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Indonesia versus Churchill Mining Plc and Planet Mining Pty Ltd in International Centre for Settlement of Investment Disputes

Indonesia versus Churchill Mining Plc and Planet Mining Pty Ltd in International Centre for Settlement of Investment Disputes

During the past year, the arbitration lawsuits against the Indonesian Government through International Centre for Settlement of Investment Disputes (“ICSID”) have been submitted increasingly. According to the data provided by Ministry of Law and Human Rights[1], in the last 5 (five) years, at least more than 3 (three) lawsuits in which the Indonesian Government becoming the party, have been notified by ICSID. One of the above-mentioned cases which has seen encouraging result and worthy to be noticeable is Churchill Mining Plc (“Churchill”) and Planet Mining Pty Ltd (“Planet”) as the claimants versus Indonesian Government as the respondent.[2]

Background of the Case

Churchill, a company based in the United Kingdom, and Planet, a company based in the Australia are shareholders of PT Indonesia Coal Development (“PT ICD”), a foreign investment company in Indonesia, which cooperates with 4 (four) national companies named PT Ridlatama Tambang Mineral, PT Ridlatama Trade Powerindo, PT Investama Resources, and PT Investmine Nusa Persada (“Ridlatama") in the East Kutai Coal Project (“EKCP”) located in the Regency of East Kutai on the island of Kalimantan in Indonesia.

However, in 2010, referring the recommendation of Ministry of Forestry, the Regent of East Kutai revoked the mining exploration licenses related to the EKCP due to 3 (three) the following conditions: (i) Ridlatama were operating without permission from the Ministry of Foresty; (ii) Ridlatama licenses were allegedly forged; and (iii) Ridlatama licenses overlapped with other permit areas.

As a consequent to the revocation of such licenses, Churchill and Planet claimed that such actions were categorized as indirect expropriation and did not have any fair and equitable treatment which resulting to their investment losses in Indonesia. They respectively filed a request for arbitration with ICSID on the basis of the United Kingdom-Indonesia and the Australia-Indonesia Bilateral Investment Treaty (“UK-Indonesia and Australia-Indonesia BIT). After consultation with and having agreed in principle that the two above-disputes between the parties, further, the ICSID decided that these cases would be heard in a consolidated case.

Settlement Dispute through ICSID

Regarding to the such arbitration lawsuit, Indonesia filed an objection to jurisdiction regarding the dispute settlement through ICSID. Indonesia claims that (i) UK-Indonesia and Australia-Indonesia BIT does not contain consent to resolve dispute through ICSID; (ii) Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) approval of PT ICD did not contain consent to resolve dispute through ICSID; and (iii) Churchill and Planet’s investment were not investment that protected by UK-Indonesia and Australia-Indonesia BIT because their investment did not comply with Indonesian investment law. After a hearing on jurisdiction in Singapore in May 2013, ICSID decided in February 2014 that it had jurisdiction over the dispute submitted to it due to the dispute settlement clause as stipulated in the BKPM approval, thus, Churchill and Planet were considered as investors that must be protected under UK-Indonesia BIT.

Revocation of Mining Exploration Licenses

As previously mentioned above, the revocations of the mining exploration licenses were carried out due to a large scale fraudulent scheme to obtain the licenses. The mining exploration licenses were used to gain access to the coal reserves discovered in the EKCP. From the above facts, the ICSID can be ascertained that the entire EKCP project is an illegal enterprise affected by multiple forgeries. However, the author of the forgeries and fraud is not positively identified. Although, all indications point to Ridlatama, probably with the assistance of a Regency of East Kutai insider. The ICSID considered that even though Churchill and Planet have good faith on investment in the EKCP, this fraudulent scheme is supported by the Churchill and Planet’s lack of diligence prior to carrying out their investment in Indonesia. Due to the underlying documents of submitted claims, which are based on documents forged to implement a fraud aimed at obtaining mining rights, consequently, Churchill and Planet’s claims are cannot be accepted under international law and should be rejected.

The Latest Development of the Case

Reffering to the above explanation, in 2016, ICSID had rejected Churchill and Planet’s claims. Could not accept the decision, Churchill and Planet submitted an application for annulment of the ICSID award in 2017. Furthermore, in 2019, ICSID dismissed the annulment application and affirmed the absolute winning of Indonesia through a final decision that had a permanent legal force. Based on the final decision, ICSID ordered Churchill and Planet to pay costs and arbitration fees of nearly USD 9.5 million, consists of USD 8.64 million litigation fees used by Indonesia and USD 800.000 other fees for ICSID administration. However, until this alert is issued, the Indonesia Government has not received yet any execution of such compensation from the Churchill and Planet.

Lessons Learned from Churchill v Indonesia

There are lessons to be learned by the investors and host states from this case, from the perspective of the investor, prior to invest a large amount of investment in a host state, an investor shall conduct their duty of care by conducting a proper due diligence especially on the required business licenses and any other requirements which are relevant and needed for the compliance of doing business within a host state. Therefore, any investment was made solely on the basis of good faith is not enough without carrying out due diligences, i.e., legal due diligence, which in this case failed to be carried out by Churchill and Planet. In the other hand, a host state or the Government, shall at any time ensure that a good governance will always be consistently given by their government officials in order to provide legal certainty as well as to avoid any fraudulent activities which will hopefully provide comfort for the investors and create a well-established business environment.

 

For further information, please contact:

Wahyuni Bahar, S.H., LL.M.

Putu Surya Resa Aditya, S.H., LL.M.

 

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[1] Such data was provided in the Seminar regarding “How Indonesia Government Won the Churchill's Case”, held by Indonesia Arbitration and Mediation Center (Pusat Arbitrase & Mediation Center – PAMI) on 5 July 2019 Permata Kuningan Building, 10th Floor, Jl. Kuningan Mulia Kav 9C.

[2] The ICSID Award for this case has been published by ICSID and is able to be accessed on https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/12/40%20and%2012/14.