{"id":3972,"date":"2017-03-13T14:43:58","date_gmt":"2017-03-13T19:43:58","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3972"},"modified":"2024-08-09T18:27:34","modified_gmt":"2024-08-09T16:27:34","slug":"icsid-tribunal-dismisses-claims-forged-mining-licences-churchill-mining-plc-planet-mining-pty-ltd-v-republic-indonesia-icsid-case-no-arb-12-14-arb-12-40","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2017\/03\/13\/icsid-tribunal-dismisses-claims-forged-mining-licences-churchill-mining-plc-planet-mining-pty-ltd-v-republic-indonesia-icsid-case-no-arb-12-14-arb-12-40\/","title":{"rendered":"ICSID tribunal dismisses claims brought against Indonesia based on forged mining licences"},"content":{"rendered":"

Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID<\/span> Case No. ARB\/12\/14 and ICSID Case No.\u00a0ARB\/12\/40\u00a0<\/em><\/h2>\n

After rendering separate decisions on jurisdiction\u2014one for the case brought by British company Churchill Mining PLC under the United Kingdom\u2013Indonesia bilateral investment treaty (BIT<\/span>), and another for Australian company Planet Mining Pty. Ltd.\u2019s case under the Australia\u2013Indonesia BIT\u2014the arbitral tribunal consolidated the two arbitrations, as both were based on the same facts, and issued a single award.<\/p>\n

The requests of both claimants had relied on the same set of documents, which the arbitral tribunal deemed to be forged. Thus, the tribunal considered all claims inadmissible, ordering the claimants to bear all arbitration costs and to reimburse 75 per cent of Indonesia\u2019s legal expenses.<\/p>\n

Factual background and claims<\/em><\/h3>\n

A group of seven Indonesian companies\u2014the Ridlatama group\u00beintroduced the mining project East Kutai Coal Project (EKCP) to the claimants, to explore a large coal deposit in the Regency of East Kutai, Indonesia. The claimants invested in EKCP by acquiring all shares of PT Indonesian Coal Development (PT ICD), a company registered in Indonesia.<\/p>\n

Later, certain companies within the Ridlatama group obtained (fraudulently, as the tribunal later concluded) mining licences for large areas in the EKCP. These companies had Pledges of Shares Agreements and Cooperation Agreements with PT ICD, which would plan, set up and perform all mining operations in exchange for 75 per cent of the generated revenue.<\/p>\n

Conflicts began as of 2010. The areas of certain licences granted to the Ridlatama group substantially overlapped with those of licences that had been given to other companies. At the recommendation of the Indonesian Ministry of Forestry, the Regent of East Kutai revoked all licences belonging to Ridlatama companies.<\/p>\n

The Ridlatama group initiated proceedings against Indonesia before Indonesian courts, while the claimants resorted to the International Centre for Settlement of Investment Disputes (ICSID) in 2012, seeking full compensation for the expropriation of their investment.<\/p>\n

Applicable law\u2014and a \u201cduty to adopt principles established in a series of consistent cases\u201d\u00a0<\/em><\/h3>\n

As the BITs were silent on the legal consequences of forgery, the tribunal deemed appropriate to apply, in addition to the BITs, Indonesian law and international law (para. 235). As to the relevance of previous decisions, the tribunal reasoned that, although it was not bound by previous decisions, it should pay \u201cdue consideration\u201d to them because it had a \u201cduty to adopt principles established in a series of consistent cases\u201d in order to contribute \u201cto the harmonious development of international investment law\u201d (para. 253).<\/p>\n

Fraudulent scheme to forge mining licences<\/em><\/h3>\n

Indonesia opposed the authenticity of 34 documents. In substance, the dispute centred on the signature in those documents. Government records showed that officials typically sign important documents (such as the ones related to mining licences) by hand, while all the signatures in the disputed documents had been mechanically reproduced.<\/p>\n

In addition to the signature issue, several troubling oddities in ancillary elements also pointed to a fraudulent scheme put in place to fabricate documents. Other documents existed in more than one version, did not contain signatures or initials of officials, or were not registered in the government database. There was no paper trail regarding the licence application process, and ten days after the Regent of East Kutai had revoked the licences of the Ridlatama companies a supposed Re-Enactment Degree was issued to declare the licences valid again. The oddity did not escape the arbitral tribunal: \u201cWhy should a government revoke a licence one day and reinstate it ten days later?\u201d (para. 441). All things considered, the arbitral tribunal \u201cfound that a fraudulent scheme permeated the Claimants\u2019 investments in the EKCP\u201d (para. 507).<\/p>\n

As to whether the claimants had taken part in the fraudulent scheme, the arbitral tribunal noted that the record pointed \u201ctowards Ridlatama rather than the Claimants in relation to the forgery of the contentious documents\u201d (para. 476).<\/p>\n

Legal consequences of forgery<\/em><\/h3>\n

The arbitral tribunal resorted to international law and investment case law to establish the legal consequences of forgery. It conducted a large review of cases and concluded that, depending on the circumstances of each case, fraud could affect the tribunal\u2019s jurisdiction (as in\u00a0Phoenix v. Czech Republic<\/em>,\u00a0Inceysa v. El Salvador\u00a0<\/em>and\u00a0Europe Cement v. Turkey<\/em>), could affect the admissibility of the claim (as in\u00a0Plama v. Bulgaria<\/em>) or could be addressed in the merits (as in\u00a0Cementownia v. Turkey<\/em>,\u00a0Malicorp v. Egypt\u00a0<\/em>and\u00a0Minnotte v. Poland<\/em>).<\/p>\n

Relying on\u00a0Venezuela Holdings v. Venezuela<\/em>,\u00a0Phoenix v. Czech Republic<\/em>,\u00a0Europe Cement v. Turkey\u00a0<\/em>and\u00a0Hamester v. Ghana<\/em>, the tribunal reasoned that fraudulent behaviour configures abuse of right (or, under certain circumstances, abuse of process), which is contrary to the principle of good faith, because an investor cannot benefit from treaty protection when her underlying conduct is deemed improper.<\/p>\n

The arbitral tribunal went further, observing that particularly serious cases of fraudulent conduct, such as\u00a0WDF v. Kenya\u00a0<\/em>and\u00a0Metal-Tech v. Uzbekistan<\/em>, have been held as contrary to international public policy. Following that train of thought, it reasoned that \u201cclaims arising from rights based on fraud or forgery which a claimant deliberately or unreasonably ignored are inadmissible as a matter of international public policy\u201d (para. 508).<\/p>\n

Having established the seriousness of a fraudulent scheme to forge mining licences, the arbitral tribunal turned to the question of whether a wrongdoing committed by a third party (the Ridlatama group) could affect the investors\u2019 claim. To do so, it relied on the test proposed in\u00a0Minnotte v. Poland\u00a0<\/em>to assess whether the claimants\u00a0knew\u00a0<\/em>or\u00a0should have known\u00a0<\/em>of the Ridlatama group\u2019s wrongdoing.<\/p>\n

Using the standard of willful blindness (also referred to as \u201cdeliberate ignorance\u201d), the arbitral tribunal concluded that the claimants had incurred in remarkable absence of diligence. In the arbitral tribunal\u2019s view, they were aware of the risks involved in investing in the coal mining industry in Indonesia, which had an \u201cendemic problem\u201d of corruption, and, even so, failed to engage in proper due diligence and oversight in their dealings with the Ridlatama group.<\/p>\n

In sum, as the fraudulent scheme affected the entirety of the claimants\u2019 investment, the tribunal deemed all their claims inadmissible.<\/p>\n

Costs<\/em><\/h3>\n

The arbitral tribunal considered it appropriate to adopt the \u201ccosts follow the event\u201d approach and order the claimants to bear all costs. As Indonesia had incurred in much greater legal fees and expenses (approx. US$12 million) than the claimants (US$4 million), the arbitral tribunal ordered the claimants to pay 75 per cent of Indonesia\u2019s fees and expenses.<\/p>\n

Notes:\u00a0<\/em>The tribunal was composed of Gabrielle Kaufmann-Kohler (President appointed by the co-arbitrators, Swiss national), Albert Jan van den Berg (claimant\u2019s appointee, Dutch national), and Michael Hwang (respondent\u2019s appointee, Singaporean national). The award of December 6, 2016 is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw7893.pdf<\/a>. The Decisions on Jurisdiction in\u00a0Churchill Mining Plc v. Indonesia<\/em>\u00a0and\u00a0Planet Mining Pty Ltd v. Indonesia<\/em>, both dated February 24, 2014, are respectively available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw3103.pdf<\/a>\u00a0and\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw3104.pdf<\/a>.<\/p>\n

Ina\u00ea Siqueira de Oliveira\u00a0<\/strong>is a Law student at the Federal University of Rio Grande do Sul, Brazil.<\/p>\n