Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara - 364 F.3d 274 (5th Cir. 2004)

Rule:

The United National Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 (codified at 9 U.S.C.S. § 201 et seq.), and the implementing legislation, Chapter 2 of the Federal Arbitration Act (FAA), provide that a secondary jurisdiction court must enforce an arbitration award unless it finds one of the grounds for refusal or deferral of recognition or enforcement specified in the Convention. 9 U.S.C.S. § 207. The court may not refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a mistake of law or fact. Absent extraordinary circumstances, a confirming court is not to reconsider an arbitrator's findings. The party defending against enforcement of the arbitral award bears the burden of proof.

Facts:

An arbitral award was made in Geneva, Switzerland, involving contracts negotiated and allegedly breached in Indonesia. The Award imposed liability and damages against Perusahaan Pertambangan Minyak Dan Gas Bumi Negara ("Pertamina"), which was owned by the government of Indonesia, in favor of Karaha Bodas Company, L.L.C. ("KBC"), a Cayman Islands company. KBC filed the present suit in the federal district court in Texas to enforce the Award under the United National Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), and filed enforcement actions in Hong Kong and Canada as well. While the Hong Kong and Canada enforcement proceedings were pending, Pertamina appealed the Award in the Swiss courts, seeking annulment. When that effort failed, and after the Texas district court granted summary judgment enforcing the Award, Pertamina obtained an order from an Indonesian court annulling the Award. Subsequently, Pertamina appealed to the United States Court of Appeals for the Fifth Circuit.  During the appeal, Pertamina filed in the district court a motion to set aside the judgment under Federal Rule of Civil Procedure 60(b)(2), based on newly-discovered evidence Pertamina contended should have been disclosed during the arbitration, and under Rule 60(b)(5), based on the Indonesian court's decision annulling the arbitration Award. The Fifth Circuit remanded to the district court for consideration of Pertamina's Rule 60(b) motion. On remand, the district court denied Pertamina's Rule 60(b) motion. Pertamina appealed. 

Issue:

Did the Indonesian court’s order annulling the arbitral award bar the enforcement of the same?  

Answer:

No.

Conclusion:

The instant court concluded the Indonesian court's order did not bar the award's enforcement. Pertamina’s argument to that effect was inconsistent with the arbitration agreements and its earlier position that Switzerland had exclusive jurisdiction over annulment proceedings. The parties specified Indonesian substantive law would apply, but the contracts also specified Switzerland as the site of arbitration. The contracts at issue were integrated such that the parties contemplated a single arbitration, and there was no prejudice that would justify a refusal to enforce the award. Inter alia, as to composition of the tribunal, Pertamina’s failure to timely object to one arbitrator's selection was a strategic decision that Pertamina should not be able to assert as a defense to enforcement of the award.