|BIT (also "Treaty")||The Agreement between the Government of the Republic of Indonesia and the Government of the Republic of India for the Promotion and Protection of Investments dated 8 February 1999|
|2007 Investment Law (also "CIL")||Law of the Republic of Indonesia Number: 25 of 2007 concerning investment (Capital Investment Law)|
|BKPM||Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal) of the Republic of Indonesia|
|BKPM Regulation No 12||The guidance and procedure of investment applications (Regulation of Chairman of the Investment Coordinating Board No. 12/2009)|
|CIL (also "2007 Investment Law")||Law of the Republic of Indonesia Number: 25 of 2007 concerning investment (Capital Investment Law)|
|Clean and Clear||A list containing entities regarded as defect-free IUPs|
|Government Regulation No 24 of 2012||Government Regulation No 23 of 2010 concerning implementation of mineral and coal mining business activities, as amended by Government Regulation No 24 of2012|
|IMFA||Indian Metals and Ferro Alloy Metals Limited|
|Indmet||Indmet Mining Pte Ltd, Singapore|
|IUP||Ijin usaha pertambangan, a mining business permit issued pursuant to Law No 4 of 2009 concerning mineral and coal mining (Exhibit CL-3); there are two types of business permits: an Exploration IUP and a Production IUP|
|KP||Mining Rights (Kuasa Pertambangan)|
|MEMR||Ministry of Energy and Mineral Resources|
|PMA company||Foreign investment company, penanaman modal asing|
|Production IUP||A type of mining business permit for production use issued pursuant to Law No 4 of 2009 concerning mineral and coal mining (Exhibit CL-3)|
|PT BAB||PT Bintang Awai Bersinar|
|PT MBM||PT Marangkayu Bara Makarti|
|PT PAK||PT Puspita Alam Kurnia|
|PT PBU||PT Putra Bara Utama|
|PT TBK||PT Tanjung Bartim Kurnia|
|SRI Mining Concession||Production IUP No. 569 of 2009 dated 31 December 2009 granted by the East Barito Regent to SRI (Exhibit C-8)|
|Treaty (also "BIT")||The Agreement between the Government of the Republic of Indonesia and the Government of the Republic of India for the Promotion and Protection of Investments dated 8 February 1999|
|VCLT||Vienna Convention on the Law of Treaties (Exhibit CL- 30)|
Professor Muthucumaraswamy Sornarajah
469G Bukit Timah Road
Mr Neil Kaplan QC CBE SBS
Arbitration Chambers Hong Kong
Chinachem Hollywood Centre,
Suite 803, 1 Hollywood Road,
Central, Hong Kong
Mr Neil Kaplan CBE QC SBS (Presiding Arbitrator)
The Honourable James Spigelman, AC QC
Professor Muthucumaraswamy Sornarajah
Dr Noam Zamir
Counsel, Blackstone Chambers
Mr Harish Salve, SA
Counsel, DMD Advocates
Ms Anuradha Dutt
Ms Fereshte Sethna
Mr Lynn Pereira
Mr Haaris Fazili
Mr Shatadal Ghosh
Mr Kunal Dutt
Mr William A. Sullivan
Mr Prem Khandelwal
Mr Surendra Nath Achary Dakoji
Mr Chitta Ranjan Ray
Mr Simon Pepper (DMT)
Mr Gunaseelan Narayanan Thekken (DMT)
Ms Sharmila Patra (DMT)
Mr Kiran Sequeira (Versant Partners) Mr Matthew Shopp (Versant Partners)
Counsel, Simmons & Simmons LLP
Dr Stuart Dutson
Mr Rogier Schellaars
Ms Amanda Lees
Ms Florentine Vos
Ms Andrea Ledward
Ms Melidijana Kljajic
Counsel, FAMS & P Lawyers
Dr Teddy Anggoro
Mr Rapin Mudiardjo
Mr Acep Sugiana
Ms Cynthia Ilyas
Mr Ricki Beckmann
Mr Julian Hill (Deloitte)
Mr Andrew Flower
Mr Rahmat Soemadipradja (Soemadipradja & Taher)
Assistants to Expert Witnesses
Ms Rachel Situmorang (Soemadipradja & Taher)
Mr Jeremiah Purba (TNB & Partners) Mr Matt Brewer (Deloitte)
Party Representatives, Attorney-General's Office
Cahyaning Nuratih Widowati
Herry H. Horo
Carolita Novinia Yuanita
Erik Meza Nusantara
Nindya Asih Martha Utami
Party Representatives, Ministry of Finance
Tio Serepina Siahaan
Maria Lucia Clamameria
Party Representatives, Ministry ofL aw and Human Rights
Dinda Dian Mega Kartika
Party Representatives, Ministry of Energy and Natural Resources
Party Representative, Ministry of Foreign Affairs
L. Amrih Jinangkung
Party Representative, Investment Coordinating Board
Embassy oft he Republic ofI ndonesia in the Netherlands
Indra Danardi Haryanto
Ms Diana Burden
Ms Laurie Carlisle
Law in Order - Electronic Evidence Presentation:
Mr Faraz Khan (until 10 August)
Mr Jack Dilweg
Permanent Court of Arbitration:
Ms Fedelma Claire Smith
Ms Ashwita Ambast
Mr Byron Perez
Ms Camilla Pondel
Mr Sadyant Sasiprabhu
"Law No 22 of 1999 is a framework law that left many issues for determination in the more detailed regulations that followed. It took some time for these regulations to be drafted and implemented by the central government, while at the regional level regional governments implemented regional regulations for matters that had yet to be regulate centrally. The law has since been amended a number of times, most recently in 2014."2
"Given the unclear boundaries based on the spatial layout, i.e. the boundaries with the Barito Selatan Regency of Central Kalimantan Province, and the boundaries with the Tabalong Regency of South Kalimantan Province, in conducting Exploration, there should be coordination with Barito Selatan Regency, Central Kalimantan Province, and Tabalong Regency, South Kalimantan Province. In the event that in such coordination, it turns out that there is an area falling into the area of Barito Selatan Regency of Central Kalimantan Province and Tabalong Regency of South Kalimantan Province, then the holder of Mining Rights shall remove its area falling into another area."7
(i) PT Putra Bara Utama ("PT PBU") (86.90 ha);
(ii) PT Puspita Alam Kurnia ("PT PAK") (736.6 ha);
(iii) PT Tanjung Bartim Kurnia ("PT TBK") (1,149.23 ha);
(iv) PT Geo Explo (41.61 ha);
(v) PT Kodio Multicom (1,109.02 ha);
(vi) PT Marangkayu Bara Makarti ("PT MBM") (880.8 ha).
(i) PT PBU (86.99 ha);
(ii) PT PAK (754.85 ha);
(iii) PT TBK (1,150.25 ha);
(iv) PT Geo Explo (41.61 ha);
(v) PT Kodio Multicom (1,109.01 ha);
(vi) PT MBM (899.05 ha);
(vii) PT Bintang Awai Bersinar ("PT BAB") (87.16 ha)
(i) Various areas that were outside the boundaries of East Barito Regency;
(ii) An overlapping area of 87.55 Ha with the licence granted to PT BAB by South Barito Regency;33
(iii) An overlapping area of 46.18 Ha with the licence granted to PT Geo Explo by South Barito Regency;34
(iv) An overlapping area of 1,118.3 Ha with the licence granted to PT Kodio Multicom by Tabalong Regency;35
(v) An overlapping area of 903 Ha with the licence granted to PT MBM by Tabalong Regency;36
(vi) An overlapping area of 87.4 Ha with the licence granted to PT PBU by Tabalong Regency;37
(vii) An overlapping area of 1,155.4 Ha with the licence granted to PT TBK by East Barito Regency;38 and
(viii) An overlapping area of 758.23 Ha with the licence granted to PT PAK by East Barito Regency.39
|18 March 2006||The South Barito Regent issues Exploration KP 167 of 2006 to PT BAB.40|
|16 June 2006||The East Barito Regent issues Exploration KP No 185 of 2006 to SRI41 that overlaps with the Exploration KP issued to PT BAB.|
|10 April 2007||The South Barito Regent issues Exploration KP 199 of 2007 to PT Geo Explo42 that overlaps with Exploration KP No 185 of 2006 issued to SRI.|
|28 March 2008||The East Barito Regent issues Exploration KP No 135 of 2008 to SRI that renews the coal exploration licence issued to SRI over a smaller area of 4,000 hectares.43|
|23 May 2008||The Tabalong Regent issues Exploration KP No 540/KEP/10/DISTAM/2008 to PT Kodio Multicom44 and Exploration KP No 540/KEP/11/DISTAM/2008 to PT MBM.45 Both licences overlap with exploration KP No 135 of 2008 issued to SRI.|
|10 November 2008||SRI applies to upgrade its Exploration KP No 135 of 2008 (which would expire on 29 March 2009) to an Exploitation KP.46|
|26 November 2008||The Tabalong Regent issues Exploration KP No 540/KEP/27/DISTAM/2008 to PT PBU47 that overlaps with Exploration KP No 135 of 2008 issued to SRI.|
|28 March 2009||Exploration KP No 135 of 2008 issued to SRI expires.|
|17 October 2009||The East Barito Regent issues Exploration IUP No 463 of 2009 to SRI covering an area of 4,000 hectares.48 The Exploration IUP was valid for 7 years from 16 June 2009.|
|19 October 2009||The East Barito Regent issues two exploration licences for iron ore which overlap with SRI’s Exploration IUP No 473 of 2009: Exploration IUP No 472 of 2009 to PT PAK49; and Exploration IUP No 473 of 2009 to PT TBK.50|
|1 December 2009||SRI applies to the East Barito Regent for an amended Exploration IUP.|
|5 December 2009||SRI applies to the East Barito Regent for a Production IUP.|
|8 December 2009||The East Barito Regent issues Exploration IUP No 526 of 2009 covering an area of 3,674 hectares.51|
|31 December 2009||The East Barito Regent issues Production IUP No 569 of 2009, effective from 8 December 2009, covering an area of 3,674 hectares (the same area as granted under Exploration IUP No 526 of 2009).52 It overlaps with areas granted to PT BAB, PT Geo Explo, PT Kodio Multicom, PT MBM, PT PBU, PT PAK and PT TBK.|
"Regents were regularly criticised in public and the press for failing to follow the correct procedures to ensure that licences did not overlap, not having the experience to administer mining licensing and not complying with the requirements for issuing licences.
To resolve overlapping issues, the company who had the licence could take administrative law action against the regent who issued the licence. [...]
In May 2011, MEMR implemented a national reconciliation of data on IUPs [i.e. a mining business permits]. Governors, regents and mayors from across Indonesia were asked to submit data on the IUPs so that MEMR could reconcile the data and create a national mineral and coal mining data base. The purpose of undertaking the reconciliation was to coordinate, verify and synchronize IUPs in all provinces, regencies and municipalities in Indonesia. Through the reconciliation process MEMR is establishing a national IUP information system, determining the national mining area and potential for development of Indonesia’s resounces."53
"[According to the announcement of 30 June 2011] if an IUP is not included in the Clean and Clear list, the holder of the IUP should write to the issuer of the IUP in response, copying the Director General of Minerals and Coal, if the holder would like to have the status of its IUP reconsidered.
MEMR has held a number of reconciliation rounds since in which the governors and regents have submitted data on the IUPs issued in their province / regency and this data has been reconciled. Companies were also able to submit documents to the issuer of the IUP and MEMR in order to resolve the problems with their IUPs (for example if the records held by the issuer of the IUP were incomplete). Some companies voluntarily relinquished areas of their IUPs in order to resolve overlapping issues. Once the IUP is assessed to be Clean and Clear this is shown on the MEMR’s website.
After MEMR has declared an IUP to be Clean and Clear, the IUP holder can then apply for a Clean and Clear Certificate, which is required in order to obtain other licences such as the Borrow Use Permit and to export coal. "57
"The MEMR has made other public statements, including many industry presentations, about the process for compiling the Clean and Clear lists and the criteria for assessing Clean and Clear status. [...] MEMR has published the criteria for inclusion on the Clean and Clear list and the process it follows on its website as well as discussing these issues with the industry."58
"Pursuant to Government Regulation No 24 of 2012, Indonesian entities should hold shareholdings in the PMA company which holds the Production IUP as follows:
|Period of actual production||Proportion of shares to be held by Indonesian entities|
If shares are required to be divested, the shares should be offered to Indonesian entities in the following order:
(A) The central government, the provincial government and then the regency / municipality where the mining operations are located;
(B) State owned and regional government owned enterprises; and
(C) Wholly Indonesian owned private companies.
Further regulations this year have clarified that the share pricing is to be determined by fair market value."64
"(a) A declaration that the Respondent is in breach of its obligations under the BIT, including its obligations under Articles 3, 4, 5 and 7 of the BIT;
(b) An award of compensatory: damages in favour of the Claimant, in an amount to be assessed, proven and quantified in these proceedings, currently estimated as no less than US$ 469 million, including, without limitation, the total investment made by the Claimant by way of consideration of shares of SRI and capital inducted in SRI subsequently, expected returns that Claimant would have realized upon implementation of the SRI coal mining concession over the course of its full term;
(c) An order that the Respondent pays all costs of, and associated with these arbitration proceedings including the fees and expenses of the Tribunal, and the legal and other expenses of the Claimant, including but not limited to legal fees and expenses of their legal counsel, the fees and expenses of witnesses, experts and consultants, plus post-award interest on those costs so awarded; and
(d) Such other and further relief as the Tribunal considers appropriate in the circumstances."69
"The independent valuation expert appointed by the Claimant has valued the SRI mining concession at US$78.78 million, and computes damages, including pre-award interest at US$99.14-US$99.25 million. The Claimant is prepared to restrict its claim to the valuation of the SRI mining concession, and to pursue its claim for interest and costs, until payment/realization.
In conclusion, [...] the Claimant respectfully submits that the claim (as restricted in the preceding paragraph, which may be treated as amending the Statement of Claim dated 23 December 2016) is liable to be granted, accordingly."70
"(A) Decline jurisdiction in the present case;
(B) Order that the Claimant’s claims be otherwise dismissed in their entirety:;
(C) Order the Claimant to pay the costs relating to this arbitration in their entirety: including the fees and expenses of the Members of the Tribunal, the fees and expenses of the Tribunal Secretary, the fees and expenses of the PCA, the Respondent’s legal fees and all other amounts incurred by the Respondent;
(D) Order the Claimant to pay post-Award interest on all amounts awarded to the Respondent, including costs, at a commercial rate that the Tribunal considers appropriate; and
(E) Grant any other relief to the Respondent that it deems fit."71
(I) The alleged conduct of the Respondent which allegedly constitutes a breach of the BIT occurred before the Claimant became an investor and made its investment under the Treaty ("the Temporal Objection");
(II) The Claimant’s investment has not been "established or acquired" in accordance with Indonesian law pursuant to Article 1(1) of the BIT ("the Legality Objection");
(III) The Claimant’s investment has not been "accepted as such in accordance with [Indonesia’s] laws and regulations in force concerning foreign investments" within the meaning of Article 2 of the BIT ("the No Acceptance Objection");
(IV) The Claimant’s purported investment was an indirect investment, which is not protected by the Treaty ("the Indirect Investment Objection");
"Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of entry into force of the treaty with respect to that party."
"This Agreement shall apply to all investments made by investors of either Contracting Party in the territory of the other Contracting Party, accepted as such in accordance with its laws and regulations in force concerning foreign investments, whether made before or after the coming into force of this Agreement."
"1. Any dispute between a Contracting Party and an investor of the other Contracting Party, concerning an investment of the latter in the territory of the former, be settled amicably through consultations and negotiations.
2. If such a dispute cannot be settled within a period of six months from the date of written notification of the dispute, the dispute shall, at the option of the investor concerned, be submitted either to the competent judicial, arbitral or administrative bodies of the Contracting Party which has admitted the investment for settlement in accordance with its laws and the provisions of this Agreement, or to international arbitration or conciliation. The option so exercised under this paragraph shall be final.
"[...] in the context of a claim under the BIT, what is critical for the purposes of the Tribunal’s temporal jurisdiction is the date on which the putative claimant acquires an investment that falls within the scope of protection of the BIT (assuming that the BIT has already entered into force). It is only after that point that the BIT will apply to regulate the conduct of the host State with respect to that investment, such that the host State’s adoption of measures (i.e., any "act or fact") may lead to such conduct giving rise to the host State’s responsibility for an internationally wrongful act (i.e., the breach of treaty obligations). That is the general position. Article 28 of the VCLT envisages that some treaties may contain a "different intention" or that such may be "otherwise established". But this is not so in the case of the Indonesia India BIT. "74
"(A) The MEMR’s ‘national reconciliation of data on IUPs’ of May 2011 merely consisted of the collation of existing data, rather than the adoption of any new measures (such as the issue of licences) by the Respondent. This process identified what licences already overlapped and whether there were other problems with existing licences, such as boundary issues.
(B) The MEMR’s publication of ‘Clean and Clear Lists’ on 30 June 2011 (which naturally followed the "national reconciliation" which was completed in May 2011) also merely consisted of the collation of existing data, rather than the adoption of any new measures.
(C) As for the publication by the Respondent of various maps, it is not the maps that undermine the validity of the Production IUP, but rather the issue of inconsistent licences and the boundary issues. As the Respondent's expert, Mr Beckmann, explains, the existence of inconsistent maps is one of the reasons why it is necessary to collect maps from multiple agencies as part of any due diligence.
In light of the nature of these events, it simply cannot be said that the publication of these documents, such as the ‘Clean and Clear List' in June 2011 can be characterised as an ‘egregious omission and inaction’, or as a ‘subsequent and independent measure’ which could be a breach of the BIT. This is because the publication of the ‘national reconciliation’ of IUPs, the publication of the ‘Clean and Clear Lists’, and the publication of the maps merely represented ex post facto the situation that existed prior to those dates - a situation which had been brought about by the unresolved boundary issues and the issue of overlapping mining licences.
[...] [Regarding the alleged issue of overlapping licences of PT Kodio Multicom and PT MBM in 2014] [...] the exploration licences were originally issued to PT Kodio Multicom and PT MBM on 23 May 2008. The fact that these exploration licences were upgraded to Production IUPs on 11 March 2014 did not create any additional overlapping areas, which remained the same. This therefore merely continued the position that had existed since 23 May 2008."91
"[...] the Claimant appears to assert that, irrespective of the date of the alleged breaches of the BIT, the Respondent nonetheless has a continuing obligation to resolve the boundary issues and overlapping licences. Thus, it argues that the Respondent’s ‘constitutional authorities’ were ‘by the rule of law standard, obliged to reconcile disparate boundaries and inconsistent permits issued by constitutional functionaries’.
Nowhere does the Claimant point to the source of this obligation, other than to vague ‘constitutional obligations’ or ‘declarations in the BIT’. But to the extent that the Claimant is suggesting that the Respondent is in breach of a ‘continuing obligation’ which therefore post-dates its asserted investment, the Claimant is mistaken. This is highly artificial and, if accepted, would be tantamount to suggesting that every breach of an international obligation is a continuing obligation so long as the State which is responsible for the internationally wrongful act has not made reparation.
There is an important distinction between an act which has a continuing character, and an act which is already completed, but which continues to cause loss or damage. This is reflected in Article 14(1) of the International Law Commission’s Articles on State Responsibility, which states that ‘[t]he breach of an international obligation by an act of a State not having a continuing character occurs at the moment when the act is performed, even if its effects continue." In accordance with this provision, an act does not have a continuing character merely because its effects or consequences extend in time. It must be the wrongful act as such which continues. The effects or consequences which extend in time are the subject of the responsible State’s secondary obligation to make reparation in respect of its internationally wrongful act. But the extension of such effects or consequences do not mean that the breach itself is a continuing one. [...]
In any event, the concept of a ‘continuing breach’ is irrelevant in the present case. As [Professor Douglas QC] notes, where ‘the tribunal’s adjudicative power is conferred by the same international instrument that creates the substantive primary obligation, as is the case with an investment treaty claim, then the concept of a continuing wrongful act serves little purpose.’ Nor can the Claimant argue (if it were minded so to do) that the Respondent’s conduct constitutes a ‘composite breach’, if the first act in the series of acts occurs before the entry into force of the Respondent’s obligations with respect to a particular investment.
In the present case, the conduct of which the Claimant complains occurred prior to the point in time at which it (allegedly) established or acquired its purported investment under the BIT (whether that took place on 10 August 2010, on 29 April 2011, or on 12 May 2011). The Respondent’s conduct of which the Claimant complains consists of the issuance of overlapping licences and the boundary issues. Those are acts which were completed, even though their effects and consequences continued to be felt after the Claimant’s alleged acquisition of its purported investment. [...]"93
"Even according to the awards relied on by the Respondent, at the highest, the so-called Temporal Objection may require consideration of the applicability and enforceability of the substantive standards of the BIT, ‘where the claim is founded upon an alleged breach of the Treaty’s substantive standards’."98
"In April 2011, after the Claimant invested in SRI, it sought to initiate the procedure for commencement of mining activities, including obtaining the required Rent-Use Permit. The Claimant’s representatives approached the Regency Forestry Office at Tamiang Layang to understand procedural requirements to obtain the required Rent Use Permit under Forestry Regulation 18/2011. However, the officials at the Regency Forestry Office after sighting the copy of SRI’s Production IUP informed the Claimant that the mining area had a disputed boundary. The Claimant immediately sought to obtain maps to verify the position from different authorities, including, regional, provincial and central level [...]"104
"The ‘critical date’ (at the earliest) so far as these breaches are concerned is, thus, after the Claimant’s investment was "accepted" on 10 August 2010, and after the BIT’s substantive standards became applicable. Accordingly, the so-called Temporal Objection is unsustainable, and is liable to be rejected."105
"On 12 July 2011, 10 February 2012, 22 October 2013 and 16 January 2014 [...] different maps were issued by various instrumentalities of the Respondent, which purported to put the validity of Production IUP No. 569 of 2009 into contention. As the maps issued by the instrumentality of the Respondent varied from time to time (illustratively, maps issued by the Director General of Mineral and Coal on 12 July 2011 and 22 October 2013), the Respondent’s contention that the position would have been the same had the Claimant requested such maps in 2009 prior to its investment, is pure conjecture, untenable and cannot be accepted as correct. Further, Production IUP No. 569 of 2009 (including the map attached thereto) was copied to various Central Government and Provincial officers, but there was no protest notified to the Claimant from any instrumentality of the Respondent between the time of issuance of Production IUP No. 569 of 2009 on 31 December 2009 and the acceptance of the Claimant’s investment on 10 August 2010, so as to put the Claimant to notice or give reason to the Claimant to request maps during this period."110
"According to the Statement of Defence, the allegedly overlapping exploration licenses of PT Kodio Multicom and PT Marangkayu Bara Makarti [PT MBM] were converted into Production IUPs on 11 March 2014, notwithstanding the Respondent’s knowledge of disputes with the Claimant, including pursuant to the Claimant’s Trigger Notice dated 28 February 2014.
The allegedly overlapping exploration license of PT Putra Bara Utama [PT PBU] was converted into a Production IUP on 13 October 2016. It is alleged that the mining area under the aforesaid Production IUP gran ted to PT Putra Bara Utama no longer overlaps with SRI’s mining area. The Respondent is conscious of the aforesaid breaches, but nevertheless contends that no overlapping licenses were issued "to further companies" after 12 May 2011, which is considered, by the Respondent to be the alleged date of the Claimant’s investment. [...]"111
"[...] it is clear to the Tribunal that, where the claim is founded upon an alleged breach of the Treaty’s substantive standards, a tribunal’s jurisdiction is limited to a dispute between the host [S]tate and a national or company which has acquired its protected investment before the alleged breach occurred. In other words, the Treaty must be in force and the national or company must have already made its investment when the alleged breach occurs, for the Tribunal to have Jurisdiction over a breach of that Treaty’s substantive standards affecting that investment.
This conclusion follows from the principle of non-retroactivity of treaties, which entails that the substantive protections of the BIT apply to the [S] conduct that occurred after these protections became applicable to the eligible investment. Because the BIT is at the same time the instrument that creates the substantive obligation forming the basis of the claim before the Tribunal and the instrument that confers jurisdiction upon the Tribunal, a claimant bringing a claim based on a Treaty obligation must have owned or controlled the investment when that obligation was allegedly breached.
[...] [A claimant] must therefore prove that [it] had already acquired [its] investment at the time of the impugned conduct."113
"The Respondent’s case is not that IMFA’s alleged investment is illegal; it is merely that its alleged investment is not recognised under Indonesian law and, as a result, it cannot be established or acquired in accordance with Indonesian law and therefore cannot satisfy the legality requirements of Article 1(1) of the Treaty."118
"[...] Indonesian law required the Claimant to make an investment in Indonesia in the form of a ‘limited liability company’ and the Claimant was required to make this investment ‘directly’. But the Claimant’s purported investment was not made by it; rather the only investment in Indonesia in accordance with Indonesian law was made by Indmet Mining Pte Ltd, a Singaporean company, which acquired 70% of the shares in SRI."125
"(A) On 7 June 2010, Indmet allegedly entered into a conditional SPA with Mr Widyasakta and Mr Fanani, neither of whom were at the time shareholders in SRI. In the SPA, Indmet agreed to acquire 70% of the issued share capital of the company. IMFA has not provided any details of Indmet’s actual share acquisition, but based on the records of the Ministry of Law and Human Rights, Indmet may have acquired 1,000 existing shares and subscribed to 2,500 new shares in SRI.
(B) On 5 August 2010, SRI applied to the Indonesian Investment Coordination Board, or BKPM, for permission to become a foreign capital investment company (known in Indonesian as a ‘penanaman modal asing’ (' PMA Company ’)), and SRI also applied to BKPM for an ‘in principle licence’ (known in Indonesian as an ‘izin prinsip penanaman modal’) for carrying out its capital investment. Together with its application, SRI provided to BKPM the Memorandum of Association and Articles of Association of Indmet, as well as the Singapore company search report for Indmet. This showed that Indmet (Mauritius) Ltd was the sole shareholder. SRI did not provide any information to BKPM concerning the Claimant.
(C) On 10 August 2010, BKPM granted permission to SRI to become a PMA Company, and also granted SRI an "in principle licence", with a duration of five years, namely from 10 August 2010 until 10 August 2015. Following the grant of the ‘in principle licence’, it was possible for Indmet to acquire shares in SRI.
(D) On 29 March 2011, the shareholders in SRI resolved (i) to transfer to Indmet the shares in SRI pursuant to the SPA; and (ii) to increase the capital in SRI for Indmet’s subscription. On 29 April 2011 the Ministry of Law approved the increase in SRI’s capital but Indmet’s subscription to the 2,500 shares could not become effective until SRI’s Articles of Association were amended.
(E) SRI’s Articles of Association were amended with effect from 12 May 2011, with the effect of the amendment being that foreign individuals or companies would be able to become shareholders in SRI. Prior to this amendment being made, it was not possible for Indmet (or any other foreign individual or company) to own shares in SRI. Thus, as a matter of Indonesian law, Indmet was not able to acquire shares in SRI before 12 May 2011.
As appears from the record, the Claimant, IMFA, never made any application to BKPM to seek approval of its investment in Indonesia. The Claimant’s name does not appear on the application to BKPM dated 5 August 2010, and, as noted above, SRI provided no information about the Claimant to BKPM.
The simple fact is that the Claimant did not seek the approval of BKPM for its purported acquisition of shares in SRI and its purported interest in the 'Production Operating Mining Business Licence’, and BKPM could not, and would not, have given its approval. What is important for BKPM, and Indonesian law, is the identity of the direct shareholder in SRI, which is, of course, Indmet. The Claimant is not in the picture and has therefore not ‘established’ or ‘acquired’ an investment in accordance with Indonesian law for the purposes of Article 1(1) of the BIT. The Claimant’s purported investment is thus outside the scope of protection of the BIT, and, accordingly, outside the Tribunal’s jurisdiction."128
"The Respondent’s legislation which governs foreign investment clearly and unequivocally applies to direct investment, and does not apply to indirect investment. Indirect investment is a concept which is not recognised as a matter of Indonesian law. This is why it is not possible for a foreign investor to make an ‘indirect investment’ into Indonesia. Such an investment would not receive the approval of BKPM.
On this issue, a glance at various other BIT claims that have been brought against Indonesia confirm that the accepted structure is for the foreign investor which seeks BIT protection to acquire shares directly in an Indonesian company. Thus, in Churchill Mining plc v Indonesia, the claimant, Churchill Mining plc, directly acquired 95% of the shares in the Indonesian PMA company ‘PT Indonesia Coal Development’; and in Planet Mining Pty Ltd v Indonesia, the claimant, Planet Mining Pty Ltd, directly acquired 5% of the shares in the Indonesian PMA Company, ‘PT Indonesia Coal Development’. In the Rafat Ali Rizvi v Indonesia case, the claimant had invested indirectly in an Indonesian bank via a company incorporated in the Bahamas, and the ICSID tribunal found that it had no jurisdiction (albeit on grounds which made it unnecessary for it to decide whether the claimant’s ‘indirect' investment was protected by the BIT.)"130
"The definition of ‘investment’, set forth in Article 1(1) of the BIT, encompasses ‘every kind of asset’, and as an adjunct, illustrates the broad types of qualifying ‘investment’, through supplying a list of non-exclusive and non-exhaustive categories of investments. [...] Most notably, Article 1(1) expressly includes both primary assets and rights related to such assets. Both ‘shares in’ and ‘concession’, are expressly included within Article 1(1), and rights flowing as a corollary to holding shares and/or a mining concession, are thus eligible to protection under the BIT."132
"The Claimant has assets which constitute an investment, both directly and indirectly, in accordance with the national laws and regulations of Indonesia, which fall within the scope of Article 1(1) of the BIT.
The Claimant’s investment, for the purposes of Article 1(1) of the BIT, include (without limitation) the following:
(a) The Claimant’s majority equity interests of 70%, held through its wholly owned subsidiary, Indmet (incorporated in Singapore as a special purpose vehicle for purposes of investing in Indonesia), in SRI.
(b) The Production Operation Mining Business License/Production IUP/mining concession held by the Claimant, through SRI."133
Primarily, it submits that the Treaty does not contain any express exclusion of indirect investments. According to the Claimant, "[a]rbitral tribunals adjudicating bilateral investment treaty disputes have consistently held that indirect investments, such as shares held through intermediary: companies, are a protected form of investment absent any limitations in the applicable definition of an ‘investment’."134
"The objection that details of the Singaporean company’s upstream parent company were not filed is not based on any regulatory requirement in Indonesia, and it is not the Respondent’s case that the holding of such upstream shareholding by the Claimant was in breach of the regulatory requirements in Indonesia. There is no suggestion from the Respondent that unrelated to treaty issues, there was anything amiss in the acquisition of indirect equity: interests by the Claimant in SRI - no issue has been raised by the Respondent in this regard, prior to or independent of these proceedings."138
"The definition of "investment" in Law No.1 of 1967 - which the Respondent contends is carried into the 2007 Investment Law - does not cover holding shares in a publicly listed company. The Elucidation to Article 2 of the 2007 Investment Law purports to exclude such indirect investments and portfolio investments the Claimant’s investment does not qualify: as an indirect investment. As indirect investments are not administered by the BKPM, the grant of BKPM approval for foreign investment in SRI establishes that such foreign investment is not indirect investment."139
"As evident from the record, the creation of this structure for the Claimant’s investment was for a genuine corporate purpose, on advice received from PriceWaterhouse Coopers. Accordingly, the proposed acquisition of 70% interests in the coal concession held by PT SRI was routed through wholly owned subsidiaries of the Claimant in Mauritius (Indmet (Mauritius) Ltd.) and Singapore (Indmet Mining Pte Ltd.), a holding structure specifically put into place for this purpose. BKPM Regulation No. 12 of 2009 does not prohibit this. Indeed, by permitting foreign investment by a foreign body corporate, BKPM Regulation No. 12 of 2009 contemplates that the legal owner of the shares in the PMA Company may well be a wholly-owned investment vehicle of another foreign body corporate.
As the Respondent’s laws ‘concerning foreign investment’ are not intended to screen or identify foreign investors, but are intended to channelize [sic] foreign investment to areas of the Respondent’s economy where it is most needed, BKPM Regulation No. 12 of 2009 does not concern itself with ownership interests above the legal owner of the shares in the PMA Company. The allegation that BKPM could not have given its approval is incorrect. The allegation that BKPM would not have given its approval, is irrelevant - BKPM has granted its approval for foreign investment in SRI, with knowledge of the upstream beneficial ownership lying in India. The Respondent is unable to identify any reason why the BKPM would have declined permission had it known that the Claimant is the parent company."142
"This Agreement shall apply to all investments made by investors of either Contracting Party in the territory of the other Contracting Party, accepted as such in accordance with its laws and regulations in force concerning foreign investments, whether made before or after the coming into force of the Agreement."
"[T]he Claimant’s investment has not been ‘accepted’ within the meaning of Article 2 of the BIT, because it has not been accepted as an ‘investment’ which has been ‘made by investors of either Contracting Party in the territory/ of the other Contracting Party’. What the Respondent, through the BKPM, has ‘accepted’, or ‘admitted’, or ‘approved’ is an investment of Indmet Mining Pte Ltd, a Singaporean company. This is quite obviously not an acceptance of an ‘investment’ which has been ‘made by [an investor] of [the other] Contracting Party’ for the purposes of Article 2 of the BIT. The Claimant’s purported investment has not been ‘accepted’. Moreover, SRI did not even disclose to BKPM the Claimant's role as the indirect parent company of Indmet Mining Pte Ltd.
In sum, the simple fact is that the Claimant never sought the approval of BKPM for its purported indirect acquisition of shares in SRI and its purported interest in the Production IUP No 569 of 2009, and BKPM could not have given its approval. What is important for BKPM is the identity of the direct shareholder in SRI, which is Indmet Mining Pte Ltd. The Claimant and the Claimant’s purported investment are therefore outside the scope of protection of the BIT."151
"The words ‘accepted as such’ and the specific reference to the host State's ‘laws and regulations in force concerning foreign investments’ do not appear elsewhere in the BIT. [...] The insertion of these additional words in Article 2 strengthens the Respondent’s case that Article 2 means what it says.
While these words ‘accepted as such’ were not present in the UK-Indonesia BIT that was considered in the Rizvi case, the words relied upon by the Rizvi tribunal accepted ‘in accordance with’ are. It was these words which led the Rizvi tribunal to reiterate that the purported investment must actually be accepted to fall within the scope of the BIT under Article 2, it is not enough that the investment was ‘commenced without contradicting’ the host State’s foreign investor law or that the ‘investment is generally lawful."153
"‘Investment’ means every kind of asset established or acquired, including changes in the form of such investment, in accordance with the national laws and regulations of the Contracting Party in whose territory the investment is made and in particular, though not exclusively, includes:
(i) movable and immovable property as well as other rights such as mortgages, liens or pledges;
(ii) shares in and stock and debentures of a company and any other similar forms of participation in a company;
(iii) rights to money or to any performance under contract having a financial value;
(iv) intellectual property rights, goodwill, technical processes and know-how in accordance with the relevant laws of the respective Contracting Party;
(v) business concessions conferred by law or under contract, including concessions to search for, extract and exploit natural resources."
"A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."
"(A) Article 2 is the ‘scope of application’ provision, which provides that the BIT ‘shall apply to all investments made by investors of either Contracting Party in the territory of the other Contracting Party’. This indicates that the purported investment must have been actually made by the Indian investor, rather than by an investor of a third State, which is the case as regards the alleged acquisition of shares in SRI. A broader formulation could have been adopted by the Contracting Parties, but they did not do so.
(B) Also with regard to Article 2, this requires that the putative investment be made ‘in the territory of the other Contracting Party’. But the Claimant, IMFA, did not make an investment in the territory of the Respondent. Rather, it was Indmet Mining Pte Ltd which purportedly acquired shares in the Indonesian company SRI.
(C) As for Article 4(1), the Contracting Parties have an obligation under this provision to provide most-favoured-nation treatment to ‘investments made by investors of [the other] Contracting Party.’ Again, a broader formulation could have been adopted by the Contracting Parties, but they did not do so."162
"[...] The BIT here makes provision for the situation where the host State of an investment ‘expropriates’ the assets of a locally incorporated company in which the purported investor holds shares. This is the manner in which the BIT provides protection for assets which are held ‘indirectly’, and this demonstrates that the Contracting Parties expressly turned their minds to this issue. Thus, Article 5(3) would be applicable if it were the case that the Claimant owned the shares in SRI directly, and the assets of SRI - such as Production IUP No 569 of 2009 - were expropriated. This would activate Article 5(3) of the BIT, and the Respondent would be under an obligation to ‘ensure that provisions of [Article 5(1)] [were] applied to the extent necessary to ensure fair and equitable compensation in respect of their investment to such investors of the other Contracting Party [i.e. IMFA] who are owners of those shares [in SRI].’
In this scenario, if it were the case that the definition of "investment" already protected such assets (because it includes both "direct" and "indirect" investments), then the inclusion of Article 5(3) would serve no purpose. This would be contrary to the principle of effectiveness (or effet utile) which is an essentially element of the good faith interpretation of treaties."165
"[...] An interpretation that takes the specific inclusion of indirect investments in the expropriation clause to be an exercise in abundant caution can only be justified when the treaty already refers to ‘direct or indirect’ investments. In this regard, the Claimant also refers to a number of treaties in which the definition of "investment" is silent as to whether it covers indirect investments, but an equivalent provision of Article 5(3) includes the wording for avoidance of doubt’. As regards these treaties, this cannot be interpreted as meaning that the term ‘investment’ already includes ‘indirect’ investments. To claim that a treaty includes indirect investments - which magnifies the scope of its protection greatly - by way of a backdoor purported ‘abundant caution’, when it neglects to mention the topic head-on in the relevant provision defining an ‘investment’ does violence to the text.
Thus, where treaties do refer to ‘direct or indirect investments’, Article 5(3) or its equivalents can possibly be read as confirming what is otherwise present. This comports with the text, by giving an internally coherent meaning to both the definition of ‘investment’ and the extension of expropriation to ‘indirect’ investment. But, as in the second class of treaties, where the definition of ‘investment’ does not include indirect investments, it cannot be said that Article 5(3) is nonetheless an exercise in abundant caution. In such treaties, the natural interpretation must, and can only, be that the definition of ‘investment’ otherwise excludes ‘indirect’ investment. Such an interpretation, the Respondent notes, makes sense not only of the divergence in treaty practice on this point, but also provides a meaning that is internally coherent within the text of each treaty."170
"Importantly, the object and purpose of the BIT is not simply the protection of foreign investment; the preamble of the BIT, which sheds light on the object and purpose, also refers expressly to creating conditions for flow of capital between Indonesia and India and increasing prosperity in both States. In line with the broad objectives of the BIT, the Tribunal is required to adopt a balanced approach in the interpretation of treaties and not interpret its clauses exclusively and / or excessively in favour of investors."171
"In any event, the facts and circumstances in the present case establish that the investment in SRI and the corollary interests in Production IUP No. 569 of 2009 has been made by the Claimant. It is the Claimant that was considering the acquisition of mines outside India - in Indonesia, Turkey, Albania, Mozambique and elsewhere. It is the Claimant’s employees that conducted prior enquiries into such potential acquisitions. It is the Claimant’s employees that conducted an evaluation of mineral reserves of coal mines being considered for acquisition. It is the Claimant that caused incorporation of Indmet. The Claimant arranged all payments towards acquisition of 70% indirect interests in the SRI coal mining concession, aggregating US$8.75 million, to be infused into and wired through its wholly owned subsidiaries in Mauritius and Singapore, in manner nominated by sellers of the SRI coal mining concession. The Claimant availed a US$15 million loan facility from Standard Chartered Bank, Kolkata, India, for funding the acquisition of equity interests in the SRI coal mining concession and related working capital requirements, based on Profitability Projections submitted by the Claimant. The facts on record establish that the investment is made by the Claimant."181
"The only logical explanation for the existence of this provision is that it makes clear the manner in which the compensation mechanism will operate in relation to a specific set of facts, where the calculation of damage to the value of an investment with different levels of ownership may be complex. This provision sets out unequivocally the parties' intention that compensation in such circumstances should be an ‘equitable compensation’.
This reference to ‘investment’ is not phrased to exclude the assets of the company, or to limit itself to ownership of the shares. Rather, it requires a tribunal to take a holistic view of the investor's "investment" (looking at both the shareholding and the underlying assets) in determining what is required in order to compensate for damage which has been suffered by the investor.
Accordingly, Article 5(3) does not, as the Respondent presents it, extend the availability of compensation for expropriation to circumstances where it would otherwise not apply. It is taking a ‘belt and braces’ approach to the compensation mechanism for expropriation, reflecting the parties' concerns to ensure that investors are fully compensated for expropriatory action and specifically addressing a common structure of investment."183
"Article 5(3) makes clear that compensating the nationalised domestic entity for the assets taken away may not be sufficient for the BIT - it is also necessary to make sure that such compensation was equitable compensation to the owners of the shares. The question as to whether the owners of those shares are the companies or entities which are registered holders of such shares, or holding companies which indirectly own shares through subsidiaries is not addressed by Article 5(3). Thus, if [...] it is held that investments made through subsidiaries are no less entitled to treaty protection, Article 5(3) would still be relevant to ensure that in the event of nationalisation by expropriation of the assets of the domestic company, the ‘owners of the shares’ (i.e. whether it is the immediate owners or the ultimate owners) are guaranteed 'fair and equitable compensation’. Article 5(3) precludes a contention that no such compensation is payable since it is the assets of the domestic company, and not its shares (constituting the ‘investment’), that are the subject of expropriatory measures. The contention that the Claimant's construction would render Article 5(3) unnecessary or redundant is plainly incorrect."185
"The fact that provisions equivalent to the Expropriation Provision [i.e. Article 5(3) of the Treaty] are included for the avoidance of doubt’ both in treaties (i) that are silent on whether both direct and indirect investments are included, and
(ii) that expressly include both direct and indirect investments in their definition of investments, undermines the Respondent’s argument that such a provision includes indirect investments, where they are not covered in the definition of ‘investment’.
The existence of such treaties directly contradicts the Respondent’s claim that the purpose of the Expropriation Provision can only be to incorporate protections for certain types of indirect investments where there would otherwise be none. Indeed, the clarificatory nature of a provision similar to the Expropriation Provision is accepted in decisions that the Respondent purports to rely on."186
"The Tribunal notes that there is no explicit reference to direct or indirect investments in the BIT. The definition of investment given in Article 1 is very broad. It includes ‘every kind of assets’ and enumerates specific categories of investments as examples. One of those categories consists of ‘shares, bonds or other kinds of interests in companies and joint ventures’. The plain meaning of this provision is that shares or other kind of interests held by Dutch shareholders in a company or in a joint venture having made investment on Venezuelan territory are protected under Article 1. The BIT does not require that there be no interposed companies between the ultimate owner of the company or of the joint venture and the investment. Therefore, a literal reading of the BIT does not support the allegation that the definition of investment excludes indirect investments. Investments as defined in Article 1 could be direct or indirect as recognized in similar cases by ICSID Tribunals."189
(i) The publication in May 2011 by the MEMR of its national reconciliation of data on IUPs;191
(ii) The exclusion of SRI Mining Concession from the Clean and Clear Lists on 30 June 2011;192
(iii) The publication by the Respondent of various maps in 2011- 2014;
(iv) The alleged issue of the overlapping licences of PT Kodio Multicom and PT MBM in 2014 and PT PBU in 2016; and
(v) Government Regulation No 24 of 2012.
(I) Failed to provide the Claimant’s investment with fair and equitable treatment ("FET");
(II) Failed to provide the Claimant’s investment with full protection and security;
(III) Violated the prohibition against unreasonable or discriminatory measures;
(IV) Expropriated the Claimant’s investment without compensation; and
(V) Failed to allow the free transfer of funds related to the Claimant’s investment.
"Investments made by investors of either Contracting Party in the territory of the other Contracting Party, shall receive treatment which is fair and equitable and not less favourable than that accorded to investments made by investors of any third State."
"(i) Since the Production IUP was granted by a legal decree issued by the Head of the Regent o/[East Barito] Regency, who was conferred autonomous power under the laws in force in Indonesia at the material time, to grant mining licenses, and who at the time of grant of the mining license issued a map which formed an integral part of the legal decree, confirming that the area for which the mining rights were granted fell squarely within [East Barito] Regency, the Production IUP [No. 569 of 2009] was a valid mining license.
(ii) SRI had the exclusive right to undertake mining of coal for earning revenues for a thirty-year term, including two renewals liable to be granted in ordinary course, i.e. for a duration of ten 10 years each.
(iii) All authorities in Indonesia performed their functions in tandem with one another and would honour the rights granted under a legal decree issued by the Head of a Regency.
(iv) The boundaries of all regencies and provinces within the State would be certain, and the map attached with the Production IUP would be uniform and consistent with all other maps maintained by the Respondent.
(v) The Claimant would not be required to divest any shareholding during the initial term of the lease and/or during the period of renewal, as SRI was compliant with the divestment requirements in force at the time of Claimant’s investment in SRI.
(vi) The Respondent would uphold the assurances and the guarantees under the 2007 Investment Law, amongst others, of legal certainty, business certainty and business safety."195
"(i) Production IUP No. 569 of 2009 was granted by the competent authority (the Bupati of East Barito) since the Mining Permit Area sought was within the East Barito Regency;
(ii) the Bupati of East Barito was the competent authority to determine the applicable regional spatial layout plan, and also authorised to issue the map attached to Production IUP No. 569 of 2009;
(iii) the size and boundaries of the Mining Permit Area, as depicted in the map attached to Production IUP No. 569 of 2009 was determined by the Central Government in coordination with the Bupati of East Barito, managed by the Minister for Energy and Mineral Resources;
(iv) between the regional administrations, there was joint management of licenses in the use of natural resources."196
"[...] the authorities in Indonesia, on account of their systemic failure, have defeated the rights that were granted under the legal decree and made the Production IUP wholly unworkable. Subsequent to its investment, the Claimant has encountered inconsistent positions adopted by various instrumentalities of the Respondent, wherein it has been claimed that boundaries of various regencies including Barito Timur Regency and the provinces have, to date, not yet been determined, leading to conflicting maps maintained by various authorities of the Respondent, while the mining authorities have knowingly issued multiple mining licenses in respect of the SRI mining concession area, leading to the Production IUP held by SRI being rendered infructuous. A complete lack of coordination exists between the central and regional governments, plagued by utter confusion of authority between the different levels of government.
Further, by introducing [Government Regulation No 24 of 2012] to increase the divestment requirement for foreign shareholding from 20% to 51%o, the Respondent has breached the Claimant’s reasonable and legitimate expectation that the policy in force at the time when the Claimant invested, of 20% Indonesian participation, would remain consistent, and that the Respondent would not introduce laws impairing the Claimant’s investment, such that its shareholding would become liable to be substantially reduced to 42.87% from 70%."197
"(i) to ensure certainty of the mining rights granted to SRI under the Production IUP No. 569 of 2009;
(ii) to ensure certainty of boundaries of its regencies and provinces;
(iii) to ensure safety of the Claimant’s interests in the mining business of SRI;
(iv) to ensure certainty of the divestiture requirement for foreign participation;
(v) to ensure a stable legal and business framework and regime, such that would safeguard and protect the Claimant’s investment."198
"[...] the only mining permit that pre-dates SRI’s mining license, is the alleged Exploration KP No. 167 of 2006, purportedly granted to PT-BAB on 18 March 2006 by the Regent of South Barito. [...] No material has been furnished by the Respondent to the Claimant, or available on the record of this arbitration, from the Respondent, to establish that a valid mining permit in favour of PT-BAB was granted, and/or that a valid mining permit in favour of PT-BAB was in force on 31 December 2009, when the SRI mining concession was granted. All other allegedly overlapping mining licenses were admittedly granted subsequent to SRI’s Exploration KP No. 185 of 2006. The Respondent admits to uniformly applying an alleged 'first come first served’ principle for resolving conflicts in cases of overlapping license areas, but fails to explain the basis on which the Respondent failed to reconcile the SRI coal mining concession with other allegedly overlapping mining concessions. [...]
When SRI raised the issue of overlapping licenses after it discovered the same in or about April 2011, it is evident that this principle of 'first come first served’ was not applied to SRI, and the Respondent maintains that SRI’s mining permit is impaired even by subsequently granted mining permits. The non-application of the rules, which the Respondent claims were otherwise followed, is an arbitrary and discriminatory measure which is a clear violation of the FET standard imposed by the BIT."200
"(i) The Respondent issued overlapping licenses in respect of the area which is squarely within SRI’s Production IUP, without the knowledge of the Claimant;
(ii) The Respondent failed to notify disputed boundaries of regencies and provinces in Indonesia;
(iii) The Respondent increased the divestment requirement by the foreign shareholder after the Claimant’s acquisition of 70% shareholding in SRI;
(iv) The Respondent did not inform the Claimant about the process being followed for issuance of the Clean and Clear list, and the reason for non-inclusion of SRI’s Production IUP from the Clean and Clear list.
(v) The maps issued by the Respondent showed inconsistent positions with regard to the area under the Production IUP held by SRI.
(vi) As seen from the various maps obtained by the Claimant from different authorities, it is clear that while certain divisions of the Respondent have updated their record to reflect the correct status of SRI’s mining licence as a Production IUP, other divisions continue to reflect SRI’s mining licence at the Exploration stage."203
"Indonesia went through a reformation of its political system and economy following the 1998 economic crisis and the fall of former President Suharto, which resulted in rapid decentralisation and implementation of regional autonomy. Regencies became responsible for overseeing and regulating areas of activity which had been previously centralised and with which they had no experience. The implementation of regional autonomy had a particular impact on the mining industry and this is the context in which IMFA chose to invest."212
"The Claimant’s failure to undertake proper due diligence is inexplicable given the notorious nature of the overlapping mining licences issue, the difficulties in obtaining a Borrow Use Permit which was required to undertake mining activities in production forests, the well-known potential for regional boundary disputes, the bureaucratic permitting process and the lack of infrastructure and difficulties in developing that infrastructure."216
"[e]ven if the divestiture requirements under Government Regulation No. 24 of 2012 were to apply, those requirements would not apply in full immediately. The percentage of shares which SRI’s direct shareholder would have to divest would increase gradually over a five-year period [...]. SRI’s direct shareholder would receive compensation for any shares it was required to divest."220
"Contrary to the Claimant’s allegations, the Claimant’s only legitimate expectation should have been that it would need to satisfy the requirements of all relevant departments and levels of government before its project could proceed. The Claimant has failed to provide particulars of its attempts to satisfy these requirements, which naturally exist in a major project of this type and alleged scale."223
"The SRI Concession was not on the Clean and Clear List because there was an overlap with an administrative area of another Regency or Province and there were also overlapping licences."225
"In any event the first come first served principle is of limited assistance to SRI and IMFA as SRI has not held a continuous mining licence over the relevant area, as:
(A) Exploration KP No 135 of 2008 expired on 28 March 2009.
(B) Exploration IUP No 463 of 2009 was only issued on 1 7 October 2009 and only valid from 16 June 2009.
Due to the interregnum in SRI’s mining licences from 28 March 2009 until 16 June 2009 it would not be first come first served’ in relation to licences issued before 16 June 2009 over the area covered by Exploration IUP No 463 of 2009. The licences issued to PT BAB, PT Geo Explo, PT Kodio Multicom, PT MBM and PT PBU were validly issued prior to 16 June 2009 and covered some of the same area that had been covered by Exploration KP No 135 of 2008 and was subsequently covered by Exploration IUP No 463 of 2009."226
"The Respondent’s case is that it has not treated the Claimant’s investment any differently to other IUPs in East Barito or elsewhere in Indonesia with similar problems. This is supported by the statistics set out in paragraph 10.10 of the Defence. In addition, [...] the principle of "first come first served" was not the only principle applied to the resolution of overlapping IUPs. [...] the "first come first served" principle was not always applied: (1) where the overlap was because of an administrative boundary issue; or (2) where only a small part of the mining area overlapped with other mining areas."227
"The material criteria which prevented the SRI Concession from appearing on the Clean and Clear List have not changed throughout the Clean and Clear process and can now be found in Article 5(2)(b) of MEMR Regulation 43 of 2015.
The licence issued to PT Geo Explo was included on the 5th iteration of the Clear and Clean List but later had its Clear and Clean status revoked due to overlapping licenses. It was not uncommon for the MEMR to re-evaluate the Clear and Clean status if previously unidentified defects or problems with that IUP came to its attention.
The overlapping licenses were also validly issued but none of the still overlapping licenses have been granted Clear and Clean status, including the one issued to PT BAB which was prior in time to the SRI Concession. Under the Old Mining Law and New Mining Law, Regents could only issue mining concessions within the territory of the Regency. The Regents that issued the overlapping licenses considered that the licenses issued to PT BAB, PT Geo Explo, PT Kodio Multicom, PT MBM and PT PBU were issued within the administrative territory of the respective Regencies of South Barito (in relation to PT BAB and PT Geo Explo) and Tabalong (in respect of PT Kodio Multicom, PT MBM and PT PBU). The BIG basic map (as used by MEMR) at the time showed that these licenses were within the administrative territories of those Regencies, except for a slight incursion of PT Geo Explo into the Regency of Tabalong.
These licence holders applied to the Regent for a KP and then IUP over an area that was in territory recognized by the Central Government as being within that Regency, unlike SRI. Until the respective boundaries are determined by the Minister for Internal Affairs and this results in the areas of the licenses falling outside the respective Regency boundary, the Tribunal cannot declare that the licenses have been invalidly issued. This is acknowledged by the Claimant. Equally the Respondent has not argued that the SRI Concession was invalidly issued, even though only the Regent of East Barito considered that the entire area of the SRI Concession fell within East Barito Regency.
A KP holder / IUP holder is meant to hold a continuous mining licence over the relevant area (less reduction or relinquishment). This can be seen in the requirement that a KP or IUP holder has to submit its application for extension / upgrading of its licence prior to the expiration of the KP or the IUP. Only a KP holder that had been issued one category of KP could apply for the next, so for example a KP holder that had a KP for exploration could apply for a KP for exploitation.
Under the Old Mining Law, if an exploration KP licence holder applies for an extension prior to its expiry/ but has not received its decision the holder is allowed to continue mining exploration for a maximum period of one year. The Claimant relies on the alleged application by SRI for a renewal of Exploration KP No 135 of 2008 on 22 December 2008. The Claimant has not produced this application (or indeed any of the applications filed by SRI) and for the reasons set out in the Rejoinder it is improbable that such an application was made on that date given that SRI applied for an upgrade of its Exploration KP on 10 November 2008 and the correspondence from the Regent on 11 April 2009.
The Claimant has not filed any evidence to support its assertion that its licence should be preferred because of 'first come first served’ nor has it filed any evidence from any Indonesian lawyer or of Indonesian law that it should be on the Clean and Clear List. This is not surprising given that the SRI Concession had both an overlap with an administrative area of another Regency or Province (on the basis of the recognized temporary boundary) and overlapping licenses. "229
(i) As the overlapping licences were issued before the date of the purported investment, had the Claimant had done proper due diligence, the Claimant could have discovered that SRI Mining Concession was impaired.230 Furthermore, as the issuance of overlapping licences predated the Claimant’s purported investment, this conduct could not be considered a breach of any duties of transparency and consistency.231
(ii) Similarly, had the Claimant done proper due diligence, the Claimant could have discovered the uncertainties and disagreements about the boundaries of the regencies and that SRI Mining Concession appears to cover areas outside East Barito.232
(iii) Regarding Government Regulation No 24 of 2012, as explained above in the context of legitimate expectations, it has no application to the Claimant’s claim.233 In addition, as explained above, even if the divestiture requirements were to apply, the percentage of shares which SRI’s direct shareholder would have to divest would increase gradually over a five-year period and SRI’s direct shareholder would receive compensation for any shares it was required to divest.234
(iv) Concerning the Claimant’s argument regarding the Clean and Clear list procedure, the Respondent submits as follows:
"(A) The Clean and Clear list procedure has been the subject of public announcements and extensive discussion with the industry. [...]
(B) The criteria for inclusion on the Clean and Clear list have been published since 2011 [...] It is evident from those criteria why SRI’s Production IUP No 569 of 2009 is not included.
(C) IUP holders whose licences were not listed as Clean and Clear were advised to contact the issuer of the IUP about their non-inclusion [...] There is nothing in the Statement of Claim to suggest that SRI or IMFA did this."235
Moreover, the Respondent submits as follows:
"SRI’s Concession is not on the Clean and Clear list because, it is impaired by overlapping licences and boundary problems and as such is not Clean and Clear. These problems are insuperable because the overlapping licences were issued by other Regencies and those licences were issued within areas recognized by the Central Government and Provincial Governments as within those other Regencies. The East Barito Regent’s mistake it is only the East Barito Regent who thought that SRI’s concession was within East Barito cannot lead to licence holders in other Regencies who were duly granted licenses, losing them."236
(v) Regarding the Claimant’s argument concerning the maps issued by the Respondent which showed inconsistent positions with regard to the area under the Production IUP held by SRI, the Respondent submits that the Claimant failed to make proper due diligence. Such proper due diligence would have identified that there were unsettled boundaries, and that the SRI Mining Concession covers areas outside East Barito.237
(vi) Concerning the Claimant’s submission regarding the inconsistency of the Respondent’s divisions in showing the status of SRI’s mining licence, the Respondent states that this was "an administrative mistake, which has now been rectified. In any event, the mistake was inconsequential and caused no loss."238
"The FET standard defined in the BIT is an autonomous treaty standard, whose precise meaning must be established on a case-by-case basis. It requires an action or omission by the State which violates a certain threshold of propriety, causing harm to the investor, and with a causal link between action or omission and harm. The threshold must be defined by the Tribunal, on the basis of the wording of Article
II. 3 of the BIT, and bearing in mind a number of factors, including among others the following:
- whether the State has failed to offer a stable and predictable legal framework;
- whether the State made specific representations to the investor;
- whether due process has been denied to the investor;
- whether there is an absence of transparency in the legal procedure or in the actions of the State;
- whether there has been harassment, coercion, abuse of power or other bad faith conduct by the host State;
- whether any of the actions of the State can be labelled as arbitrary, discriminatory or inconsistent.
The evaluation of the State’s action cannot be performed in the abstract and only with a view of protecting the investor's rights. The Tribunal must also balance other legally relevant interests, and take into consideration a number of countervailing factors, before it can establish that a violation of the FET standard, which merits compensation, has actually occurred:
- the State’s sovereign right to pass legislation and to adopt decisions for the protection of its public interests, especially if they do not provoke a disproportionate impact on foreign investors;
- the legitimate expectations of the investor, at the time he made his investment;
- the investor’s duty to perform an investigation before effecting the investment;
- the investor’s conduct in the host country."247
"Mr Salve: [The] Temporal objection is that the measure is prior to the investment. The Clean and Clear list is not prior to the investment. An unresolved boundary/ is not the measure. The failure to resolve the boundary/ or resolving it in a manner that my permit becomes worthless is the measure.
MR SPIGELMAN: Some time ago you gave us a heading saying what is the measure. Do I take it that what you're saying is the measure is the failure to deal with the overlapping boundaries and, therefore, the overlapping permits? Is that your definition of the measure?
MR SALVE: Yes, sir. So the failure to - the measures are coming down in a Clean and Clear list starting the process - and I'm going to show that you document in a minute - ending up without resolving the boundary issue, enunciating a principle, first come first served, when you have confusion about the boundaries but completely failing to apply that principle, and resolve the issue of multiple permits within the Republic of Indonesia in a fair and equitable way. And you can have a measure which is continuing, or one time and then continues thereafter, or a measure the effect of which is felt by further acts, and I just want to show that you very quickly."248
"The notable feature of this arbitration is the unfair conduct of the Respondent, including in the manner in which it has run this case.
The Claimant’s case is based upon the records available to it, and on the basis of which the Claimant was able to establish that it made an investment and pursued its plan for mining operations to the extent it was possible. All the information -technical and commercial - that it gathered during this period has been fairly placed before the Tribunal.
The manner in which permits were issued to the Claimant and to certain other permit holders, the extent of knowledge of the Government, and the steps taken by the Government to resolve the issue of conflicting perm its, were all matters within the knowledge of the Respondent, and had to be established by oral and documentary evidence.
There can be little doubt that this was an attempt to keep the Tribunal in the dark, and to shift focus to the so-called insufficient due diligence and upon the inadequacy of information (alleged by the Respondent) available with the Claimant to establish its case to a higher degree - while the Respondent, who was admittedly possessed of all the information, chose to keep it back from the Tribunal.
[...] The Claimant invites the Tribunal to draw adverse inferences [...], on the premise that had a witness been produced, the evidence he would have given would have been against the Respondent."249
"a) In refusing to address the issue of unsettled boundaries, in breach of the Respondent’s obligation to provide favourable conditions for investors and fair and equitable treatment to their investments, including legal certainty and full protection and security of the Claimant’s investment under the BIT, and also in breach of the Claimant’ legitimate expectations based on assurances within the Respondent’s legal framework.
b) In professing to apply the principle of first come first served’ -as a fair measure to resolve overlapping permits, but then failing to apply it to the overlapping permits in SRI’s case, so as to bring the Claimant on to the Clean and Clear List.
c) In unfailingly breaching domestic legislation commanding settlement of boundaries.
d) In failing to restrain Regents of other Regencies from issuing permits AFTER the Claimant’s permit, in respect of the same geographical area, thereby promoting the breach of the 'first come first served’ principle."250
"Investments made by investors of either Contracting Party in the territory of the other Contracting Party, shall receive treatment which is fair and equitable and not less favourable than that accorded to investments made by investors of any third State."
"The Parties have proposed two different interpretations of the 'full protection and security’ provision in Article II(2) of the Treaty. The Claimant submits that 'full protection and security’ extends to protection of legal security and the stability of the legal environment, whereas the Respondent contends that such standard should be limited to physical protection and security. The Tribunal is of the view that 'full protection and security’ is a distinct treaty standard whose content is not to be equated to the minimum standard of treatment. However, the Tribunal considers that such treaty standard only extends to the duty of the host state to grant physical protection and security. Such interpretation best accords with the ordinary meaning of the terms ‘protection’ and ‘security’.
Furthermore, this interpretation is supported by a line of cases involving the same or a similar phrase. For example, the tribunal in Saluka noted that ‘[t]he practice of arbitral tribunals seems to indicate [...] that the full security and protection’ clause is not meant to cover just any kind of impairment of an investor’s investment, but to protect more specifically the physical integrity of an investment against interference by use of force’. And the tribunal in Rumeli held that this standard of treatment ‘obliges the State to provide a certain level of protection to foreign investment from physical damage’. Other arbitral decisions are to the same or similar effect. The Tribunal agrees with this line of cases.
The Tribunal is mindful that other investment tribunals have interpreted the full protection and security’ standard more extensively so as to cover legal security and the protection of a stable legal framework. As already noted, the Tribunal is of the view that the more ‘traditional’ interpretation better accords with the ordinary meaning of the terms. Furthermore, as rightly observed by a number of previous decisions, a more extensive reading of the full protection and security’ standard would result in an overlap with other treaty standards, notably FET, which in the Tribunal’s mind would not comport with the ‘effet utile’ principle of interpretation. The Tribunal is thus unconvinced that it should depart from an interpretation of the ‘full protection and security’ standard limited to physical security."268
"Each Contracting Party shall ensure fair and equitable treatment to the investments of investors of the other Contracting Party and shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use enjoyment or disposal thereof by those investors"
"[...] in order for the Claimant to establish a breach of Article 3(2) of the Indonesia-Jordan BIT, it would need to prove that: (1) it holds a qualifying investment, (2) its operation, management, maintenance, use, enjoyment or disposal of that investment has been impaired since it made its investment, and (3) such impairment resulted from discriminatory measures on the part of the Respondent. It therefore imposes a higher threshold for establishing a breach than the already high threshold under the fair and equitable treatment standard in Article 3(2) of the Indonesia-India BIT."277
"1. Investments of investors of either Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as ‘expropriation') in the territory of the other Contracting Party except for a public purpose in accordance with law on a non-discriminatory basis and against fair and equitable compensation. Such compensation shall amount to the fair market value of the investment expropriated immediately before the expropriation or before the impending expropriation became public knowledge, whichever is earlier, shall include interest at prevailing rate as agreed upon by both parties until the date of payment, shall be made without unreasonable delay, be effectively realizable and be freely transferable.
2. The investor affected shall have a right, under the law of the Contracting Party making the expropriation, to review, by a judicial or other independent authority of that Party, of his or its case and of the valuation of his or its investment in accordance with the principles set out in this paragraph. The Contracting Party making the expropriation shall make every endeavour to ensure that such review is carried out promptly.
3. Where a Contracting Party expropriates the assets of a company which is incorporate or constituted under the law in force in any part of its territory, and in which investors of the other Contracting Party own shares, it shall ensure that the provisions of paragraph (1) of this Article are applied to the extent necessary to ensure fair and equitable compensation in respect of their investment to such investors of the other Contracting Party who are owners of those shares."
"[T]he material factors as to the Respondent’s lack of explanation for exclusion of Production IUP No. 569 of 2009 from the Clean and Clear Lists, coupled with upgradation of exploration KPs of PT Kodio Multicom and PT MBM into production IUPs on 11 March 2014, despite allegedly overlapping mining areas with that of SRI’s mining concession area) and recording of the Claimant’s Production IUP No. 569 of 2009 as an exploration license, [...] are acts indicative of intent of the Respondent."284
"[b]y definition, the Claimant’s assertion that its investment is expropriated in its ‘entirety’ is, also for this reason, wrong. Indeed, even if Production IUP No 569 of 2009 was not impaired, as 20% of shareholders in SRI are Indonesian companies, Indmet and SRI Indo Capital Ltd (SRI’s other foreign shareholder) would only need to divest some of their shareholdings after 6 years of production - leading up to a maximum proportion of shares held by Indonesian entities of 51°/o after 10 years (post production). SRI’s direct shareholder would receive compensation for any shares it was required to divest."296
"The Tribunal considers that the accumulated mass of international legal materials, comprising both arbitral decisions and doctrinal writings, describe for both direct and indirect expropriation, consistently albeit in different terms, the requirement under international law for the investor to establish the substantial, radical, severe, devastating or fundamental deprivation of its rights or the virtual annihilation, effective neutralisation or factual destruction of its investment, its value or enjoyment."302
"Judicial practice indicates that the severity of the economic impact is the decisive criterion in deciding whether an indirect expropriation or a measure tantamount to expropriation has taken place. An expropriation occurs if the interference is substantial and deprives the investor of all or most of the benefits of the investment. There is a broad consensus in academic writings that the intensity and duration of the economic deprivation is the crucial factor in identifying an indirect expropriation or equivalent measure."303
"The definition of expropriation has developed over time and gone beyond the formalistic concentration on title [...] a further extension into the sphere of damages, loss of value and profitability, without regard to the substance and attributes of property, would deprive the claim of its distinct nature and amalgamate it with other claims. Thus, a mere loss of value or a loss of benefits that is connected to and caused by the dissolution of at least one attribute of property, does not constitute indirect expropriation."304
"1. Each Contracting Party shall permit all funds of an investor of the other Contracting Party related to the investment in its territory to be freely transferred, without unreasonable delay and on a non-discriminatory basis. Such funds may include:
(a). Capital and additional capital amounts used to maintain and increase investments;
(b). Returns including dividends and interest in proportion to their shareholding;
(c). Repayment of any loan, including interest thereon, relating to the investment;
(d). Payments of royalties and services fees relating to the investment;
(e). Proceeds from sales of their shares;
(f). Proceeds received by investors in case of sale or partial sale or liquidation;
(g). The earnings of nationals of one Contracting Party/ who work in connection with investment in the territory of the other Contracting Party;"
2. Nothing in paragraph (1) of this Article shall affect the transfer of any compensation under Article 6 of this Agreement.
3. Unless otherwise agreed to between the Parties, currency transfer under paragraph of this Article shall be permitted in any convertible currency. Such transfer shall be made at the prevailing market rate of exchange on the date of transfer."
"[Government Regulation No 24 of 2012] is obviously a discriminatory measure since its promulgation which disproportionately impacts the free transfer of foreign investments, and not that of domestic investment in the same manner.
Therefore, it is evident that by this new divestiture requirement, the ability of the Claimant to, for example, pledge its shares to raise capital in order to increase investments has been significantly impaired, thus, violating the Claimant’s rights pertaining to free transfer of funds related to its investment as provided in Article 7 of the BIT. As a result of Indonesia’s discriminatory conduct, the investment of the Claimant, which in the ordinary course was capable of free transfer, remains locked up in Indonesia in stark contrast to the situation prevailing before GR No. 24/2012, and there is no such impact impinging on domestic investments."306
"PRESIDENT: In your pleadings you talk about the free transfer of funds point. Are you still relying upon that?
MR SALVE: I don't think it stands any further."309
The arbitral tribunal shall fix the costs of arbitration in its award. The term "costs" includes only:
(a) The fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39;
(b) The travel and other expenses incurred by the arbitrators;
(c) The costs of expert advice and of other assistance required by the arbitral tribunal;
(d) The travel and other expenses of witnesses to the extent such expenses are approved by the arbitral tribunal;
(e) The costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable;
(f) Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at The Hague.
a. Mr Neil Kaplan CBE QC SBS - GBP 241,638.16;
b. The Honourable James Spigelman - GBP 141,625.00;
c. Professor Muthucumaraswamy Sornarajah - GBP 125,500.
(a) Professional and legal expenses US$ 2,200,000
(b) Experts US$ 1,112,957
(c) Witnesses and party representatives US$ 155,732
(d) Sums paid to the PCA GBP 375,000 (US$ 479,214)
(f) Other expenses US$ 31,331
Total US$ 3,979,234
a) To uphold the Respondent’s Temporal Objection in relation to the alleged acts that occurred prior to the Claimant’s investment.
b) To reject all the Claimant’s claims in relation to the Respondent’s alleged acts that occurred after the Claimant made its investment.
c) To dismiss all claims for damages and interest.
d) The Claimant shall pay the sums of US$2,975,017 and GBP 361,247.23 to the Respondent in respect of the Respondent’s costs and expenses of this arbitration.
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