Press Release: Karaha counsel says U.S. judge finds Pertamina in contempt
Thursday, April 4 2002 - 07:06 PM WIB
Althought the U.S. court had ordered it to do so, Pertamina failed to withdraw a request to a Jakarta court to halt worldwide enforcement of a $261 million judgment against it, said Jones, Day, Reavis & Pogue law firm which represents Karaha Bodas Company in a press release Thursday.
The contempt finding stems from a December 2000 award to Karaha Bodas Company by arbitrators in Switzerland working under United Nations Commission on International Trade Law rules. Swiss courts refused Pertamina's request to set the award aside.
A court judgment confirming the arbitration award was entered by the U.S. federal court in Houston, Texas, and Pertamina is appealing the judgment to a U.S. court of appeals. Similar judgments have recently been entered by courts in Singapore and Hong Kong.
Pertamina, however, has refused to pay the award or the judgments. As a result of the U.S. judgment, Karaha has begun the process of seizing Pertamina's assets, and Bank of America and Bank of New York have now frozen over $200 million of Pertamina's assets in New York.
In response to Karaha's efforts to collect its debt, Pertamina in mid-March filed a lawsuit in Jakarta against Karaha, asking the Jakarta court to issue an injunction ordering Karaha to stop its worldwide efforts to collect the $261 million.
``Indonesian companies such as Pertamina and PLN have been severely criticized in the past for their attempts to use Indonesian courts to interfere with independent international arbitrations,'' said Christopher F. Dugan, Karaha's counsel, ``and this appears to be another example. Pertamina agreed to international arbitration, and it should keep its promises to respect that process and pay the award, instead of flouting the rule of law.''
In response to Pertamina's Indonesian lawsuit, Karaha on March 29 asked the U.S. court in Houston for a temporary injunction against Pertamina. The U.S. court agreed that Pertamina's actions were improper, and it ordered Pertamina to withdraw its request to the Indonesian court for an injunction against Karaha.
However, Pertamina did not withdraw its request to the Indonesian court. The Indonesian court granted the injunction Pertamina had requested, and imposed a fine of $500,000 a day on Karaha, payable to Pertamina.
Pertamina's President Director Baihaki Hakim claimed: ``We have won the case, so that the execution of the claim cannot be done because based on Indonesian law, the claim must be processed here in Indonesia.'' Dugan responded: ``We don't believe the Indonesian court has any jurisdiction over the international arbitration. In fact, the very purpose of Karaha's arbitration agreement with Pertamina was to keep any dispute out of Indonesia's courts, and instead put it before a neutral tribunal.''
Facing a $500,000 a day fine, Karaha asked the Houston court to hold Pertamina in contempt for its failure to withdraw its request for the Indonesian injunction. On April 2, after a hearing, the Houston court found Pertamina in contempt, and ordered it to indemnify Karaha for any fines imposed on it.
``It's extraordinary for a U.S. court to find a civil party in contempt, and it does so only when a party's actions are extreme and egregious,'' said Dugan. ``This shows once again that Pertamina and Indonesia appear to be willing to do whatever they can to avoid their legal obligations. This must be another blow to Pertamina's reputation and to Indonesia's attempts to attract foreign investment. Pertamina should end this embarrassment by simply honoring its contract obligations and paying the award.''
Karaha, whose principal investors are two U.S. companies, FPL Energy LLC and Caithness Energy LLC, is an independent power developer that in 1994 entered into contracts with Pertamina and another Indonesian entity to develop the Karaha Bodas Geothermal Projects in Indonesia. Karaha invested over $100 million in developing the power projects, but in 1998 Indonesia suspended them. Unable to proceed, Karaha filed for arbitration in Switzerland, as contractually mandated.
Contact: Jones, Day, Reavis & Pogue, Christopher F. Dugan, 202/879-3432.(*)