Construction and Arbitration Proceedings2002

KARAHA BODAS CO LLC v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

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43797-EN-2004-11-25

KARAHA BODAS CO AND ANOTHER v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

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HCCT 28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 28 OF 2002

____________

BETWEEN

	KARAHA BODAS COMPANY	Judgment Creditor
	L L C
	and
	PERUSAHAAN PERTAMBANGAN	Judgment Debtor
	MINYAK DAN GAS BUMI NEGARA
	(otherwise known as PERTAMINA)
	and
	(1) PERTAMINA ENERGY TRADING LIMITED	Garnishees
	(2) TUGU INSURANCE COMPANY LIMITED
	(3) KOREA INDONESIA PETROLEUM COMPANY LIMITED

____________

Before: Hon Reyes J in Chambers

Date of Hearing: 25 November 2004

Date of Judgment: 25 November 2004

_______________

J U D G M E N T

_______________

I. Introduction

1. On 3 June 2004 I appointed Receivers to ascertain from Petral, Tugu and KIPCO (the 3 companies) what monies have (or will) become due from them to Pertamina since 24 May 2002 and to receive any such monies not already paid. KBC now applies for an extension of the Receivers’ powers. This morning I said that I was not minded to extend the Receivers’ powers. I now give my reasons.

2. Further, as against Tugu, KBC applies for the payment of US$156,750. That amount represents a dividend due to Pertamina from Tugu at the time when a garnishee order nisi had been served on Tugu. Tugu’s shareholders (including Pertamina) purported to rescind the dividend on 29 July 2003. The question is whether, despite such rescission, KBC can claim payment of Pertamina’s share of the dividend from Tugu.

II. Discussion

A. The Extension Summons

3. The extent of the Receivers’ powers had previously been canvassed before me at a hearing on 27 May 2004. That led to my Order of 3 June 2004.

4. The Judgment gives rise to issue estoppel on matters that could have been argued before me in May 2004. In effect I can only extend the Receivers’ powers on the basis of events after my Judgment that alter the premises on which my decision was based. If KBC feel that, on the material before the Court at the May 2004 hearing, I should have granted more extensive powers, the proper course is for KBC to appeal against my Order.

5. Mr Shieh SC (appearing for KBC) points to 2 subsequent matters as justifying an extension of powers.

6. First, the Receivers wrote to the 3 companies on about 23 June 2004 asking them to state what debts “have become due and payable to KBC … from 23 May 2002 to the date of this letter”. In essence, the replies received were that no debts had been or would ever be due and owing to KBC.

7. Second, on 23 July 2004 KBC’s lawyers (Messrs Clyde & Co.) fortuitously received a copy of Tugu’s financial statement for the year ended 31 December 2003. In the statement they discovered that on 29 July 2003 Tugu’s shareholders had passed a unanimous resolution to rescind a total dividend of US$330,000 (US$0.0165 per share) payable to them. The resolution had been made even though a garnishee order nisi had been served on Tugu in late May 2002.

8. On 18 July 2003 Tugu had asked Master Woolley for time to file an affirmation in response to KBC’s garnishee order nisi. Leave having been granted, Mr Santoso of Tugu filed an affirmation on 1 August 2003 stating that “Tugu is not indebted to the Judgment Debtor for any sum at all”. Mr Santoso said nothing about the rescission of the dividend.

9. As a result of the affidavit, on 11 September 2003 Master Yuen SC refused to make KBC’s garnishee order absolute and discharged the garnishee order nisi.

10. Mr Shieh submits that the 3 companies’ responses to the Receivers and the Tugu dividend incident show a collective “mindset” to obstruct KBC’s enforcement of its arbitration award against Pertamina. He says that this shows bad faith on the part of the 3 companies.

11. The only effective way to deal with this unhelpful attitude (Mr Shieh suggests) is to extend the Receivers’ powers. Greater powers would enable the Receivers to inspect the 3 companies’ books and verify the accuracy and truth of their statements to the Receivers.

12. I am not persuaded by Mr Shieh’s argument.

13. The replies to the Receivers’ inquiries were strictly accurate. The Receivers had asked the wrong question. They asked about the 3 companies’ indebtedness to KBC, rather than Pertamina.

14. It is true (as Mr Shieh argues) that the 3 companies might have suspected or known that what the Receivers were after was information about debts due from the 3 companies to Pertamina. But the 3 companies were not under any legal obligation to tell the Receivers what questions they ought to be asking and to volunteer answers to such questions without being asked.

15. It was (and remains) open to the Receivers to ask about debts due from the 3 companies to Pertamina since 23 May 2002. However, the Receivers have not done so to date, even though it has long since been pointed out by the 3 companies’ solicitor that the Receivers asked the wrong question.

16. As for the Tugu incident, it appears that Tugu on legal advice believed that, by the shareholders’ decision to rescind the dividend, it could legally and truthfully say that no debt “is” owing. As will be apparent in my consideration of the 2nd issue before, I believe that advice to have been wrong.

17. Nonetheless, I do not think that one can infer bad faith from the mere fact that Tugu, acting on erroneous legal advice, stated a wrong conclusion in Mr Santoso’s affirmation. On the slim evidence of the letters to the Receiver and the Tugu dividend alone, I am unable to conclude that Tugu deliberately misled the Court.

18. Thus, I do not accept that the 2 matters raised by Mr Shieh establish a recalcitrance that cries out for extension of the Receivers’ powers. Obviously, the 3 companies must respond honestly and in good faith to the Receivers’ proper inquiries. But there is no additional obligation on the 3 companies to “make life easy” for KBC and the Receivers.

19. The above is my principal reason for refusing KBC’s application for an extension of powers. To that main reason, I would add a few observations by way of footnotes.

20. First, §1(b) of KBC’s Summons asks that the Receiver have the power to inspect the books and financial records of the 3 companies.

21. That is a question that was raised in the earlier hearing. Then, Mr Shieh pointed out that he was content simply to have the audited financial statements of the 3 companies. I mentioned this in my earlier Judgment at §17. There I concluded that there was no apparent legal or practical impediment to KBC’s obtaining audited financial statements of KIPCO, Tugu and Petral.

22. In the absence of a major change of circumstance since the Judgment, I cannot revisit that question now and give the Receivers access to more documents. In June 2004, I was concerned that the extended powers sought would endow KBC with more powers than Pertamina could itself exercise as a shareholder of the 3 companies. I remain so concerned.

23. Second, §2(b) of KBC’s Summons asks that the Receivers be authorised to show potential purchasers of the 3 companies’ shares any confidential information obtained from the use of their powers.

24. There was a debate among the parties as to whether by §23 of my Judgment I was:-

(1) ruling out Objective A (the obtaining of further information to facilitate a sale of Pertamina’s shares in the 3 companies) altogether; or,

(2) merely refusing the attempt to appoint Receivers capable of exercising Pertamina’s powers as shareholder of the 3 companies.

For what is worth, I believed that I was doing the latter, rather the former.

25. Nonetheless, that does not mean that I should, without more, now sanction greater powers for the Receivers. As just discussed, I do not think that the subsequent events relied on by Mr Shieh, justify the extension sought.

26. Third, §3(b) of KBC’s Summons asks for an Order that the 3 companies:-

“immediately inform the Receivers of any intended transaction(s) to be entered into with the Judgment Debtor when any of the Garnishees becomes aware of such transaction(s) or becomes aware that such transaction(s) will be entered into;...”

27. The provision sought is to vague to be enforceable in practice. Literally read, KBC is asking that the 3 companies report any contemplated transaction whether or not it will lead to some legal right or chose in action capable of being enforced by Pertamina against any of the 3 companies. That could potentially encompass anything that the 3 companies did in relation to Pertamina. As such, the provision would be oppressive.

28. Mr Shieh suggests that the provision should be read narrowly as relating, for instance, to contracts which the 3 companies are about to sign with Pertamina. But I do not see how any clear wording can be drawn up to make the distinction which Mr Shieh has in mind. No alternative wording has been offered. Imprecise wording can only lead to problems of enforcement and endless argument, with no party having any clear idea what does or does not constitute compliance or breach of the proposed order.

29. Fourth, for the avoidance of doubt, I should expressly state that §24(1) of my Judgment should refer to “what monies or amounts have (or will) become due or payable to Pertamina” instead of “what monies or amounts have (or will) become due or payable to KBC”. The reference to “KBC” in place of “Pertamina” was a slip for which I apologise.

B. The Tugu dividend application

30. KBC seeks to appeal out of time against the decision of Master Yuen discharging the garnishee order nisi served on Tugu. Tugu does not contest the application for leave to appeal out of time, but only argues the substance of the appeal.

31. Dividends were declared on 10 May 2002. That gave rise to a debt payable to Tugu’s shareholders, including Pertamina. See Potel v. IRC [1971] 2 All ER 504 (at 511 g-h).

32. The making of the garnishee order nisi on 23 May 2002 gave rise to an equitable charge in respect of the dividend payable to Pertamina. See, for example, Galbraith v. Grimshaw [1910] 1 KB 339 (at 343).

33. On 29 July 2003 when the resolution to rescind the dividend was passed, both Pertamina and Tugu would have had knowledge of the garnishee order nisi. Any act on their part to rescind the dividend, without KBC’s permission, could therefore only take effect subject to KBC’s equitable charge over the debt created by the declaration of the dividend.

34. In purporting to treat the dividend as rescinded without consulting KBC, Tugu interfered with KBC’s equitable right.

35. In consequence, the fact that Pertamina has released Tugu from Tugu’s obligation to pay the dividend to Pertamina, cannot have operated to discharge Tugu from its liability to pay Pertamina’s share of the dividend to KBC.

36. Had the facts behind the rescission of the dividend come to Master Yuen’s attention, he could not have discharged the garnishee order absolute. He would instead have been obliged at law to make the garnishee order absolute.

37. It follows that Tugu should now pay to KBC the sum of US$156,750, namely, the dividend attributable to Pertamina’s shares.

38. Mr Hunsworth (appearing for Tugu) argues that such a result would penalise Tugu for the acts of its shareholders.

39. I disagree with that analysis.

40. Tugu declared a dividend which gave rise to a debt. Tugu’s officers then learned of the garnishee order nisi. They would have known that they could not deal with the debt created by the dividend without involving KBC. Nonetheless, they allowed Pertamina to cancel the debt and treated the debt as rescinded without reference at all to KBC. They even caused Mr Santoso to affirm that there was no debt.

41. For the above reasons, it cannot be said that Tugu had no involvement in the events leading to nullification of the dividend in disregard of KBC’s equitable rights.

42. I note finally that in Galbraith v. Grimshaw, Farwell LJ warned (at 343) that “the garnishee cannot pay the debt to anybody but the garnishor without incurring the risk of having to pay it over again”. I think that Tugu allowing Pertamina to rescind the dividend was equivalent to a garnishee paying or disposing of a debt to a party other than the garnishor. The consequence is that Tugu must “pay over” the debt to KBC.

III. Conclusion

43. KBC’s Summons to extend the Receivers powers is dismissed.

44. Leave to appeal out of time against Master Yuen’s order of 11 September 2003 is granted. KBC’s appeal is granted. Tugu shall pay US$156,750 to KBC. I wish to hear from KBC and Tugu on the question of interest on that amount.

45. I shall also hear all parties on costs and any consequential orders.

	(A. T. Reyes)
	Judge of the Court of First Instance
	High Court

Mr Paul Shieh SC and Ms. Grace Chow, instructed by Messrs. Clyde & Co., for the Judgment Creditor

Mr Charles Manzoni, instructed by Messrs. Haldanes, for the Judgment Debtor

Mr Nicholas Hunsworth, of Messrs. Johnson Stokes & Master, for the Garnishees

Mr Andrew Hart, of Messrs. Barlow Lyde Gilbert, for the Receivers

40476-EN-2004-06-03

KARAHA BODAS CO LLC v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

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HCCT 28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 28 OF 2002

____________

BETWEEN

	KARAHA BODAS COMPANY L.L.C.	Plaintiff
	and
	PERUSAHAAN PERTAMBANGAN MINYAK DANGAS BUMI NEGARA (hence known as Pertamina)	Defendant

____________

Before: Hon Reyes J in Chambers

Date of Hearing: 27 May 2004

Date of Judgment: 3 June 2004

_______________

J U D G M E N T

_______________

Background

1. By an Amended Summons dated 26 January 2004 (originally issued 25 November 2003) the Judgment Creditor ("KBC") applies for the appointment of receivers by way of equitable execution over the shares of the Judgment Debtor ("Pertamina") in Pertamina Engineering Trading Limited ("Petral"), Tugu Insurance Company Limited ("Tugu") and Korea Indonesia Petroleum Company Limited ("KIPCO") (collectively, "the 3 Companies"). The application is made under High Court Ordinance s.21L(1) and RHC Order 51.

2. Pertamina is the registered shareholder of 89,850 out of 90,000 US$1 Petral shares (99.83%); 9,500,000 out of 20,000,000 US$1 Tugu shares (47.5%); and 225 out of 500 HK$5 KIPCO shares (45%). The 3 Companies are Hong Kong private companies. I shall refer below to the shares of the 3 Companies registered in Pertamina's name as "the Shares".

3. By an arbitration award ("the Award") dated 18 December 2000 Pertamina was found liable to KBC for the sums of US$111,100,000, US$150,000,000 and US$66,654.92. By Order dated 15 March 2002 Burrell J granted leave for the Award to be enforced as a judgment of the Hong Kong Court pursuant to Arbitration Ordinance (Cap.341) s.2GG.

4. By a Charging Order Nisi dated 23 May 2002 the Shares stood charged with the payment of the sums due from Pertamina to KBC under the Award. The latter was made absolute by Order dated 18 July 2003.

5. By Garnishee Orders Nisi dated 23 May 2002 the Court attached in KBC's favour the debts due from the 3 Companies to Pertamina. The orders nisi in respect of Petral and KIPCO became absolute by Order dated 11 September 2003. The order nisi against Tugu was discharged on 11 September 2003 by Master Rimsky Yuen SC. By Order dated 20 November 2003 the Court directed the Mr. Kim Young Sup ("Mr. Kim"), KIPCO's officer, attend for examination under RHC Order 48 in respect of the debts due from KIPCO to Pertamina.

6. In the course of his examination before Master Jeffries on 6 April 2004 Mr. Kim stated that, pursuant to KIPCO's instruction, substantial funds in the order of US$5 million had been transferred from KIPCO's account with BNP Paribas to Pertamina notwithstanding service of the Garnishee Order Nisi on KIPCO. Mr. Kim says that at the time of the transfer he did not appreciate (not having had the opportunity to take legal advice) the effect of the Garnishee Order Nisi.

7. There is also evidence that on 19 June 2004 KIPCO ordered that a payment received by it from Itochu Petroleum be transferred to the Jakarta office of Korea Development Company Limited ("Korea Development"). KBC say that, but for the receipt of the Garnishee Order, such money would have been transferred by KIPCO in the ordinary course of business to Pertamina. KBC’s suggestion is that the money was transferred to Korea Development as a way of getting around the Garnishee Order.

Discussion

8. The principles applicable to the exercise of the Court's discretion in the appointment of receivers by way of equitable execution have been analysed in Maclaine Watson & Co Ltd. v. International Tin Council [1988] 1 Ch 1 (Millet J) and Soinco SACI and Eural KFT v. Novokuznetsk Aluminium Plant Base Metal Trading Ltd. [1997] 2 Lloyds Rep 330 (Colman J). Relevant principles may be summarised as follows:-

(1) A receiver may be appointed when recovery of the judgment debt by normal means of legal execution is "not practicable". In such case the Courts grant equitable relief as a means of "taking out of the way a hindrance which prevents execution at common law". An applicant must normally show that circumstances are such as to render it practically difficult, if not impossible, to obtain the fruits of his judgment. See also Goldschmidt v. Oberrheinische Metallwerke [1906] 1 KB 373 and Bourne v. Colodense Ltd. [1985] ICR 291.
(2) It is not necessary that a judgment debtor have a legal interest in the asset over which a receiver is sought to be appointed. Thus, it is possible to appoint a receiver to recover future debts from a third party, even though at the time of the garnishee order or appointment of a receiver such debts cannot be attached at common law.
(3) Nonetheless, there must be some difficulty, arising from the nature of the property, which precludes execution at law but which can be overcome by the appointment of a receiver.

9. Mr. Shieh SC (appearing for KBC) submits that a receiver should be appointed here on the basis of the following reasoning:-

(1) The Shares are Pertamina's only asset in Hong Kong. Although subject to a charging order in KBC's favour, the Shares are difficult to value properly without the receipt of financial information from the 3 Companies.
(2) KBC has no means of finding out whether (and (if so) what amount of) dividends have been or will be declared or paid.
(3) Accordingly, without the appointment of receivers who can obtain financial information from the 3 Companies (including information as to dividends and the state of account between the individual companies and Pertamina), enforcement by way of charging and garnishee orders would be inadequate in practical terms.

10. Mr. Shieh draws my attention to RHC Order 88, Rule 5A(1). He submits that, to realise its charging orders and sell the Shares, KBC would have to provide the Court with "estimates of the gross price which would be obtained on a sale" (see Order 88, Rule 5A(1)(e)). Without the extra financial information sought by KBC through the appointment of receivers, it would be impossible (Mr. Shieh suggests) to comply with that requirement.

11. Mr. Shieh argues that, to be effective, the equitable receivers appointed by the Court should have particular powers. Thus, Mr. Shieh seeks not just a power enabling the receivers to sell (and receive dividends declared on) the Shares, but also authority permitting the receivers to exercise all such powers which Pertamina as registered shareholder could have exercised in respect of the Shares. Mr. Shieh says that, certainly in the case of Petral (where Pertamina has a controlling interest) and possibly as far as Tugu and KIPCO are concerned, such authority would allow the receivers to apply for meetings to be requisitioned with a view to appointing or replacing directors on the boards of the 3 Companies. Directors whom the receivers successfully managed to have appointed to the 3 Companies' boards, would then enable KBC to have access to relevant books and records beyond those which a shareholder would normally be allowed to see.

12. Mr. Manzoni (appearing for Pertamina) challenges Mr. Shieh's reasoning as follows:-

(1) There is no practical impediment to KBC executing its charging order and sell the Shares. KBC has more than adequate financial information. For example, in October 2002 KBC commissioned Messrs. Baker Tilly ("Baker Tilly") to value the shares for the purposes of a security for costs application against Pertamina. Using information in the public domain, Baker Tilly valued the Tugu shares at between US$27.2 and US$58.9 million; the Petral shares at between US$9 million and an upper range of US$12.5 to US$37.5 million; and the KIPCO shares at US$200,000. There is no reason why those valuations suitably updated could not be used to estimate an appropriate price for the Shares for the purposes of a public tender.
(2) In any event, even if the receivers were ordered to stand in the shoes of Pertamina as registered shareholder, they would be unable to obtain any more information than was contained in the 3 Companies' respective audited financial statements. As a general rule, shareholders are not entitled to see any more financial information from their companies than that. KBC, however, already has the financial statements of Tugu and KIPCO. KIPCO's financial statements were obtained in the process of Mr. Kim's examination. KBC has initiated a similar process for the examination of Petral's Mr. George Chan ("Mr. Chan") and should presumably be able to obtain Petral's financial statements in the same way. Empowering the receivers to stand in the shoes of shareholders in the 3 Companies, would not help KBC to obtain more information than those financial statements to which it already has access.
(3) Mr. Shieh's suggestion that the receivers seek to have their representatives appointed as directors of the 3 Companies, would be unworkable in practice. The receivers, if successful in such endeavour, would be placed in an impossible position. They would become involved in the management of one or more of the 3 Companies. On the one hand they or their representatives, as directors of one or more of the 3 Companies, would owe fiduciary duties to the relevant companies, including the duty to preserve the assets of such companies. On the other hand, the receivers’ representatives would be seeking to advance KBC's interest in collecting debts due from the 3 Companies to Pertamina.

13. Mr. Manzoni accepts that the valuation range suggested by Baker Tilly for the 3 Companies was a wide one. Baker Tilly note in their report that this was "a consequence of the limited information available, and is subject to numerous material assumptions made by us in respect of the information provided". But, at least in the case of Tugu, much of the uncertainty (Mr. Manzoni submitted) hinged on the valuation of a London property belonging to the company. The value of the London property could vary significantly depending on the date of its acquisition by Tugu. Baker Tilly simply appear not to have had time to research that date from the Land Registry in England. The uncertainty in Tugu's valuation to a large part did not stem from any want of financial information in the public domain. In the case of KIPCO and Petral, KBC had obtained the audited financial statements of the former and was in the process of seeking the same for Petral through the examination of Mr. Chan. There would likely be more information (Mr. Manzoni concluded) on which Baker Tilly could refine their valuations independently of the empowerment of receivers.

14. As far as the receipt of dividends are concerned, Mr. Manzoni acknowledges that in light of Soinco he was in some difficulty in arguing receivers should not be appointed for that limited purpose. A garnishee order typically relates to present or existing debts. It does not affect future debts or monies which will only accrue due at a future time. In Soinco at 333 (col.2) Colman J thought that to overcome this legal impediment in the operation of a garnishee order it was "both just and convenient" for the Court:-

"to appoint a receiver for the purpose of ascertaining what deliveries are to be made under the supply contract [between a Guernsey company and the judgment debtor] and what payments are to become due and for the further purpose of receiving payments of such amounts by the Guernsey company."

Insofar as I was minded to make an analogous order appointing receivers here, Mr. Manzoni stressed that such should not preclude the 3 Companies (none of which are parties to the present application) from applying (if they saw fit) to set aside such order for whatever good reason.

15. KBC's application for the appointment of receivers then essentially has 2 objectives: one ("Objective A") to obtain further information to facilitate an envisaged sale of the Shares and the other ("Objective B") to obtain information on and receive payment of dividends. Mr. Shieh hopes to achieve Objective A by 2 stratagems, both arising from a vesting of the powers of a shareholder on any receivers appointed. Such powers would initially enable the receivers to ask the 3 Companies to provide them with such financial information as an ordinary shareholder may be entitled to receive. Mr. Shieh says that the information he has in mind insofar as this first stratagem is concerned are the 3 Companies' audited financial statements. The second stratagem is more ambitious. It involves the receivers taking advantage of an ordinary shareholder's ability to requisition a meeting in certain circumstances and, in the event that a general meeting is convened, using Pertamina's substantial voting power as shareholder in the 3 Companies to appoint friendly representatives onto the boards of the 3 Companies.

16. On the appointment of receivers for the purpose of obtaining financial information is concerned, I am against Mr. Shieh.

17. I agree with Mr. Manzoni that, as far as obtaining audited financial statements is concerned, KBC already has access to those of KIPCO and Tugu and is likely to obtain those of Petral in the course of Mr. Chan's examination. Accordingly, there is no legal or practical impediment towards the enforcement of KBC's rights as judgment creditor in that respect.

18. Mr. Shieh suggests that the process of obtaining audited financial statements through the mechanism of examining officers of garnishee companies has been long and tedious and the appointment of a receiver with the powers sought by him would cut through the Gordian knot of inveterate delay. But I am not satisfied that this would be the case. For example, Petral is not a party to the present application. If Petral, for example, truly wished to be uncooperative (as Mr. Shieh hints), it would be open for it to challenge an order vesting particular powers in receivers and, until that question was resolved, KBC's goal of obtaining Petral's financial statements would be in abeyance. I do not think that the method advocated by Mr. Shieh will necessarily hurry things along.

19. I also agree with Mr. Manzoni on the impracticality of Mr. Shieh's proposal of the receivers using Pertamina's voting power as shareholder in the 3 Companies to bring about the appointment of representatives on the 3 Companies's boards. The receivers' representatives would (if successful) be placed in an unenviable position of actual or potential conflict of interest.

20. Consider, for example, the question of the declaration of dividends. A board decides whether or not a dividend should be declared in a given year and (if so) how much. The board then puts forward an ordinary resolution to the company in general meeting which decides whether or not to approve the proposed dividend. The dividend does not become payable until approved in general meeting. What does the receiver's representative on a company's board do when the question of a dividend for the year comes up? His duties towards the company require him to consider whether the financial interests of the company justify payment of a particular dividend. But it may be said (or suspected) that, as representative of receivers with a duty to collect as much as possible of the judgment debt owing to KBC, the representative should (or might) recommend payment of a large dividend contrary to the company's interest. How will the representative reconcile these 2 apparently conflicting duties? I do not think that there is a way.

21. In Soinco Colman J carefully considered whether the appointment of receivers with the powers suggested by the judgment creditor would effectively involve the receivers in the management of the garnishee company. Colman J decided it would not. This indicates to me that, if Colman J had thought that his order would mean that the receivers would be managing the garnishee, he would not have made the order. I acknowledge (as Mr. Shieh points out) that there is no explicit dictum in Soinco to the latter effect. Nonetheless, it seems to me that the Court should be concerned if effectively receivers (who are officers of the Court) end up becoming involved in the management of a garnishee company. If (at it seems to me in the present case) there is a significant risk that they might so end up, the Court should either proceed with extreme caution or even refuse to make the Order sought.

22. I am finally concerned that Mr. Shieh's argument essentially amounts to the proposition that, whenever a judgment creditor who is not a member of a private company wishes to enforce a charging order against the shares of a private company held by a judgment debtor, the judgment creditor should be entitled in practice to have receivers appointed by way of equitable execution with the powers of shareholders so as to obtain as much financial information as possible about the private company. That appears to me to be too wide a proposition, one not justified by the extant case law. I accept that the fact that a garnishee is a private company (and information about its financial abilities consequently hard to come by) is a factor that may be taken into account by the Court in considering whether to exercise a discretion to appoint receivers. But I have doubt that this factor alone (or coupled with the fact that the outstanding debt is considerable) is sufficient to weigh the balance in favour of appointment of a receiver along the lines which Mr. Shieh argues.

23. For the above reasons, I refuse to appoint receivers with shareholder powers along the lines put forward by Mr. Shieh in connection with Objective A.

24. That leaves Mr. Shieh's Objective B. Here I accept Mr. Shieh's reasoning. There appears to me to be a legal impediment. Garnishee orders do not attach future debts. Nonetheless, as demonstrated by the KIPCO incident wherein monies were paid to Pertamina despite service of the Garnishee Order Nisi, there is some risk that advertently or inadvertently monies may be paid to Pertamina if KBC is not informed of the receipt or impending receipt of the same. It makes sense in the circumstances to appoint receivers by way of equitable execution with powers:-

(1) to ascertain from the 3 Companies respectively what monies or amounts have (or will) become due or payable to KBC since service of the Garnishee Orders Nisi; and,
(2) to receive such monies or amounts insofar as the same have not already been paid or if and when the same accrue due or otherwise come into the 3 Companies' hands.

25. As discussed in the course of counsel’s submissions, I shall leave it to the legal advisers of KBC and Pertamina in the first instance to draft appropriate wording to reflect my decision. That wording would specify when and how the 3 Companies are to inform the receivers of the receipt or impending receipt of any monies due to Pertamina. If no agreement can be reached, there will be liberty to apply before me to work out a suitable text. Any Order would be without prejudice to an application by one or more of the 3 Companies to set aside or vary the terms of appointment of the receivers, made within 14 days from the date of service of my Order on the 3 Companies.

26. In Soinco Colman J referred to evidence that the Guernsey company entered into "collusive pre-payments" with the judgment debtor in order to "create equitable set-offs such as to preclude a receiver requiring payment of the due debt". Colman J thought (at 333 (col.2)) that the appointment of receivers by way of equitable execution "would appear to have the effect of preventing the creation of set-offs by means of prepayments". In any case, if he were wrong on that:-

"I do not exclude the possibility that injunctive relief ancillary to the Mareva jurisdiction might be devised which would have the effect of curbing what is in substance if not in form an arrangement for the disposal by [the judgment debtor] of assets which would otherwise be available for execution. This, however, is not a point which has been in issue or argued before me and I express no concluded view on the availability of such relief."

27. In the course of submission, I raised the question of how set-offs or alleged set-offs between Pertamina and the 3 Companies affected the amounts payable either to KBC under the Garnishee Orders or to any receivers appointed by way of equitable execution. There may or may not be set-offs claimed by the 3 Companies. The 3 Companies may or may not be entitled to set off amounts due to Pertamina against sums due to them from Pertamina. Further, KBC may or may not allege that certain set-offs lack bona fides even if as a matter of general principle the 3 Companies have a right of set-off. Not having heard full argument on the point, I should not be taken by ordering the appointment of receivers to have finally decided the rights of any party to claim or reject a set-off. As Mr. Shieh notes, problems may come up in the course of the exercise by the receivers of their functions and it is not possible at this time to cater for all scenarios. There will therefore be a general liberty to apply.

Conclusion

28. I make an Order to the effect that:-

(1) Mr. Nicholas Timothy Cornforth Hill and Mr. Stephen Briscoe ("the Receivers"), both of RSM Nelson Wheeler Corporate Advisory Services Limited of 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai on first giving satisfactory security be appointed as joint and several receivers:-
(a) to ascertain from the 3 Companies respectively what monies or amounts (including dividends and interest) have (or will) become due or payable to KBC since service of the Garnishee Orders Nisi; and,
(b) to receive such monies or amounts (including dividends and interest) insofar as the same have not already been paid or if and when the same accrue due or otherwise come into the 3 Companies' hands;
(2) The Receivers within 14 days give security to the extent of $300,000 by bank guarantee or insurance bond in a form to the satisfaction of the Registrar of the High Court or by payment into Court and any such guarantee or bond be lodged in Court but, in case the Receivers shall not have provided security within the time aforesaid or within such further time as the Court shall allow, the Receivers' appointment shall forthwith be suspended at the expiration of such time;
(3) The remuneration of the Receivers shall be charged on a time cost basis at the standard scale of fees agreed from time to time between the Official Receiver and the Hong Kong Society of Accountants under the administrative scheme of contracting out of non-summary court winding-up cases to accountants;
(4) The following amounts, namely:-
(a) the costs and disbursements incurred by the Receivers including their costs and disbursements in preparing accounts and obtaining their discharge; and,
(b) the Receivers' remunerations referred to above,
shall be taxed and assessed by the master and shall be primarily payable out of the monies received by the Receivers.
(5) After deduction of their remuneration, costs and disbursement, the Receivers shall pay to KBC such sums in full or partial satisfaction of such amount (including any interest thereon) remaining due to KBC in respect of:-
(a) the Award; and,
(b) costs directed to be paid by Pertamina to KBC in relation to any proceedings to enforce the Award (including any costs ordered in KBC's favour in respect of its application for the appointment of receivers by way of equitable execution).
(6) If the sums received by the Receivers are insufficient to discharge their remuneration, costs and disbursements, a master shall so certify, stating the amount of deficiency, and the amount certified shall be recoverable by KBC from Pertamina.
(7) There will be an Order Nisi that Pertamina is to pay KBC's costs of its application for the appointment of the Receivers, such costs to be taxed if not agreed.
(8) There shall be liberty to apply.
(9) The foregoing paragraphs are made without prejudice to any application to set the same aside made by one or more of the 3 Companies within 14 days of service of a copy of my Order.

29. I heard argument as to the payment of the Receivers' remuneration, costs and disbursements. In my view, the direction sketched out above in respect of such amounts is the appropriate one. I think that the Receivers should in the first instance be entitled to deduct their remuneration from monies received by them from the 3 Companies. If funds received are deficient, KBC (whom the Receivers would presumably approach to make up the deficiency in monies due to the Receivers) should be able to recover such deficiency from Pertamina as part of KBC's costs of execution.

30. The Costs Order Nisi is intended to reflect the fact that KBC has been largely successful in its applications.

31. KBC’s Amended Summons includes provisions for the sale of the Shares. It is unclear from the course of submissions before me whether KBC now wishes to enforce its Charging Order over the Shares. If it does, I am prepared to give suitable directions (insofar as necessary) for the sale of the Shares as parts of the Order herein. The general liberty to apply will also cover that contingency.

(A. T. Reyes)
Judge of the Court of First Instance
High Court

Mr. Paul Shieh, SC, instructed by Messrs. Clyde & Co., for the Plaintiff.

Mr. Charles Manzoni, instructed by Messrs. Haldanes, for the Defendant.

25580-EN-2003-06-09

KARAHA BODAS CO L.L.C. v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

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HCCT000028C/2002

HCCT28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.28 OF 2002

--------------

	IN THE MATTER OF the Arbitration Ordinance, Cap.341

	AND

	IN THE MATTER OF an Arbitration Award dated 18 December 2000 made in an arbitration

BETWEEN
	KARAHA BODAS COMPANY L.L.C.	Plaintiff

	AND

	PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (otherwise known as Pertamina)	Defendant

--------------

Coram: Hon Burrell J in Chambers

Date of Hearing: 2 June 2003

Date of Decision: 9 June 2003

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D E C I S I O N

-----------------------

1. This is an application by the defendant for a stay of all proceedings pending the outcome of their appeal against a decision of this court. This court's decision was a refusal of their application to resist the enforcement of an arbitral award in Hong Kong. The award had been made in Geneva in December 2000 for a sum of approximately US$270 million.

2. The legal principles governing the granting of a stay in such circumstances need not be considered in any detail due to the sensible approach adopted by the plaintiff to this application. One of the factors to be considered is whether or not there are arguable grounds of appeal. The enforcement proceedings involved five days of legal argument and covered a variety of legal, some complex, issues. Mr John Bleach, SC for the plaintiff has narrowed the issues for this court to consider by making the following concession. He said "For the purposes of this application only we are prepared to concede that the appeal is, at best, just arguable". From this, the plaintiff's position became that a stay could be granted provided it was conditional upon a substantial sum of money being paid into court.

3. Mr Charles Manzoni, for the defendant, submitted that the stay should be granted and should be unconditional. In a sentence, his argument was that such assets that there are in Hong Kong, namely shares to the minimum value of US$36.7 million, were already tied up by garnishee orders and an injunction and therefore no further conditions need be placed on the defendant. Thus, in so far as the Hong Kong assets are concerned, the plaintiff's position is already secured. He submits that it would be unjust to force the defendant to bring more assets into the jurisdiction against which enforcement may be made if the appeal is unsuccessful.

4. Frankly, I see no injustice in this at all. The more pertinent facts are as follows. The plaintiff won an award for US$270 million 30 months ago. It was enforced as a judgment in Hong Kong 15 months ago. Prima facie the plaintiff is entitled to the fruits of the judgment. The assets in Hong Kong, at their lowest valuation, represent approximately 14% of the award. The assets are shares which themselves are the subject of litigation and, like any shares, are vulnerable to fluctuations in value. It should also be weighed in the balance that the defendant is a multi-billion dollar corporation who would have no difficulty in complying with an order for a payment into court.

5. Factors such as the above persuade this court that, far from being unjust, ordering a payment into court as a condition for staying the enforcement order, would be both proper and just. Put another way, a stay, in the circumstances of this case, should come at a price.

6. The question which then arises is, how much? Mr Manzoni submits that if, contrary to his submission, a payment in has to be made, it should not exceed the minimum value of the existing Hong Kong assets, namely US$36.7 million. In my judgment, the value of the existing assets is only of passing relevance to the calculation of a suitable amount. Of more relevance, is the value of the award, the financial strength of the defendant and the merits of the appeal. (As the appeal is from this court any further comment on the merits would be inappropriate.) This is not to say that the value of the assets in Hong Kong is of no relevance. It would, for example, be wrong to order a payment in of the whole of the award if the assets within the jurisdiction were relatively small, say, in the region of 10%. It is a question of degree and balance.

7. The value of the assets provide a marker, but do not create a cap or limit on the quantum of the payment in. The payment in should not be out of proportion to the Hong Kong assets but, depending on the circumstances, it may be greater than their value.

8. Here, the true value of the Hong Kong assets is far from certain. There is a wide gulf between their stated minimum and maximum values, namely between US$36.7 million and US$65.2 million. Their value may go down in the future. The former is 14% of the award, the latter is about 24% of the award. With these sort of statistics in mind, it seems reasonable to me to order the defendant to pay 20% of the award into court as a condition of stay. I consider there to be no hardship or injustice to the defendant. It will not stifle their appeal; they have the ability to pay. If they ultimately lose the appeal and the award becomes enforceable, a sum equivalent to approximately one third of the awarded sum will be in Hong Kong. So be it. That is the natural consequence of these proceedings. If, on the other hand, they ultimately succeed on appeal, the money in court can be returned.

9. I therefore grant a stay of these proceedings in the terms of paragraphs 1 to 4 inclusive of the defendant's summons dated 17 May 2003 subject to a condition that the defendant pays the sum of US$54 million into court by 5:00 p.m. 24 June 2003.

	(M.P. Burrell)
	Judge of the Court of First Instance,
	High Court

Representation:

Mr John Bleach, SC and Miss Grace Chow, instructed by Messrs Clyde & Co., for the Plaintiff

Mr Manzoni, instructed by Messrs Haldanes, for the Defendant

24883-EN-2003-03-27

KARAHA BODAS CO LLC v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

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HCCT000028B/2002

HCCT28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.28 OF 2002

---------------------

BETWEEN
	KARAHA BODAS COMPANY LLC	Plaintiff

	AND

	PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (otherwise known as PERTAMINA)	Defendant

----------------------

Coram: Hon Burrell J in Chambers

Dates of Hearing: 7 - 9, 17 January and 12 March 2003

Date of Handing Down of Decision: 27 March 2003

-----------------------

D E C I S I O N

-----------------------

1. On 15 March 2002, this court granted the plaintiff ("KBC") leave, ex parte, to enforce an arbitration award made in Geneva on 18 December 2000 in the same manner as a judgment and to enter judgment in the amount of the award. On the same date a judgment was entered pursuant to that leave. By this summons, the defendant ("Pertamina") applies under Order 73, rule 10 to set aside the order.

2. The court has had the benefit of extensive legal argument over five days on a number of issues from Mr Jat Sew-tong, SC leading Ms Grace Chow (for KBC) and Mr Mark Strachan, QC (UK) and Mr Charles Manzoni (for Pertamina).

3. The matter has a long and fairly complex history. There have been and there continue to be proceedings in a number of different countries. Very large sums of money are at stake. A thumbnail sketch, in so far as it relates to the Hong Kong proceedings, is as follows.

4. In November 1994, two contracts were executed in Indonesia. Firstly, there was a Joint Operation Contract ("JOC") between KBC and Pertamina. This contract, according to its own terms was "governed by the laws and regulations of the Republic of Indonesia". KBC is a Cayman Islands Company with its centre of operations in the USA. Pertamina is an Indonesia state-owned oil and natural gas exploration company. By the JOC Pertamina appointed KBC as the sole contractor for the exploration and development of geothermal energy in West Java. It also required KBC to build, own and operate electricity generating facilities.

5. Secondly, there was an Energy Sales Contract, ("ESC"). This was made between P.T. PLN (Persero) ("PLN") on the one hand and Pertamina and KBC on the other. PLN is another Indonesian state-owned electricity enterprise. The ESC was also "governed by the laws and regulations of the Republic of Indonesia". By the ESC any energy that was developed by the exploration would be sold to PLN.

6. The project came to a halt as a result of Indonesian Government decrees in 1997 and 1998. It was suspended and remains suspended. On 30 April 1998, KBC served a notice of arbitration upon Pertamina, PLN and the Government of Indonesia. An arbitration was convened, its legal seat was Geneva (as found by this decision) but, for convenience, the Tribunal sat in Paris. A preliminary award was issued on 30 September 1999 which found in KBC's favour. This application is the Hong Kong part of international enforcement proceedings of the award.

7. The award is a New York Convention award. Accordingly, Pertamina must establish one or more of the grounds, upon which a Hong Kong court may refuse enforcement, found in sections 44(2)(a)-(f) and (3) of Cap. 341, the Arbitration Ordinance. The relevant provisions are as follows :

"44.Refusal of enforcement
(1) Enforcement of a Convention award shall not be refused except in the cases mentioned in this section.
(2) Enforcement of a Convention award may be refused if the person against whom it is invoked proves-
(a) that a party to the arbitration agreement was (under the law applicable to him) under some incapacity; or
(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(c) that he 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
(d) subject to subsection (4), that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration; or
(e) that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country where the arbitration took place; or

(f) that 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, it was made.

(3) Enforcement of a Convention award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to enforce the award."

8. By its summons, Pertamina contends that this is a case in which enforcement should be refused in Hong Kong. The matters upon which they rely and thus, the issues which fall for consideration and resolution by this court are, in summary form, as follows (as contended by Pertamina) :

(1) The award has been set aside by the Central Jakarta District Court being a competent authority of the country under the laws of which the Award was made, namely Indonesia.
(2) There was no written agreement which permitted the claims made under the JOC and the ESC to be consolidated in a single arbitration with a single arbitrator being appointed jointly for Pertamina and PLN.
(3) The Tribunal wrongly permitted the Claims made under the JOC and the ESC to be adjudicated in a single arbitration.
(4) The arbitrators were not appointed in the manner prescribed by the JOC and the ESC
(5) The Tribunal refused Pertamina an adjournment that was necessitated by a significant change in KBC's case shortly before the hearing, as a result of which Pertamina was unable properly to present its case.
(6) The Tribunal denied Pertamina an application for discovery of documents relevant to the said change in KBC's case, as a result of which Pertamina was unable properly to present its case.
(7) The Tribunal failed to apply Indonesian law, being the governing law of the JOC and the ESC, to issues which were central to the dispute between the parties.

(8) Enforcement of the award would be contrary to the public policy of Hong Kong.

9. Before dealing with each of these issues, some of the general principles which underlie the court's approach in enforcement proceedings such as these should be set out.

(i) Provided certain requirements are met the Hong Kong courts grant an order of enforcement ex parte. It is then up to the other party to apply to set aside the ex parte order. This demonstrates a pro-enforcement starting point in Hong Kong. As stated by the authors in Redfern & Hunter's Law and Practice of International Commercial Arbitration, most national courts have recognized and approved a "pro-enforcement" bias.
(ii) The only grounds upon which an award can be refused are those contained in Cap. 341, section 44. The burden is on the defendant to persuade the court that one of those grounds apply.
(iii) The task of the court is confined to deciding whether or not one of the section 44 grounds apply. In carrying out this task it should not be concerned with the merits of the award.
(iv) If the defendant discharges the burden of proof on it, the court retains a residual discretion to, nonetheless, enforce the award.
(v) Section 44(3) (the "public policy" ground) is to be construed narrowly. Its application is confined to those cases where it would be "contrary to the fundamental conceptions of morality and justice" to enforce the award. (per Mason NPJ in Hebei Import and Export Corp. v. Polytek Engineering Co. Ltd [1999] 2 HKCFAR at p.139).

10. I turn now to the individual grounds.

1. SECTION 44(2)(f)

11. Pertamina contend that the award has been set aside by a competent authority under the laws of which the award was made.

12. On 27 August 2002, a court in Jakarta set aside the award. Pertamina contend that the award was made under Indonesian law and an Indonesian court has set it aside therefore sub-section (2)(f) applies.

13. KBC say the law under which the award was made was Swiss law therefore (2)(f) does not apply.

14. Reference to "the law" in sub-section (2)(f) undoubtedly refers to the law which governed the procedural law of the arbitration, not the substantive law of the contract. A variety of expressions are used to describe this such as, lex arbitri, curial law and procedural law. For consistency I shall use the expression lex arbitri. What is not meant by "law" in sub-section (2)(f) is the substantive law of the contract being arbitrated. In this case that was indeed Indonesian law.

15. The contract itself does not expressly state what the lex arbitri should be in the event of an arbitration. However, in this case, in my judgment "the law" to which sub-section 2(f) refers is plainly Swiss law. I have come to this conclusion both as a matter of fact and as a matter of law.

(a) As a matter of fact

16. Sub-section (2)(f) ends with the words "... under the law of which it was made". This logically means "the law of which it was, in fact, made". This court must decide which lex arbitri did the Swiss Tribunal actually apply. An examination of the facts demonstrates clearly that it applied Swiss law. The following factors, taken together, lead to this conclusion.

(i) The parties chose a neutral place to arbitrate. They chose one of the leading arbitral centres in the world, Geneva. Had they intended the lex arbitri to be Indonesian law, they would have simply arbitrated in Indonesia. The Tribunal itself was international in its make-up and of the highest calibre. Geneva would not have been chosen as the seat of the arbitration for convenience but because of its neutrality. The neutrality aspect would have been diluted had Indonesian law been the lex arbitri.
(ii) It is a fact that Swiss law states that the lex arbitri of arbitrations conducted in Switzerland shall be Swiss law. This is a mandatory provision. Such a situation is commented on by the authors of Redfern & Hunters in the following terms.
" In an international commercial arbitration, the proceedings are under the general supervision of the national law of the country in which the arbitration has its seat. Any mandatory provisions of the law that governs the conduct of the proceedings must be taken into account. ... If the parties prefer the law of a particular country (country A) to the law of the place of arbitration (country B) they should either :

move to country A; or
adopt as rules governing their arbitration the particular provisions that they admire in the law of country A.

To attempt to conduct an arbitration in country B according to the supervisory arbitration law of country A merely adds another tier of rules of law to those to which the parties (and the arbitral tribunal) must pay heed. International commercial arbitration is complicated enough without such flights of fancy; fortunately, however, it appears that in practice such a choice is rarely if ever made."

Lord Hodson in James Miller & Partners v. Whitworth Street Estates (Manchester) Ltd [1970] AC quoted, at p.606, to the same effect from Dicey & Morris, Conflict of Laws, 8th edn :
"Where the parties have failed to choose the law governing the arbitration proceedings, those proceedings must be considered, at any rate prima facie, as being governed by the law of the country in which the arbitration is held, on the ground that it is the country most closely connected with the proceedings."

(iii) The conduct of the parties.
References to and reliance on Swiss law as the lex arbitri can be found throughout the proceedings. The following are examples :

(a) On 10 January 1999, Pertamina filed a "Memorial regarding Preliminary Issues" document. For present purposes the issues therein are not important. What is of significance however are Pertamina's statements such as :
"Reference to Swiss Law supports this conclusion .... As a result, arbitration proceedings under both contracts are governed by Chapter 12 of the Swiss Private International Law Statute ..."
"Indeed, the Swiss Courts have required that parties strictly adhere to the precise terms of their arbitration agreement, ..."
"The arbitrators do not, under the arbitration agreements ... and (under) the Swiss law in force at the seat of the arbitration, have the power to ..."
"... It would be subject to setting aside in Switzerland under Articles 179 and 190 of the Swiss PIL."
(b) On 30 September 1999, the Tribunal made its preliminary award. It contains statements such as :
(when setting out Pertamina's submission)

"... The arbitration proceedings are governed by Chapter 12 of the Swiss Private International Law Statutes."
"The Respondents also state that under ... Swiss law, the arbitrators have no power to ..."
"Such solution is not acceptable under applicable Swiss law."
(c) On 19 February 2001, the Tribunal stated, in a Post award decision :
"a relief which is neither contemplated by the UNCITRAL Rules nor by the lex arbitri, Swiss law". This ruling was made twice in the same decision in relation to two separate issues.
(d) Pertamina's initial response to the award was entirely consistent with their acceptance of Swiss law as the lex arbitri. They, firstly, attempted to set aside the award in Switzerland. Had they believed the lex arbitri was Indonesian law they would not have done so. (There is thus force in KBC's submission that they only went to Indonesia to set it aside as a last resort).
(e) The enforcement proceedings which followed in the USA are littered with references by Pertamina to Swiss lex arbitri. In their written answer to KBC's petition they say :
"... in an arbitration conducted under the procedural laws of Switzerland and the substantive law of Indonesia".

"Pertamina appealed to the Swiss Supreme Court, the relevant authority in the formal situs of the arbitration ..."
"The applicable law and treaties governing international arbitration give courts of the arbitration situs, here Switzerland, authority to vacate ...".
Similarly, in Pertamina's "Discovery and Joint Management Plan" dated 29 May 2001 they say "The arbitration is subject to Swiss arbitration law..." In their Motion to Stay dated 19 June 2001, they say "The award was conducted subject to the arbitration laws of Switzerland". These examples are not an exhaustive list. There are more.
(f) Pertamina's stance that the lex arbitri is Indonesian law has come very late in the day. It's first appearance as Pertamina's position came when they went to Indonesia to seek an annulment of the award (described by Judge Atlas in the US enforcement proceedings as a "last ditch effort"). As is pointed out by KBC, Pertamina's position on the lex arbitri 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).
(g) All the above conduct, namely a consistent acceptance and reliance on Swiss law by Pertamina, is not only relevant as evidence that the lex arbitri was in fact Swiss but is also relevant in support of KBC's submission that Pertamina are now estopped from contending otherwise. In China Nanhai Oil Joint Service Corp. v. Gee Tai Holdings [1995] 2 HKLR 215, Kaplan J gave careful consideration to the issue of estoppel and decided that :

"The doctrine of estoppel can apply to the grounds of opposition set out in Article V of the New York Convention. The question of estoppel is a fundamental principle of good faith. On a true construction of the Convention there is a duty of good faith which in the circumstances of this case required the Defendant to bring to the notice of the full tribunal or the CIETAC Commission in Beijing its objections to the formation of the tribunal. Its failure to do so and its obvious policy of keeping this point up its sleeve to be pulled out only if the arbitration was lost, is not one that is consistent with the obligation of good faith nor with any notions of justice and fair play."

Pertamina submit that the Gee Tai Holdings principle is not applicable because they had not been "keeping the point up their sleeve". They submit that the lateness in taking the point was due to the fact that the time for commencing proceedings in Indonesia does not begin to run until the Award has been registered. This is far from Pertamina's best point. There was nothing to prevent them from stating their position that the lex arbitri was Indonesian law at any time. Not only did they fail to do so, they did the opposite. It was a volte-face.
(h) By the same token, because the court's consideration of section 44(2)(f) is a question of fact Pertamina's lengthy and interesting submissions on expert evidence on Indonesian law are not matters with which this court is concerned. Similarly, the fact that the court in Indonesia has now annulled the award under its own law is also a matter which has no effect on this court's task.

(b) As a matter of law

17. If, contrary to KBC's primary submission that determination of the lex arbitri is a question of fact, it is necessary to construe the arbitration clauses in the contracts to determine the lex arbitri, then this court places reliance on the following matters, in coming to the conclusion that the answer remains, Swiss law.

18. From the wealth of authority cited by both counsel on this issue can be gleaned the following starting point : "The curial law (lex arbitri) is normally, but not necessarily, the law of the place where the arbitration proceedings are held" (per Hobhouse J in Dallal v. Bank Mellat [1980] at p.252. "The place" plainly refers to the legal seat of the arbitration (here Geneva) not a random city of convenience for the arbitrators (here Paris). For the normal situation not to apply there must be strong pointers to the contrary. Such pointers as there may be in this case cannot, in my view, be regarded as strong when put in context and balanced against the following factors.

(1) Had the parties wanted to, expressly, depart from the norm they could have said so in the contracts but they did not. The contracts are specific as to the substantive law (Indonesian) but silent as to the lex arbitri. Lord Mustill in Channel Group v. Balfour Beatty Ltd [1993] AC at p.357 said :
" Certainly there may sometimes be an express choice of a curial law which is not the law of the place where the arbitration is to be held: but in the absence of an explicit choice of this kind, or at least some very strong pointer in the agreement to show that such a choice was intended, the inference that the parties when contracting to arbitrate in a particular place consented to having the arbitral process governed by the law of that place is irresistible."
Clearly, Pertamina and KBC did not make an "explicit choice". There are many other authorities in support of this general proposition, one being Potter J in Sumitono v. Oil & Natural Gas Commission [1994] 1 Lloyd's Reports, at p.57 :

"... There is, it is true, no express choice of curial law. However, there is a clear requirement that the arbitration proceedings be held in London. In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the 'seat' of the arbitration, i.e. the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings -"

It is acknowledged that the presumption may be rebutted by matters other than an express provision to the contrary, however, it seems to me that in the present case Pertamina's attempt to do so is forlorn.

(2) The drafters of the contracts were explicit on many matters such as the choice of a neutral place (Geneva), the adoption of the UNCITRAL rules in the arbitration and the choice of Indonesian law as the law of the contracts. It is not a difficult inference to draw that had Pertamina insisted on an express provision stating that the lex arbitri was to be Indonesian law, the contracts would not have been signed. I find it irresistible that the choice of Geneva as the "place" was also a choice that it was the formal "seat" in the legal sense. By the same token it is plain that the choice of an independent neutral seat of arbitration carried with it an intention to be bound by the lex arbitri of that place.
(3) The UNCITRAL rules require that an award is made at the place (or seat) of the arbitration. Accordingly, the preliminary award, the award itself and the post-award decision were all expressly stated to be made in Geneva. All these were done as a matter of course. It was never argued that it should be otherwise.
(4) Pertamina, as evidence of "strong pointers" to rebut the presumption rely, inter alia, on the fact that the contracts themselves are "replete with references to the provisions of Indonesian law". The expression "replete with" somewhat overstates the position but they point out that the contracts expressly provide for the modification of, in particular, four Articles of the Indonesian Code of Civil Procedure. Article 650.2 (appointment of arbitrators) and 620.1 (time limit on arbitrations) have been modified, Article 631 (authority to arbitrators to decide on "amiables compositeurs") has been invoked and Article 641 (rights of appeal) has been waived.

In my judgment the existence of these provisions barely dents the fundamental principle in favour of Swiss law. Both parties to this application have produced lengthy and learned academic expert opinions on the issue, and both counsel have argued the strengths and weaknesses of the competing opinions. I propose to be extremely sparing in my citation of the various opinions because of the overwhelming weight to be attached to the underlying factual truth that the parties' choice of a neutral seat together with the absence of an express choice of different lex arbitri are the dominant factors in the equation which, in this case, results in the answer that commercial common sense demands that Indonesian law was not to be the lex arbitri. I merely select one passage from the opinion of Mr Robert Hornick, an American lawyer and academic of great experience in this field. It is a passage with which I agree and which I consider to be admissible as it does not purport to construe the parties intentions :
"Strictly speaking, I do not think it was necessary for the parties to mention the referenced provisions because, in my view, those provisions do not apply to arbitrations where the place of arbitration is outside Indonesia and the applicable rules of arbitration are international rules (such as the UNCITRAL Rules). However, it is my experience that, in practice, parties often mention these provisions anyway, because there is no Indonesian law or case expressly stating that the said provisions do not apply to foreign arbitrations, and foreign parties are often concerned that Indonesian courts may seize upon one or more of such provisions to block enforcement of a foreign arbitral award in Indonesia if such arbitration has been conducted in a manner contrary to one of these provisions. Enforcement of foreign arbitral awards in Indonesia has always been problematic; courts may, and do, refuse to enforce on public policy grounds that are broadly construed. The concern has been that if provisions such as these are not mentioned, the enforcing court may deem them applicable as a matter of public policy.

Indeed, in my approximately thirty years of representing foreign clients in connection with contracts with Indonesian parties containing international arbitration clauses, I have repeatedly been advised by local counsel that my clients should waive provisions of Indonesian arbitration law that indicate a different result from that intended by the parties, notwithstanding that the place of arbitration specified was outside Indonesia and that the parties did not intend for Indonesian law to apply to the arbitration proceeding. The reason given was always that it would facilitate enforcement because Indonesian courts would likely (albeit incorrectly) apply Indonesian law anyway and therefore it was best to waive provisions that could otherwise be invoked to thwart enforcement.
This approach to Indonesian contract drafting is not limited to arbitration clauses. Over the years, I have seen many dozens of Indonesian contracts where, notwithstanding an express choice of foreign substantive law, the contract also contained waivers of Indonesian Civil Code provisions.

I definitely do not regard mention of these provisions as indicating, or creating any presumption, that the lex arbitri should be Indonesian arbitral law."

(5) Pertamina's attempt to rebut the normal principle encounters further difficulties when faced with the fact that the law of Switzerland mandatorily applies its own law as the lex arbitri for arbitrations within its jurisdiction. "Redfern and Hunter" specifically refers to Chapter 12 of the Swiss Private International Law Act, Article 176(1) :

" Amongst modern laws on arbitration, those of Switzerland and of England are perhaps particularly clear on the link between the seat of the arbitration and the lex arbitri. Swiss law states:

'The provisions of this chapter shall apply to any arbitration if the seat of the arbitral tribunal is in Switzerland and if, at the time when the arbitration agreement was concluded, at least one of the parties had neither its domicile nor its habitual residence in Switzerland.'"

(6) I agree with the opinion of KBC's experts on Swiss Law, Professor Kanfman-Kohler and Ellest Geisigner, who in their joint opinion stated, quite simply :

"It is of the greatest importance to understand that, by choosing Switzerland as the seat of the arbitration, parties from abroad trigger the application of the provisions of chapter 12 PIL - by operation of law - as the lex arbitri. This is trite law in Switzerland. It should also be stressed that Swiss law requires no connecting factor with Switzerland in addition to the seat of the arbitration ... Moreover, several authorities correctly point out that the circumstance that the seat of the arbitration is in Switzerland not only triggers the application of chapter 12 PIL as the law of the arbitration, but also means that the award is deemed to have been rendered in Switzerland within the meaning of the New York Convention of 1958. A Swiss judge would therefore have no hesitation as considering Switzerland as the country of origin of the award within the meaning of Article V.(e) of the New York Convention. This is entirely consistent with the overall trend favouring the seat of the arbitration as the factor identifying the law of the arbitration ...
Therefore, the seat of the arbitration (or 'place of arbitration' in the legal sense) was without doubt located in Switzerland. Consequently, the law of the arbitration or lex arbitri was Swiss law, more specifically chapter 12 PIL."

This is a statement of foreign law and, as such, is a factor that this court may take into account when carrying out its task of construing the arbitration clauses, in particular as to what was the lex arbitri. The relevance of such statements was put succinctly by Ma J in Shandong Textiles Import and Export Co. v. Da Hua Non-ferrous Metals Co. [2002] 2 HKC at p.131 :
" In my judgment, I am not bound to follow Professor Liu's views on the application of PRC law to the two contracts. The true effect and application of foreign law to the facts of any case, especially when the construction or analysis of contracts is concerned, is a matter ultimately for the court itself to resolve: see Dicey & Morris: The Conflict of Laws (13th Ed) Vol 1 at para 9-019."

19. For all the above reasons Pertamina's attempt to come with section 44(2)(f) must fail.

2. SECTION 44(2)(d), (e) and (3)

20. Grounds 2, 3 and 4 come within these sub-sections to section 44. Two separate points are made.

(a) Wrongful consolidation

21. Pertamina point out that the two contracts, the JOC and the ESC, are separate contracts containing separate arbitration clauses. The parties to the contract are different. Under the JOC they are KBC and Pertamina and under the ESC they are PLN on the one hand and Pertamina and KBC on the other. On 30 April 1998 KBC served a single notice of arbitration on Pertamina, PLN and the Government of Indonesia arising out of disputes under both contracts. Pertamina and PLN objected to a single arbitration. In support of their objection they submitted that the UNCITRAL rules did not provide for such consolidation, the contracts had different parties and different timetables for performance and contains no provisions for consolidated arbitrations. In fact, there was no consolidation in the sense that two arbitrations were heard together. The Tribunal merely ruled that one notice of arbitration was sufficient for disputes arising from both contracts.

22. The Tribunal permitted a single arbitration and in doing so, stated as follows :

"... As the position and responsibility of each party under the ESC are different, disputes were likely to arise not only between KBC and PERTAMINA on the one hand and PLN on the other hand, but also between two of the parties or between KBC and PLN against PERTAMINA or between KBC on the one hand and PERTAMINA and PLN on the other. This last configuration was the more probable as both PERTAMINA and PLN are owned by the (Government of Indonesia) and, thus, have common interests.
The question to solve is only whether KBC could validly act against PERTAMINA and PLN in a single arbitration pursuant to the two arbitration clauses included in the two contracts.
The Arbitral Tribunal accepts KBC's position according to which a party may act against several parties bound by different but similar arbitration clauses. As explained by Swiss Federal Tribunal in its decision of July 19, 1988 in the famous Westland Case (Rev. Arb. 1989, p.514), the validity of such a single action depends on the connexity of the claims and of appropriateness (《 opportunité 》). However, as stressed by the Swiss Federal Court in this decision, the positions of the parties in the disputes remain independent as to the substance of the claims.
Consequently, KBC's action in a single arbitration would be admissible in case of connexity of the legal relations between KBC and PERTAMINA on the basis of the JOC on the other hand, and between KBC, PERTAMINA and PLN on the basis of the ESC on the other hand. However, 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."

23. Fundamental to Pertamina's argument is the submission that the contracts are sequential. The JOC provides for the production of energy, the ESC provides for the sale of energy if it is ever produced. Thus, it is said, the ESC must follow the JOC and to this extent they are fundamentally different contracts and not "integrated". On closer analysis however this difference is comfortably outweighed by their connexity.

24. The JOC contains the following provisions :

"'Effective Date' means the date this Contract is approved by the Minister of Mines and Energy of the Republic of Indonesia.
Article 2.1 This Contract shall become effective on the Effective Date, and the term of this Contract (the 'Term') shall be for a period ending five hundred and four (504) Months after the Effective Date, unless extended or earlier terminated as provided herein."

Identical provisions appear in the ESC.

25. The JOC states :

"... Each 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.
Article 6.3 PERTAMINA shall regularly consult with CONTRACTOR on all matters pertaining to the Energy Sales Contracts and shall promptly provide to CONTRACTOR a copy of any notice or communication received thereunder or with respect thereto. PERTAMINA shall not cause or allow any termination, amendment, modification, waiver, renegotiation or renewal of any Energy Sales Contract or any provision thereof without the prior express written consent of CONTRACTOR."

26. The ESC states :

"This Contract is an Energy Sales Contract whereby PLN agrees to purchase from PERTAMINA, upon the terms and conditions contained in this Contract, all Electricity produced by and delivered from, or made available by, the Generating Facilities constructed by (KBC) ... as contractor to PERTAMINA pursuant to the Joint Operation Contract."

27. The contracts are plainly integrated as found by the Tribunal. Perhaps most importantly the ESC concludes :

"The terms of this Contract and the Joint Operation Contract constitute the entire agreement between the Parties."

28. A further factor supporting the "connexity" or integrated nature of the two contracts is that throughout the arbitration both Pertamina and PLN were represented by the same lawyers. They did not suggest any embarrassment or potential conflict in so doing. Thus Pertamina's argument in this application that the "consolidation" compromised privacy or confidentiality, which is an essential feature of arbitration, is of little or no substance. Similarly, the complaint that Pertamina was forced to arbitrate with a third party as a result of the consolidation is not made out because PLN, in the context of the contractual arrangements, could not be regarded as a third party.

29. It also goes against Pertamina that once the decision was made to have a single arbitration, they proceeded to the main hearing and have only revived this point in the enforcement proceedings. I shall deal with this submission in a little more detail when I consider the next issue (appointment of arbitrators). KBC rely on it for both issues and seek support from the case of Minmetals Germany v. Ferco Steel [1999] 1 All ER 315.

30. Having decided to have a single arbitration it is plain from the award that Pertamina and PLN were given careful and separate consideration. KBC are able to highlight many references in the award which clearly demonstrate this separate consideration. Given therefore the connexity of the contracts, the separate consideration by the Tribunal, the lack of prejudice to Pertamina and failure to appeal the decision at the time, KBC's position as stated from the very outset in May 1999 namely :

"Where, as here, the disputes involve not only a single Project consisting of two closely related parts (the JOC part and the ESC part), but also contracts with virtually identical arbitration clauses, the case for allowing disputes under the one agreement to be arbitrated in the same arbitration with disputes under the other would seem to be even more compelling."

is well made.

(b) The arbitrators were not properly appointed

31. The two contracts contains provision for the appointment of arbitrators as follows :

(1) Art 13.2 of the JOC provided that each of Pertamina and KBC would appoint an arbitrator within 30 days after the date of a request to initiate arbitration. The two arbitrators would then appoint a third arbitrator to act as Chairman. If arbitrators were not appointed as aforesaid the same should be appointed by the Secretary General of the Internation Centre for Settlement Disputes (ICSID).
(2) Section 8.2 of the ESC provided that PLN, on the one hand, and KBC and Pertamina, on the other hand, would each appoint one arbitrator within 30 days after the date of a request to initiate arbitration. The provisions dealing with appointment of the Chairman and default appointments were in the same terms as the JOC.

32. The ESC provision is plainly intended for disputes between KBC and Pertamina on the one hand and PLN on the other, the two contracting parties being KBC and Pertamina on the one hand and PLN on the other. However, in this arbitration KBC and Pertamina were on opposite sides. The Tribunal's solution was entirely logical and correct. It ruled that in such a situation Article 8 had no application therefore the UNICTRAL rules for the appointment of arbitrators should be applied. The lex arbitri, Swiss Law Article 179(1) Private International Law Act provides that :

"The arbitrators shall be appointed removed or replaced in accordance with the agreement of the parties."

33. In this particular situation there was no agreement to which accord could be given. The agreement in section 8 was for a different situation. The Tribunal said :

"According to the Respondents, this provision would mean that in any dispute arising from the ESC, KBC and PERTAMINA should appoint jointly one arbitrator and PLN should appoint one arbitrator. The Arbitral Tribunal, one the basis of the above mentioned principles of interpretation, cannot accept that such has been the intent of the parties. Indeed, as the ESC arbitration clause does not apply only to disputes opposing KBC and PERTAMINA to PLN, it would defy common sense in case of a dispute between two parties only or in case of disputes opposing KBC to PERTAMINA and PLN, that KBC and PERTAMINA be obliged to appoint jointly one arbitrator. The parties may not be considered as having reasonably envisaged such a solution.
It results from this analysis that the provision of Section 8(2) of the ESC according to which KBC and PERTAMINA should appoint jointly an arbitrator applies only to disputes opposing PLN to KBC and PERTAMINA. The consequence is that for disputes between two parties only or disputes opposing KBC to PLN and PERTAMINA or disputes opposing PERTAMINA to PLN and KBC, the parties have not expressly agreed in the ESC arbitration clause on the procedure relating to the appointment of the arbitrators. Thus, the appointment of the arbitrators must be made according to the UNCITRAL Arbitration Rules.
Pursuant to Article 5 of the UNCITRAL Arbitration Rules, the number of arbitrators must be three if the parties have not previously agreed on the number of arbitrators. Pursuant to Article 7 of the UNCITRAL Arbitration Rules, ? if three arbitrators are to be appointed, each party shall appoint one arbitrator?. In case of disputes opposing more than two parties, it implies that two groups of parties must be constituted, each group being treated as a party for the purpose of appointing arbitrators. Such regrouping may be difficult and even impossible in the case of parties with different interests.

There is no such difficulty in this case where the parties have considered with the constitution of the Arbitral Tribunal in a specific case of tripartite arbitration, i.e. disputes opposing PLN to KBC and PERTAMINA. They have expressly admitted that a group of two parties, KBC and PERTAMINA, which have not necessarily common interests, should appoint jointly an arbitrator. It is thus implicit that they were admitting that in the case of disputes opposing one party to a differently constituted group of two parties, the same solution should apply by analogy.
On the basis of the above, the Arbitral Tribunal is satisfied that when the Secretary General of ICSID appointed an arbitrator, failing an appointment by the Respondents, he was respecting the intention of the parties. This conviction is strengthened by the fact that when the Respondents were requested to nominate an arbitrator they did not decline the invitation on the rationale that they were requested to make a joint nomination. Their argumentation was that the Notice of Arbitration was premature as KBC had neglected the amicable consultation provisions of the JOC and the ESC."

34. It is significant also that the Tribunal pointed out, in the final paragraph above, that neither Pertamina nor PLN objected to the arbitrator who was appointed as a result of this procedure, Dr El-Khoseri, and neither did they seek to challenge the Preliminary Award on this issue. They accepted Dr El-Khoseri who became one of a three member Tribunal of the highest international reputation and calibre.

35. Finally, as with the "consolidation" issue, KBC submits that having failed to challenge the Tribunal's decision Pertamina are deemed to have waived any irregularity (if there was any). KBC rely, in part, on the judgment of Colman J in the Minmetals case (infra). In answer Pertamina say two things. Firstly, the facts of the Minmetals case are very different and secondly, Pertamina did object to the method of appointing the arbitrators. They did so as a preliminary argument to the Tribunal before its preliminary award, they did so in the Indonesian annullment proceedings and they are doing so now, in the enforcement proceedings.

36. Taking the second point first, KBC accepts that Pertamina has objected at those times but that is not the point. The point is that once the Tribunal had made its decision (on consolidation and on the appointment of the arbitrators) Pertamina made no challenge to the decision to the supervisory court. KBC has never accepted that Indonesia was the supervisory court, and this court has agreed with that stance, and so Pertamina's submission to the Jakarta court is neither here nor there. The argument is, and this court agrees, that, having been ruled against on a preliminary issue, remaining silent thereafter until the enforcement stage may be construed as a waiver, if indeed there had been an irregularity.

37. As to the application of the Minmetal's case, KBC do not put it forward as an identical or even substantially similar situation to the present case. The facts are indeed different. It does however lend support to the principle being advanced by KBC and it is persuasive in that context. Colman J said :

"... In international commerce a party who contracts into an agreement to arbitrate in a foreign jurisdiction is bound not only by the local arbitration procedure but also by the supervisory jurisdiction of the courts of the seat of the arbitration. If the award is defective or the arbitration is defectively conducted the party who complains of the defect must in the first instance pursue such remedies as exist under that supervisory jurisdiction. That is because by his agreement to the place in question as the seat of the arbitration he has agreed not only to refer all disputes to arbitration but that the conduct of the arbitration should be subject to that particular supervisory jurisdiction. Adherence to that part of the agreement must, in my judgment, be a cardinal policy consideration by an English court considering enforcement of a foreign award."

3. SECTION 44(2)(c)

38. The complaint here is that sub-section 2(c) applies because Pertamina was "unable to present its case" due to two factors (Grounds 5 and 6). Firstly, it had applied for an adjournment to the Tribunal but had been refused and secondly that it had made an application for discovery of documents which was not resolved.

39. The applications for adjournment and discovery were made at the same time and arose because of KBC's rebuttal pleading which was filed on 8 May 2000, 16 weeks before the hearing was due to commence. This rebuttal was filed in accordance with the timetable set down by the Tribunal. Pertamina and PLN also filed its rejoinder within time, on 9 June, the application for adjournment and discovery had been made by letter on 16 May and the adjournment was refused by letter from the Tribunal dated 23 May 2000.

40. Pertamina submit that the application should have been granted because KBC, in its rebuttal had raised "a fundamentally new case" concerning their funding of the project and Pertamina needed both time and further discovery to properly investigate the matter.

41. The primary reason that Pertamina must fail in this attempt to invoke section 44(2)(c) and persuade this court not to enforce the award is that their description of a "fundamentally new case" is an overstatement of the position. It was not so new as to cause this court to depart from the basic principle that procedural matters are essentially matters for the Tribunal. These were procedural matters, upon which decisions were made, from which it cannot be shown that Pertamina did not get a fair hearing.

42. Put briefly, KBC's "new" case on financing, as pleaded in the rebuttal, was that if third party financing was not available (the original intent) KBC would have relied on its investors to provide or continue financing. This was not a "new" case but came as an answer to a claim in Pertamina's reply that KBC were not entitled to future loss of profit because they would not have been able to continue to finance the project in Indonesia after the contracts were terminated. KBC's "loss of profit" stemmed from the Statement of Claim. Pertamina could have sought discovery then. It had not done so.

43. Having been denied an adjournment Pertamina prepared its rejoinder which is a comprehensive 53-page pleading. The funding issue was dealt with in evidence during the hearing. On the final day of the hearing Pertamina's counsel was involved in the following exchanges : (the Tribunal had refused an adjournment but left open the discovery request)

" Mr. CHAIRMAN : May we, before departing have a discussion on what is going to be done now in these proceedings, and we see two items on this particular agenda. There were first a certain number of procedural objections which have been made before this hearing, and in the procedural order we said that this would be decided after the hearing. In summary, there was a request for discovery from one side, and there was objection to the submission of this arbitral award and the business of confidentiality. You remember this discussion.

MR. MISHKIN : (for Pertimina) I think there was request for discovery from both sides.
MR. CHAIRMAN : Our first question is are these requests maintained, all of them, part of them, because we would like to know on what we have to decide.
MR. MISHKIN : May I just give you my views on that question.
MR. CHAIRMAN : Yes.
MR. MISHKIN : And that is that the purpose of discovery is to prepare for the hearing, it is not to supplement the record after the hearing. So I think the discovery requests are moot, and if discovery is now permitted, then you have to re-open the proceedings and so on. So I treated, notwithstanding the fact that it was theoretically open, I treated this request as effectively being denied, and we went forward. Our 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.
MR. SCHILLER : I agree.
PROF. BERNARDINI : And you agree on their withdrawing their request. What about yours?
MR. SCHILLER : I withdraw my request."

44. The fact of the matter is therefore, that Pertamina were given the opportunity to argue for discovery and elected not to do so. The fact that this opportunity was afforded to them at the end of the hearing does not make the fact go away. They were not refused discovery, they decided to treat their application as having been effectively denied. The issue could have been re-opened. The Tribunal itself could have also invited further submissions on the issue had it thought it fair and necessary to do so. None of these things happened. Pertamina cannot complain now.

45. Some consideration must also be given to precisely what discovery Pertamina was seeking. KBC make the point now, as they did at the time and as, no doubt, the Tribunal had in mind at the time they shelved the request, that the request was in very wide and vague terms. I do not propose to set out the entire schedule herein. It is sufficient to say that KBC's submission that it amounts to a general, wide ranging, non-specific, belated request is well made.

4. SECTION 44(2)(d)

46. Pertamina claim to come within sub-section 2(d) in a second sense (Ground 7) on the ground that the Tribunal failed to apply Indonesian law, being the law of the contracts, to issues which were central to the disputes between the parties and thus exceeded its jurisdiction. In other words, the award contains decisions "on matters beyond the scope of the submission to arbitration".

47. I can deal with this ground shortly because it seems to me to be misconceived. Sub-section (2)(d) envisages a situation where a Tribunal has trespassed outside the scope of the issues being arbitrated. It has exceeded its jurisdiction by deciding non-arbitral issues. Pertamina have sought to come within sub-section (2)(d) by complaining that arbitral issues have been resolved incorrectly, namely by a failure to apply Indonesian law to contract issues. Such a failure (if it is made out) is not a matter envisaged by sub-section (2)(d). It is not for this court to revisit how the Tribunal resolved such issues in the enforcement proceedings. Pertamina's complaint that substantive law was wrongly applied (which KBC do not accept) cannot be transformed into a point of jurisdiction. I do not therefore consider it necessary to embark on an investigation as to whether or not the Tribunal did in fact fail to apply the substantive law.

RES JUDICATA

48. Before moving on to the final ground advanced by Pertamina, namely public policy, it is necessary to deal with KBC's submission on the application of the principle of res judicata to all of grounds (2) to (7) inclusive (that is, headings 2, 3 and 4 above).

49. I have left it to the end of the court's consideration of grounds (2) to (7) because I have regarded it as important to set out the court's decisions on each ground separately, regardless of the question of res judicata. My decision on res judicata is therefore an additional, separate and discrete matter.

50. KBC's argument is that reliance on sub-sections (2)(c), (d) and (e) on the issues of consolidation, appointment of arbitrators, due process and substantive law (grounds (2) to (7)) are matters of arbitration procedure which have, in effectively identical terms, been previously argued unsuccessfully in other enforcement proceedings in another jurisdiction, namely the USA. It is not argued that this court is bound by the USA decision but that, provided certain conditions apply, Pertamina are estopped from raising the issues again. In order to succeed on this issue KBC must demonstrate that the present situation is a case of issue estoppel, or, more fully, issue estoppel per rem judicatam.

51. The conditions which must be satisfied for issue estoppel to apply were set out by Lord Brandon in The Sennar (No. 2) [1985] 1 WLR at page 499 :

"... The first matter is that, if an estoppel exists at all, it is that kind of estoppel which is known as issue estoppel per rem judicatam. The second matter is that, in order to create an estoppel of that kind, three requirements have to be satisfied. The first requirement is that the judgment in the earlier action relied on as creating an estoppel must be (a) of a court of competent jurisdiction, (b) final and conclusive and (c) on the merits. The second requirement is that the parties (or privies) in the earlier action relied on as creating an estoppel, and those in the later action in which that estoppel is raised as a bar, must be the same. The third requirement is that the issue in the later action, in which the estoppel is raised as a bar, must be the same issue as that decided by the judgment in the earlier action."

52. In that case Lord Brandon concluded :

" In the result I would hold that this is a classic case of issue estoppel created by the judgment of a foreign court of competent jurisdiction, in which all three of the requirements for the existence of such an estoppel laid down in the Carl Zeiss case are fully satisfied."

53. The arguments for coming to a similar conclusion in the present case are compelling. It seems to me that the above requirements are indeed satisfied. Thus, if it were necessary in this case to make such a determination, it would be in KBC's favour. However, it is not necessary to go so far as to state such a conclusion because the various grounds have been individually dealt with.

5. SECTION 44(3) PUBLIC POLICY

54. In Hebei Import & Export v. Polytek Engineering [1999] 2 HKCFAR 111 Sir Anthony Mason NPJ defined "public policy" in this context as follows :

"It has been generally accepted that the expression 'contrary to the public policy of that country in Art. V2(b) means 'contrary to the fundamental conceptions of morality and justice of the forum."

55. The same case is also support for the proposition that grounds that have been raised in section 44(2) can also be included under policy considerations within section 44(3). In this case however the grounds under section 44(2) have not been made out. Pertamina however have raised two additional public policy grounds.

56. The first is put in the following terms : "the condemnation of Pertamina to pay when all it was doing was complying with the law governing the contract". This ground stems from the fact that the contracts were terminated as a result of Decrees made by the government of Indonesia. The Tribunal specifically found that it was the Decrees which prevented the parties from performing the contracts. The Tribunal applied the terms of the contracts and made a finding that the consequence of a "Government Related Event" was a risk which only Pertamina and PLN and not KBC, had to bear.

57. The Tribunal's decision therefore did not make Pertamina liable for compliance with Indonesian law, it did no more than apply the terms of the contract which placed the risk of the event which actually occurred on one party but not the other.

58. The decision of the court in the USA has also ruled on this matter in the following terms :

" Pertamina lastly contends that the Tribunal held it liable for refusing to violate governing Indonesian law. As discussed supra in Section IV.B.2, at 30-32, this contention mischaracterizes the Final Award. The Tribunal did not find Pertamina liable for refusing to break the law. Rather, in the Final Award, consistent with the Preliminary Award, the Tribunal found that Pertamina had a contractual responsibility to make KBC whole for a 'Government [R]elated Event.' The Tribunal thus found Pertamina liable for damages based on the parties' express contractual allocation of the risk of loss. As the Tribunal pointed out, the risk of loss was rational based on Pertamina's close relationship with the Indonesian Government.

Pertamina accordingly has not satisfied its burden to show that the Final Award offends the 'most basic notions of morality and justice.'"

59. By the same reasoning, enforcement of the award is not contrary to public policy in Hong Kong, on this ground.

60. Secondly, and finally, Pertamina contends that KBC's failure to disclose their political risk insurance cover was "contrary to the fundamental conceptions of morality and justice of the forum".

61. The court has been informed, but without evidence in support, that the political risk policy has paid out up to US$75 million, in part, to KBL's investors who had invested US$40 million in the project up to its termination. KBC's pleaded case had been that its investors could have continued to invest in the project should non recourse financing cease to be forthcoming as a result of the Indonesia political turmoil.

62. Without knowledge of the political risk cover the Tribunal held :

"'... there is no reason ... to cast doubts about the Claimant's readiness, directly and/or through its shareholders, to make provision' of 'the financing necessary for the Project development ...'"

63. Pertamina's main complaint is that had the Tribunal known of the policy there may have been reason to "cast doubts". In short, they submit that the very existence of insurance is relevant and should have been disclosed. With respect, it is difficult to understand why Pertamina now argue forcefully that the existence of insurance generally was relevant. The complaint is not that a particular policy was not disclosed, but the fact that insurance cover generally was not disclosed.

64. The fact is that Pertamina never asked any questions about insurance cover at the arbitration hearing. There was evidence from a Pertamina witness statement that it was alleged that the Notice of Arbitration was served "for insurance purposes" but this allegation was never followed up. The Tribunal raised the issue on one occasion, but again Pertamina did not pursue it at all. Had they regarded it as relevant and been concerned about it, they would have done so. It is additionally worthy of note that KBC was not a party to the particular policy in question. Moreover, there was no guarantee that the insurers would pay up under the policy in any event.

65. In these circumstances it is difficult for Pertamina to argue that the Tribunal would either have "cast doubts" or that it would have come to a different decision. It does not offend fundamental concepts of morality and justice. As events turned out, KBC had been most prudent to arrange political risk insurance. Failure to disclose that arrangement, which was designed to protect their investors, cannot, in my view, be regarded as breaching an "obligation of candour" as submitted by Pertamina. I can discern no intention to mislead by KBC. It seems to be another example of significance being attached to an issue, after the event.

DISCRETION

66. In view of the court's decision, thus far, that Pertamina have failed to establish any grounds for sections 44(2)(a) to (f) or (3) being applied, the issue as to whether the award should nonetheless be enforced in the face of a successful ground being established, does not arise.

67. It is appropriate however to make some general observations in conclusion.

68. Firstly, had Pertamina been successful in coming within sections 44(2)(c), (d) or (e), this court would have exercised its discretion and granted the order sought by KBC.

69. Secondly, had Pertamina come within (2)(f) or (3), KBC's task in persuading the court to exercise its discretion would have been more difficult. The issues under (2)(f) and (3) are more fundamental and more important in nature. Normally, a court would be inclined not to exercise the discretion in such circumstances. In this case, however, the balance would have been tipped against the norm for just one reason. That reason being the lateness of the emergence of Pertamina's contentions. The argument that the lex arbitri arbitration is Indonesian law and the complaint that the political risk policy was not disclosed, can both be described as "11th hour" challenges. Such lateness would, in my judgment, dilute the strength of the arguments to the extent that it would have been appropriate to exercise the discretion to, nonetheless, enforce the award.

70. For all the above reasons, I refuse an order under paragraph 1 of Pertamina's summons dated 5 September 2002. I make no order in respect of paragraph 2 seeking a discharge of Master Yuen's orders dated 23 May 2002. I make a costs order nisi in KBC's favour for the costs of and arising from this application with a certificate for two counsel. Counsel on both sides of this application and those instructing them have been of the greatest assistance both in the depth of their research and manner of their presentation of what is, undoubtedly, an important case.

	(M.P. Burrell)
	Judge of the Court of First Instance,
	High Court

Representation:

Mr Jat Sew Tong, SC, leading Ms Grace Chow, instructed by Messrs Clyde & Co., for the Plaintiff

Mr Mark Strachan and Mr C. Manzoni, instructed by Messrs Haldanes, for the Defendant

Appeal dismissed: see CACV121/2003 dated 9 October 2007

25866-EN-2002-12-20

KARAHA BODAS CO. LLC v. PERSUSAHAAN PERTAMBANGAN MINYDAK DAN GAS BUMI NEGARA

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22878-EN-2002-08-05

KARAHA BODAS CO. LLC v. PERUSAHAAN PERTAMBANGAN AND ANOTHER

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HCCT000028/2002

HCCT28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.28 OF 2002

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BETWEEN
	KARAHA BODAS COMPANY LLC	Plaintiff

	AND

	PERUSAHAAN PERTAMBANGAN	Defendant
	MINYAK DAN GAS BUMI NEGARA (otherwise known as PERTAMINA)

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Coram: Hon Burrell J in Chambers

Dates of Hearing: 29, 30, 31 July 2002

Date of Decision: 5 August 2002

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DECISION

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1. The plaintiff ("KBC") and the defendant ("Pertamina") have been engaged in a lengthy and substantial arbitration hearing. It was held in Paris and concerned a major contract in Indonesia. KBC were successful in the arbitration. The award in KBC's favour was substantial (approximately US$270 million). Many enforcement proceedings in a variety of jurisdictions, including Hong Kong, soon followed.

2. In accordance with the usual procedure this court granted KBC leave to enforce the award in Hong Kong in the same manner as a Hong Kong judgment together with leave to enter judgment in the amount of the award, ex parte. In the usual way also Pertamina was granted 14 days in which to apply to set aside the ex parte order.

3. It is common ground between the parties that KBC was then required to serve the ex parte order on Pertamina in Indonesia, "in accordance with the laws of Indonesia". In this application under Orders 2 rule 1, 12 rule 8 and 11 rule 5 of the Rules of the High Court, Pertamina seek, primarily, a declaration that the purported service of the order in Indonesia was defective and that, as a result, there has been no proper service.

4. This application gives rise to two issues. Firstly, was service effected in accordance with the law of Indonesia? Secondly, if it was not, should this court exercise the discretion conferred on it by Order 2(1) and nonetheless affirm the validity of the purported service?

5. KBC has been represented by Mr Paul Shieh, Pertamina by Mr Charles Manzoni.

SERVICE "IN ACCORDANCE WITH THE LAW OF INDONESIA"

6. Each side has produced expert evidence concerning the law on service of documents in Indonesia. Pertamina's experts say that the service which actually took place was bad, KBC's expert says it was good.

7. On 24 July 2002, two working days before this application was due to commence, Pertamina made an application for leave to call an expert from each side for them to give oral evidence and to be cross-examined. I decided to reserve my decision as to whether I would hear oral expert evidence on the issue, until after I had heard the arguments on paper. The usual course when a court is asked to make a finding of fact on foreign law is to hear the matter on evidence by affirmation and legal argument. The hearing on 29 July 2002 therefore commenced without oral testimony.

8. In a nutshell, the competing advice was as follows. Pertamina's case was that service was only good if it was served by the District Court in which the defendant had its domicile. That service by the court official had to be personal service at the defendant's place of domicile or residence. The domicile of a legal entity such as Pertamina was its head office.

9. KBC, on the other hand, submitted that such law as there was in Indonesia governing the service of documents applied only to the service of domestic documents. KBC's case was that there was no express law as to how foreign proceedings should be served. Therefore provided the court was satisfied that the order had actually been brought to the attention of the defendant any method of service can be used. This would include court service, personal service on the company's lawyers, by post or even by a newspaper announcement. On the question of domicile, KBC submitted that there was no support for the contention that a company's domicile was its head office and that, in fact, Pertamina's declared domicile was Jakarta.

THE SERVICE WHICH ACTUALLY TOOK PLACE

10. A number of witnesses have affirmed as to how service was actually attempted on 26 March 2002. There are some differences but I do not think the differences are of any great consequence. KBC concede that they did not serve the documents through the appropriate District Court and they further concede that they did not serve them on Pertamina's head office. KBC's service was by a solicitor on a member of the staff at Pertamina's Marketing GM Office address. Thereafter there was a degree of to-ing and fro-ing of the documents. The solicitor told the Pertamina staff member to send them to the head office, they were later returned unaccepted, an attempt was made to serve them at the head office but it was closed, they were then sent to the "Upstream Directorate's Office" (also in Jakarta) and so on. The documents ultimately, on 15 April 2002, found their way on to the desk of the appropriate senior personnel of Pertamina.

11. The factual dispute as to what happened is only relevant to demonstrate that, in any event, KBC went to considerable lengths and efforts to effect service. This is of some relevance to the issue of discretion, to which I turn later. For present purposes the issue is - do the Indonesian rules of procedure which govern service of documents apply to foreign court orders? If they do KBC have failed to comply. The relevant articles are :

"Article 388 HIR
(1) All court servers, court officers and all public officers are entitled and obliged to serve summons, notifications and other documents issued by the court servers and to execute court orders and decisions.

(2) If there are no such persons, then the Chairman of the Court in which jurisdiction the court documents are to be served must appoint the proper and trusted person.
Article 389 HIR
The court server of a District Court in Jakarta, Semarang and Surabaya must declare the service of court documents in a written report. Court servers of other District and other persons appointed by the District Court to serve the court documents, if necessary, it is sufficient if the report is given orally to the judge or another officer who is authorized, concerning all notices, summons and other court documents, which they have served; the respective judge or officer shall record or order the matter to be recorded.
Article 390(1) HIR
Every court document, except those mentioned hereunder, must be served personally to the respective person at his domicile or residence, if the person can not be met there, then to the Chief of the Village or his deputy, who is obliged to directly serve the court documents on the said person himself."

If these articles do not apply to foreign court orders then KBC's contention that it has made a valid service is considerably strengthened.

12. Because of the way I have decided to resolve this matter (as seen hereafter) I do not propose to recite in great detail the competing submissions. The following points however do merit brief mention.

For Pertamina's case

(a) A 1990 Indonesian case was cited which supported the contention that Articles 388-390 do apply to foreign orders.
(b) KBC's expert is far from independent, he being a partner in the firm of solicitors who attempted to make the service.

(c) It is inherently unlikely that Indonesia would have a set of rules for domestic documents and no rules for foreign documents.
(d) It is more likely that a company's head office is the proper place for service because otherwise any out of town branch office would suffice.
(e) It is inconsistent to say that, on the one hand, any service which actually brings the order to the notice of the defendant is sufficient, but, at the same time submit that service by a newspaper announcement would have this effect.
(f) In the absence of rules expressly for foreign documents then the only rules (Articles 388-390) should be followed even though they do not specifically state that they are applicable to both domestic and foreign documents.

For KBC's case

(a) Criticism is made of one of Pertamina's experts, Mrs Asnahwati. It is not necessary for this court to investigate or place much weight on this criticism. It relates to the only previous occasion she has given expert evidence, namely in the English High Court, where it was said there were "language difficulties".
(b) Articles 388-390 do not say they apply to foreign court orders.
(c) There is no reference in the articles from which it could be discerned that they apply to all documents, whether domestic or foreign.
(d) On the contrary, the articles refer to "documents issued by the court". "The court " must be a reference to a domestic court.

(e) The 1990 authority relied on by Pertamina should be treated with some scepticism. Firstly it is the only case which has been found on the subject. Secondly it is 12 years old. Thirdly, its language (in the translation) is sometimes difficult to follow and understand. Fourthly, in a parallel case involving the same parties concerning the validity of service in London, a challenge was made because Indonesian law had not been complied with in London. However the court appeared to make an inconsistent finding, by rejecting the challenge in spite of the non-compliance. Thus, the challenge in Indonesia succeeded in the Indonesian party's favour, but a similar challenge in London failed, also in favour of the Indonesian party. I emphasize that I make no finding one way or the other on this criticism. I merely note it as one of the points being made by KBC in support of their contention that little or no weight should be attached by this court to the 1990 Indonesian authority.
(f) KBC cannot be criticised for not serving the documents at Pertamina's head office. Firstly because their "domicile" is plainly Jakarta and not a particular office address within Jakarta. Secondly, the address at which the documents were served was an important central address. It was not of the type described by Mr Manzoni as an out of town branch office but was the very address given by Pertamina as the company's address in all the arbitration proceedings. It may not have been "the head office" address but it was arguably the company's address for the purpose of this contract within its domicile of Jakarta.

COURT'S DECISION

13. Having set out, briefly, and considered the competing arguments, I find myself unable to make a finding of fact on the issue. I am left with a sense of uncertainty about Indonesian law. No cogent evidence has been adduced by either side as to what happens in practice in Indonesia. Foreign documents must be served frequently. Are there, for example, newspaper announcements of service from time to time? Or, is the District Court server slavishly engaged every time?

14. At best, the evidence before me only enables me to say that it is arguable that the service was not in accordance with Indonesian law. Happily, however, as will be seen hereafter, this insufficiency of evidence does not prevent this court from making a final decision on this application. I am able to make a final decision because, even assuming that the service was not in accordance with Indonesian law I am satisfied that this court should, for reasons which follow, affirm the service as a result of the exercise of the court's discretion. I thus turn to the discretion issue on the assumption that the service did not comply with Indonesian law but without making a specific finding to that effect.

15. Before turning to the discretion issue I should say this. If at some future date, it is determined that this court has exercised its discretion erroneously and is therefore invited to revisit the question of the proper Indonesian law, then it will be necessary to call the experts to give evidence and be cross-examined. For the purpose of this judgment however I refuse the defendant's application to call oral testimony but make no order as to costs on a nisi basis.

THE DISCRETION ISSUE

16. The burden is on KBC to satisfy the court that the discretion should be exercised. The discretion is conferred by Order 2 rule 1 RHC :

"Non-compliance with rules (O.2, r.1)
1. - (1) Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.
(2) Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1) and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit."

17. The first hurdle for KBC to surmount is to satisfy the court that the (assumed) non-compliance amounted to an irregularity in the service procedure and not that it was so fundamental as to render it a nullity. If it was a nullity then the court should not even consider the question of discretion. I have no doubt that the nature of the non-compliance was not a nullity, it was an irregularity. The reasons being that the correct papers were served, legal advice had been sought as to the correct method of service, service was effected at a significant and important address of the company and the documents did, as a matter of fact, come to the actual notice of the company officials and their solicitors within a relatively short time. With this background any non-compliance with Indonesian law could only amount to an irregularity rather than a nullity.

18. The second sub-issue which arises is what is the proper test to apply when deciding whether or not to exercise the discretion in KBC's favour? Both counsel have referred me to a number of authorities on the point. The issue boils down to whether the proper approach is that discretion should only be exercised in "exceptional circumstances" (as contended for by Mr Manzoni) or whether "good reason" or "good cause" is sufficient (as submitted by Mr Shieh). At the end of the day the difference may be (a) more semantic than real and (b) academic, for the following reasons.

19. It may be more semantic than real because, on analysis, it is arguable that there is no difference between the two expressions. "Exceptional circumstances" are not extreme circumstances. They are circumstances which are unusual and therefore merit an exception being made. When should an exception be made? When there is a good reason or good cause to do so, might be the answer. After all, a reason or cause which is "good" should surely not be ignored or overlooked. However, I am conscious of the fact that the authorities cited do make a distinction which suggests that the standards are different, so I proceed with caution.

20. It is academic because on an analysis of the reasons advanced by Mr Shieh in favour of exercising the discretion I am satisfied that they satisfy both expressions.

21. I now refer briefly to some of the authorities cited in argument upon which I have been persuaded that the correct approach in this case is that the discretion should be exercised if there is good reason or good cause to do so.

22. Mr Manzoni relied, inter alia, on Leal v. Dunlop Bro Process [1984] 1 WLR 874 and Camera Care Limited v. Victor Hasselbad AB [1986] 1 FTLR 348. Both are distinguishable from our case in two respects. In both cases the irregularity in the service was that leave was required for service but had not been obtained. In both cases there was an additional factor of a potential time bar to the service of a writ. Such backgrounds are different from the present case.

23. This court prefers and follows the judgment of Sir John Megaw in the Goldean Mariner [1990] 2 Lloyd's Rep. when delivering the majority judgment he commented on certain earlier authorities and said :

" When one studies the judgment of Lord Justice Slade, as also the judgment of Lord Justice Stephenson, see p. 879E, it becomes apparent that they were both acting on the then-accepted principle that leave to extend the validity of a writ after the limitation period had expired could not be granted under O. 6, r. 8 'unless there are exceptional circumstances'. Hence followed the reasoning that 'exceptional circumstances' must equally be the criterion for the exercise of the discretion under O. 2, r. 1 in respect of the plaintiffs' failure to obtain leave to issue the writ. The criterion of 'exceptional circumstances' was based on my judgment in Heaven v. Road and Rail Wagons Ltd., [1965] 2 Q.B. 355. After the date of the judgments of this Court in Leal v. Dunlop and the Camera Care case, that criterion of 'exceptional circumstances' was disapproved by the House of Lords in The Myrto. In The Myrto (No. 3) [1987] 2 Lloyd's Rep. 1 at p. 11, col. 1; [1987] A.C. 597 at p. 619E Lord Brandon said :

... what is required to justify extension is 'good cause' or 'good reason' rather than the more stringent 'exceptional circumstances'.
It appears to me to follow that, in seeking guidance from Leal v. Dunlop as to the exercise of the Court's discretion under O. 2, r. 1 in respect of proceedings involving service out of the jurisdiction, it must be borne in mind that, if analogy is sought to be drawn from the criterion under O. 6, r. 8, the relevant criterion is no longer 'exceptional circumstances', as was thought to be the criterion by the Court in Leal v. Dunlop, but would now be 'good cause' or 'good reason'.
In all circumstances, I do not find any real assistance from Leal v. Dunlop as to the correct exercise of the discretion in the present case."

24. Thus I turn finally to the question of what are the factors in this case which add up to circumstances which merit the exercise of the discretion.

25. Part of the chronology of events should be set out first. Once the arbitration award was delivered it sparked off numerous enforcement proceedings worldwide. We are now in the midst of numerous global legal skirmishes. One which requires particular mention is the one in Texas.

20 February 2002 Judgment was formally entered in the Texas Court.
14 March 2002 Pertamina commenced proceedings in the Indonesian Court to annul the Award. In the same action Pertamina also claimed an injunction restraining KBC from enforcing the Award anywhere in the world.
15 March 2002 Order by this court giving leave to enter Judgment against Pertamina and Judgment entered.
26 March 2002 Service of the Documents on Pertamina in Indonesia. This is the service the validity of which is being disputed by Pertamina in this application.
At an inter partes hearing the Texas Court made a Temporary Restraining Order against Pertamina, directing it to withdraw its request for injunctive relief in Indonesia, which was due to be heard on 1 April 2001.
29 March 2002 As part of the same order KBC was also enjoined temporarily from taking steps in other jurisdictions which would prejudice Pertamina.
1 April 2002 Despite the temporary restraining order, the hearing of Pertamina's injunction application went ahead in Indonesia and the Indonesian court granted an injunction enjoining KBC from enforcing the Award anywhere in the world, subject to a daily fine of US$500,000.
2 April 2002 The Texas Court found Pertamina to have been in contempt of court by proceeding with the injunction application in Indonesia on 1 April 2002, in breach of the temporary restraining order.
17 April 2002 The Documents found their way to "the right hands" at the correct office of Pertamina.
26 April 2002
Texas Court granted Preliminary Injunction restraining Pertamina from pursuing injunctive relief in Indonesia. This injunction excluded the "cross restraint" against KBC in the 29 March temporary order.
7 May 2002
Court in Indonesia declared itself competent to examine and decide the annulment proceedings.

26. Thus there is presently in place an injunction in Indonesia. Both the fact of the injunction and the background and chronology surrounding its implementation are factors I take into account on the issue of discretion. I will enlarge on them hereafter.

FACTORS IN FAVOUR OF EXERCISING DISCRETION IN KBC'S FAVOUR

27.	(1)	In spite of the fact that Pertamina now say they will not enforce the injunction in Indonesia should KBC attempt to re-serve (and have given an undertaking not to do so) there remains a real risk that the Indonesian Court (through which "proper" service would have to be effected) would not permit re-service because of the injunction.

	(2)	This situation was brought about by Pertamina. Moreover, it was their contempt of court in Texas which brought it about. With regard to the events outlined above it should be further noted that Pertamina's decision to pursue the annulment proceedings in Indonesia seems to have been prompted by the Texas decision to enter judgment on 20 February 2002. KBC has not disobeyed any court order, its act of attempted service on 26 March predated the temporary cross-restraint imposed on it by the Texas court. Similarly I accept they do not want to be seen to be disobeying the Indonesian injunction. On Pertamina's side however I discern, if not a paucity of bona fides, then at least a shortfall.

	(3)	As to Pertamina's undertaking not to enforce the injunction in Indonesia, KBC are rightly cautious. The value of such a general undertaking is uncertain. In a case involving an undertaking by one party in Hong Kong not to do something in another country. Hunter JA said in The Adhiguna Harapan [1987] HKLR at p.918 :

		"Basically, we think a court should only accept undertakings which are so clear and precise that an alleged breach would give rise to a straight forward question of fact, so that on proof of this the court would feel free to impose the serious penalties associated with contempt. These undertakings do not all satisfy this test."
		In any event the Indonesian court would not be bound to allow service simply because of this undertaking.

	(4)	On the question of whether the service was in accordance with Indonesian law, based on the only statutory evidence that was placed before this court (Articles 388-390) there seems to be a grey area between what is and what is not required for the service of foreign documents. KBC made genuine, open and far from cavalier efforts, to effect what they believed to be proper service in accordance with the advice they received. They cannot be criticized for serving without leave because leave is not required. As already mentioned, the correct documents were served within the correct domicile and soon thereafter they got to the notice of the correct person. All that went wrong was the initial mechanics. Pertamina's response to this is "we are entitled to insist on being served properly". This of course is correct. They go on to say "if you serve us properly tomorrow we will not stand in your way" (or words to that effect). The exercise of the court's discretion would make such a formality (and the costs occasioned by it) unnecessary. I regard this as another factor relevant to the question of discretion because the order which confers the discretion (Order 2 rule 1) is a beneficial provision which should be applied liberally and justly. The Hong Kong White Book commentary notes that "mindless adherence to technicalities" should be discouraged. I do not think Pertamina's stance goes quite as far as this but they have insisted on what they regard as absolute compliance. It is perhaps more a situation described by Phillips J in The Anna L [1994] 2 Lloyd's Rep. at p.384 where he said :

		"... The object of service of process on a party is to bring the process to the notice of the party served. Service on the defendants' managers in Monaco was better calculated to do this than service on their registered office in Gibraltar. The defendants were making life as procedurally difficult for the plaintiffs as possible. Such a posture may be legitimate, but it is not one I find attractive. The manner in which service was effected caused no prejudice to the defendants and in the exercise of my discretion I consider that it should be allowed to stand."
	(5)	The above citation leads me to the final factor, namely prejudice. Pertamina have already purchased time by challenging the service. The time for challenging the ex parte order has yet to run because of this application. This court can (and will) grant further time in excess of the usual 14 days for Pertamina to respond. In all these circumstances I can see no prejudice to Pertamina in exercising the discretion. On the other hand the prejudice to KBC by not exercising it obvious. If they are compelled to re-serve they may find themselves unable to do so. They will then have to seek an order for substituted service which may give rise to a further contested application in this court.

28. For all the above reasons I affirm the purported service. I declare it to be valid. I dismiss the defendant's summons dated 3 June 2002. Time for Pertamina to oppose the courts ex parte order dated 15 March 2002 is extended to 28 days with effect from the date of this ruling. The costs of the summons shall be to the plaintiff in any event.

	( M.P. Burrell )
	Judge of the Court of First Instance,
	High Court

Representation:

Mr Paul Shieh, instructed by Messrs Clyde & Co., for the Plaintiff

Mr Charles Manzoni, instructed by Messrs Haldanes, for the Defendant

20 February 2002	Judgment was formally entered in the Texas Court.

14 March 2002	Pertamina commenced proceedings in the Indonesian Court to annul the Award. In the same action Pertamina also claimed an injunction restraining KBC from enforcing the Award anywhere in the world.

15 March 2002	Order by this court giving leave to enter Judgment against Pertamina and Judgment entered.

26 March 2002	Service of the Documents on Pertamina in Indonesia. This is the service the validity of which is being disputed by Pertamina in this application. At an inter partes hearing the Texas Court made a Temporary Restraining Order against Pertamina, directing it to withdraw its request for injunctive relief in Indonesia, which was due to be heard on 1 April 2001.

29 March 2002	As part of the same order KBC was also enjoined temporarily from taking steps in other jurisdictions which would prejudice Pertamina.

1 April 2002	Despite the temporary restraining order, the hearing of Pertamina's injunction application went ahead in Indonesia and the Indonesian court granted an injunction enjoining KBC from enforcing the Award anywhere in the world, subject to a daily fine of US$500,000.

2 April 2002	The Texas Court found Pertamina to have been in contempt of court by proceeding with the injunction application in Indonesia on 1 April 2002, in breach of the temporary restraining order.

17 April 2002	The Documents found their way to "the right hands" at the correct office of Pertamina.

26 April 2002	Texas Court granted Preliminary Injunction restraining Pertamina from pursuing injunctive relief in Indonesia. This injunction excluded the "cross restraint" against KBC in the 29 March temporary order.

7 May 2002	Court in Indonesia declared itself competent to examine and decide the annulment proceedings.