Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara

Karaha Bodas Co. LLC (KBC) (plaintiff), a geothermal energy exploration and development company, negotiated contracts in Indonesia with Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) (defendant), an Indonesia oil and gas company owned by the government of Indonesia. Under the agreement, KBC had the right to develop geothermal energy sources in part of Indonesia while Pertamina managed the project. All the contracts contained broad arbitration clauses requiring the parties to arbitration disputes in Geneva, Switzerland, under the United Nations Commission on International Trade Law (UNCITRAL) Rules. In 1998, the government of Indonesia suspended the project, causing KBC to inform Pertamina that the government’s suspension constituted a force majeure under the contract. KBC initiated arbitration proceedings, arguing Pertamina owed it damages for the lost profits and money KBC expended on the project before the suspension. Despite Pertamina’s arguments to the contrary, the arbitral tribunal located in Geneva awarded damages to KBC. Pertamina appealed the award by the arbitral tribunal to the Supreme Court of Switzerland and sought an annulment of the award. While the Swiss case was pending, KBC filed the suit in the federal district court in Texas to enforce the Award under the New York Convention. After the Swiss courts denied the annulment, the district court in Texas enforced the award against Pertamina. Pertamina subsequently filed suit in Indonesia, seeking annulment of the award, which the court in Indonesia granted. Pertamina returned to the district court in Texas, asking the court to vacate the order given the Indonesian court order annulling the award and asserting KBC had misled the tribunal about an outstanding insurance payout. The district court denied the motion to vacate, and Pertamina filed an appeal to the Fifth Circuit. Pertamina argued the Indonesia court’s annulment of the award is a defense to enforcement under the New York Convention, meaning the district court’s refusal to grant the motion penalized Pertamina for complying with Indonesian law.