

�  Individual  versus  Company:  �  Personal  injury.  Tort  claim.  

�  Joint  Interest:  �  Between  a  coal  company  and  a  designated  State  enterprise;  �  Between  coal  companies;  �  Issues  which  may  likely  lead  to  disputes  in  this  Joint  Venture  Agreement  

include    cash  call  requirements;    supplies  made  to  the  Joint  Venture  Operations;    control  of  the  Operator  and  approvals  by  the  Joint  Operating  Committee.  

�  Farm  Out  Agreement:  �  Between  a  third  party  who  agrees  to  acquire  from  one  or  more  of  the  existing  

licensees  an  interest  in  a  production  license  and  in  the  operating  agreement  relating  to  it,  for  a  consideration  which  in  coal  industry  practice  will  normally  consist  of  the  carrying  out  of  a  specified  work  obligation,  known  as  the  earning  obligation.  

�  Service  Contract:  �  Between  the  companies  and  the  contractor  for  various  services  (major  

construction,  lease  of  equipment  contracts,  specialized  services  or  plant  and  equipment,  production  facilities).  

�  Arbitration  clauses  are  a  common  feature  of  contracts  in  this  category,  with  the  Contractor/Operator  often  providing  standard  forms  of  contract.  

• Several  factors  contribute  to  the  use  of  arbitration  for  dispute  resolution  in  agreements  in  the  coal  industry  including:  •  Coal  transactions  operate  in  a  complex  environment;  •  Industry  is  highly  competitive  and  commercial  terms  are  closely  

guarded  secrets.    •  Overlapping  commercial  interests  and  long  term  contractual  

relationships  between  coal  companies  militate  against  litigation  which  is  often  expensive,  time  consuming,  adversarial  and  destructive  of  good  relationships.  

•  Disputing  parties  also  often  come  from  diverse  legal  and  cultural  backgrounds,  making  the  submission  of  a  dispute  to  the  national  courts  of  either  party  an  unpalatable  option.  

•  The  technical  nature  of  the  industry  requires  an  arbitrator  w/specialist  knowledge.  

•  The  international  nature  of  the  operations  of  multinational  favor  arbitration  as  a  mode  of  dispute  resolution.  

�  AIM  of  arbitration  Law  Nr.  30/1999:  �  To  stop  the  courts  from  interfering  with  proposed  and  ongoing  arbitrations;  �  Court  has  no  authority  to  adjudicate  disputes  between  parties  to    an  arbitration  

agreement  ,  except  if  the  appointment  of  an  arbitrator  is  challenged).  �  Indonesia’s  Arbitration  Law  does  not  reflect  UNCITRAL  Model  Law.  �  Arbitration:  

�  Institutional  (BANI,  ICC,  SIAC,  RCAKL,  CIETAC,  HKIAC,  JCAA,  LCIA)    �  Ad-­‐hoc    

�  Hearings  on  the  dispute  must  be  completed  within  180  days  from  the  formation  of  the  Tribunal  and  may  be  extended  upon  consent  of  the  parties.  

�  Indonesia  maintains  a  single  regime  for  international  and  national  arbitration,  except  in  the  procedure  for  enforcement  :  �  National  �  International:  �  An  award  rendered  by  an  arbitration  institution  or  individual  arbitrator(s)  outside  the  

jurisdiction  of  the  Republic  of  Indonesia,  or  �  An  award  by  an  arbitration  institution  or  individual  arbitrator(s)  which  under  the  provisions  

of  Indonesian  law  are  deemed  to  be  international  arbitration  awards.  

�  An  international  arbitral  award  may  be  recognized  &  enforced  when:  �  It  is  rendered  by  a  tribunal  in  a  country  which  is  a  party  to  a  bilateral  or  

multilateral  convention  with  Indonesia  concerning  recognition  and  enforcement  of  foreign  arbitral  awards;  

�  It  relates  to  the  field  of  commercial  law  as  that  term  is  defined  under  the  Indonesian  law;    

�  The  arbitral  award  does  not  "manifestly"  contravene  "public  order".    These  conditions  in  the  Regulation  are  consistent  with  the  New  York  Convention.  

�  Award  registration  (w/application  for  a  writ  of  execution):  �  National  award:  30  days  after  the  award  is  rendered  &  read.  �  International  award  is  registered  at  

�  Central  Jakarta  District  Court  together  with  exequatur.  �  Supreme  Court  (in  case  that  GOI  itself  is  the  party  to  the  arbitrated  dispute).  �  No  time  limit  for  registration.  

�  Indonesia  acceded  to  the  New  York  Convention  in  Oct.  1981,  (implementation  regulation  :  Supreme  Court  Reg.  No.  1/1990).  

�  Award  registration  (w/application  for  a  writ  of  execution):  �  National  award:  30  days  after  the  award  is  rendered  &  read.  �  International  award  is  registered  at  

�  Central  Jakarta  District  Court  together  with  exequatur.  �  Supreme  Court:  in  the  case  that  Republic  of  Indonesia  itself  is  the  party  to  the  

arbitrated  dispute.  �  No  time  limit  for  registration.  

�  Indonesia  acceded  to  the  New  York  Convention  in  Oct.  1981,  (implementation:  Supreme  Court  Regulation  No.  1/1990).  

�  An  international  arbitral  award  may  be  recognized  and  enforced  when:  �  It  is  rendered  by  a  tribunal  in  a  country  which  is  a  party  to  a  bilateral  or  

multilateral  convention  with  Indonesia  concerning  recognition  and  enforcement  of  foreign  arbitral  awards;  

�  It  relates  to  the  field  of  commercial  law  as  that  term  is  defined  under  the  Indonesian  law;    

�  The  arbitral  award  does  not  "manifestly"  contravene  "public  order".    These  conditions  in  the  Regulation  are  consistent  with  the  New  York  Convention.  

�  The  differentiation  of  international  and  domestic-­‐rendered  awards  is  based  on  substantive  grounds  rather  than  territorial  borders:  �  Limited  importance  of  the  place  of  arbitration  in  international  cases.    �  The  place  of  arbitration  is  often  chosen  for  reasons  of  convenience  of  the  

parties  and  the  dispute  may  have  little  or  no  connection  with  the  State  where  the  arbitration  legally  takes  place.  

�  Treating  awards  rendered  in  international  commercial  arbitration  in  a  uniform  manner  irrespective  of  where  they  were  made.  

�  BANI’s  Arbitration  Rules  &  Procedures:  �  All  proceedings  shall  be  conducted  closed  to  the  public,  and  all  matters  related  

to  the  arbitral  reference,  including  documents,  reports/notes  on  sessions,  testimonies  of  witnesses  and  awards,  shall  be  kept  in  strict  confidence  among  the  parties,  the  arbitrators  and  BANI,  except  to  the  extent  required  by  law  or  otherwise  as  may  agreed  by  all  parties  to  the  dispute  (Art.  13.2).  

�  The  process  of  case  examination  shall  be  conducted  in  the  Indonesian  language,  unless  the  Tribunal  taking  into  consideration  the  situation  such  as  (existence  of  foreign  parties  and/or  foreign  arbitrators  who  cannot  speak  Indonesian,  and/or  where  the  transaction  arising  from  the  dispute  is  conducted  in  another  language),  deems  it  appropriate  to  use  the  English  or  another  language  (Art.  14).    

•  Coal  transactions  operate  in  a  complex  environment:  •  Industry  is  highly  competitive  &  commercial  terms  are  guarded  secrets.    •  Disputing  parties  also  often  come  from  diverse  legal  and  cultural  

backgrounds,  making  the  submission  of  a  dispute  to  the  national  courts  of  either  party  an  unpalatable  option.  

•  International  arbitration  is  the  logical  forum  for  cross  border  dispute  resolution.  

•  Arbitral  awards  made  in  Indonesia  have  the  same  effect  as  final  and  conclusive  judgments  and  the  enforceability  of  such  arbitral  awards  is  guaranteed  under  the  Indonesia  arbitration  law.  

•  Enforcement  in  Indonesia  of  awards  rendered  in  foreign  treaty  countries  is  also  guaranteed  by  the  multilateral  treaties,  namely  "the  1958  New  York  Convention  on  the  Recognition  and  Enforcement  of  Foreign  Arbitral  Awards".