Federal District Court Opinions
IN THE MATTER OF ARBITRATION BETWEEN KBC v. PERTAMINA,
(S.D.N.Y. 12-8-2006) In the Matter of An Arbitration
Between Karaha Bodas Company, L.L.C., Petitioner, v.
Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
(“Pertamina”), Respondent. 21-MC-00098 (TPG). United
States District Court, S.D. New York. December 8, 2006
OPINION
THOMAS GRIESA, Senior District Judge
Karaha Bodas Company (“KBC”) moves for an order
prohibiting Pertamina from engaging in certain legal
proceedings in the Cayman Islands and from initiating
similar proceedings in other jurisdictions. The motion is
granted. In addition, the Court will enter a declaratory
judgment based on certain conclusions reached in this
opinion.
Facts
The Arbitral Award
In 1994 KBC, a Cayman Islands limited liability company
formed by two American power companies and other investors,
executed two contracts with Pertamina, an oil and gas
company owned and controlled by the Republic of Indonesia.
The contracts established a joint venture for the
exploration of geothermal energy resources in the Karaha
area of Page 2 West Java, Indonesia. In 1997 the projects
were suspended by Indonesian Presidential Decrees. As a
result, on April 30, 1998, KBC commenced arbitration
proceedings in Switzerland for breach of contract by
Pertamina. On December 18, 2000, the Tribunal awarded KBC
$261.1 million.
In February 2001 Pertamina attempted to challenge the award
in the Swiss Supreme Court, on grounds that are not
explained on the record in the present motion. The Swiss
court denied Pertamina’s application for failure to timely
pay court fees. Pertamina next challenged the award in the
Jakarta District Court in Indonesia. The Jakarta court
granted Pertamina’s request to annul the award in August
2002, but on March 23, 2004, the Indonesian Supreme Court
reversed.
Confirmation Proceedings in the United States
In early 2001, KBC brought an action in the United States
District Court for the Southern District of Texas to confirm
the Arbitral Award. On December 4, 2001, that court granted
summary judgment in favor of KBC and confirmed the award.
Pertamina filed a notice of appeal, and a year later
— months after the briefing on the appeal was
concluded — Pertamina moved under Fed.R.Civ.P. 60(b)
in the Texas district court to set aside the judgment.
Pertamina sought to set aside the judgment because (1) there
was newly discovered evidence of political risk insurance
coverage pursuant to which KBC’s investors were paid $75
Page 3 million and (2) the Jakarta District Court annulled
the underlying Arbitral Award in August 2002. The Fifth
Circuit remanded the case to the district court to consider
the merits of the Rule 60(b) motion. The district court
denied Pertamina’s motion in two separate opinions on April
16 and May 30, 2003. The Fifth Circuit on March 23, 2004,
affirmed both the district court’s December 2001 judgment
and the Rule 60(b) decisions of 2003. On October 4, 2004
the United States Supreme Court denied certiorari.
Pertamina’s Claim of Fraud
Pertamina claims that KBC committed fraud in connection
with the joint venture and the arbitration. It is important
to note that Pertamina’s claim of fraud was not presented
in the arbitration itself or in any of the proceedings
described above in the Swiss Supreme Court, the Jakarta
District Court, the Southern District of Texas, the Fifth
Circuit, or the United States Supreme Court. However, the
fraud claim was presented in certain proceedings in Hong
Kong and Singapore, as will be described. More importantly,
Pertamina’s claim of fraud is the basis of its action in
the Cayman Islands, which is the subject of the present
motion.
Specifically, Pertamina alleges that KBC fraudulently
overstated the size of geothermal resources in 1997 and
relied on those falsehoods in the arbitration proceedings.
In its Statement of Claim dated October Page 4 6, 2006,
filed with the Cayman Islands court, Pertamina attempts to
present a detailed list of the specifics of the alleged
fraud. But the details all relate the basic claim that KBC
overstated the size of geothermal resources. It should be
noted that, although there is no indication that the claim
of fraud was literally presented to the Arbitral Tribunal,
the issue of the quantity of geothermal resources was
surely put forward. Paragraph 129 of the Final Award
describes the fact that Pertamina claimed that the
representations made by KBC “were suspect since the
quantities of reserves indicated” in one analysis by KBC
“had been significantly increased without justification” in
a later analysis. In paragraph 131, the Arbitral Tribunal
recognizes the possibility that the amount of reserves put
forward by KBC may have been overestimated, and states that
the Tribunal would give weight to this circumstance in
making the allowance for lost profits. The result was that,
whereas KBC had claimed lost profits of $512.5 million, the
Tribunal, in paragraph 136, only awarded $150 million.
Pertamina asserts that its claim of fraud is based upon
new evidence. There is an issue about when Pertamina knew,
or should have known, about this alleged new evidence. Such
evidence is in fact contained in documents turned over to
Pertamina by KBC. The parties dispute when the documents
were received by Pertamina. KBC claims that the documents
were turned over in March 2001, when KBC relinquished its
offices and files to Pertamina. However, Pertamina Page 5
insists that the documents were not received until November
2002, when a KBC employee delivered twelve boxes of
documents to Pertamina’s Geothermal Office. Regardless,
Pertamina asserts that “no one looked through them until
August 2005 when Pertamina’s advisors came and inspected
them” (Statement of Bambang Kustono, October 13, 2006).
Foreign Confirmation/Registration Proceedings
In addition to bringing the action in the federal court in
Texas, KBC brought confirmation/registration proceedings in
Hong Kong, Singapore and Canada. On March 27, 2003, the
Hong Kong court granted KBC’s application to register the
award and denied Pertamina’s attempt to set it aside. An
appeal was partially heard in December 2003, but the appeal
was adjourned pending the outcome of the Fifth Circuit’s
decision in the United States. The appeal was scheduled to
be heard in February 2006. Pertamina filed a Supplementary
Notice of Appeal, including allegations of fraud. The exact
status of that matter is not clear. However, KBC recovered
$898,682.90 in Hong Kong to be applied to the amount owed
by Pertamina under the Arbitral Award.
On March 14, 2002 the High Court of the Republic of
Singapore granted KBC’s application to register its award.
Pertamina’s application to set aside the order, also filed
in 2002, was held in abeyance pending the outcome of
proceedings in the United States. In late January 2006,
Pertamina informed the Singapore court of its fraud
allegations in a Page 6 conference. KBC made various
applications to the Singapore court in an attempt to defer
further litigation until after the termination of
proceedings in the United States, but the court denied
KBC’s applications. Eventually, KBC voluntarily dismissed
its action in Singapore.
On December 8, 2004, a Canadian court granted summary
judgment in favor of KBC and confirmed the award.
Pertamina’s appeal is currently still pending. There is no
indication that Pertamina has brought up its fraud
allegations in the Canadian proceeding.
Execution Proceedings in the Southern District of New York
When Pertamina appealed the Texas district court’s decision
in early 2002, it declined to file a supersedeas bond
pursuant to Fed.R.Civ.P. 62(d) in order to obtain a stay of
the judgment pending appeal. As a result, KBC sought and
was granted permission by the district court to register
its judgment in other judicial districts in the United
States under 28 U.S.C. § 1963. On February 22, 2002,
KBC registered its Texas district court judgment with the
United States District Court for the Southern District of
New York, and commenced execution proceedings. On the same
day, the Southern District issued ex parte writs of
execution permitting KBC to serve restraining notices upon
a number of banks in New York, and also served orders on
Pertamina to show cause why KBC could not execute upon any
property of Pertamina within this Page 7 jurisdiction in
satisfaction of the judgment. KBC promptly issued notices
to, inter alia, the Bank of America and the Bank of New
York to restrain funds flowing through twenty-four trust
accounts maintained in Pertamina’s name at those banks in
this district.
In March 2002, the Ministry of Finance of the Republic of
Indonesia filed a motion to quash the restraining notices
and the writs of execution arguing that it — and not
Pertamina — owned the restrained assets. To the
extent that Pertamina owned the funds, KBC could have
execution on its judgment, but only to that extent. On
April 24, 2002, this Court held that, with respect to
fifteen of the twenty-four accounts, Pertamina only owned a
portion of the funds in the accounts. The fifteen accounts
(“Adjudicated Accounts”) contained revenues from the sale
of Liquefied Natural Gas, and the Court held that Pertamina
only had a property right in those funds to the extent of
its Retention Fee. The remainder belonged to the Ministry.
The Retention Fee, explained in detail in other opinions of
this Court, is Pertamina’s share of income from projects it
undertakes with private contractors. Additionally, the
Court noted that the record was insufficient to determine
ownership of the funds in the remaining nine accounts. The
Court certified the April 24 order for immediate appeal and
stayed it pending the appeal. The stay prevented actual
disbursement to KBC. The Second Circuit affirmed on
December 10, 2002, but ordered this Court to continue the
stay until the parties’ rights in all of the funds were
determined. Page 8
After the Second Circuit’s December 2002 ruling, Pertamina
and the Ministry sought to limit the amount of the
Retention Fees subject to the restraining notices by
contending that the effect of the restraining notices as to
the Adjudicated Accounts ceased in June 2002, rather than
continuing through that year and thereafter, as argued by
KBC. This issue was raised in motions made, briefed, and
argued in 2003 in this Court. In an opinion on January 29,
2004, this Court held that the effect of the restraining
notices did not terminate in June 2002, but continued
through 2002 and into 2003, and would continue, until the
amount of the judgment plus interest was secured.
On April 6, 2004, KBC filed a “Motion for Turnover of
Retention Fees Accrued Through November 2003.” This motion
was precipitated by a November 21, 2003 letter sent from
the Ministry to the Governor of the Bank of Indonesia
terminating the payment of Retention Fees to Pertamina.
More importantly, Pertamina and the Ministry took the
position that the letter was a confirmation of prior legal
enactments, which had already terminated the Retention Fees
as of January 1, 2003. KBC argued to the contrary. On May
19, 2004, this Court held that Pertamina earned Retention
Fees through November 21, 2003. The Court noted that the
positions taken by Pertamina and the Ministry during all of
the 2003 litigation were contrary to the position it now
took in opposition to the Turnover Motion and as a result
its assertion on the Turnover Motion could be given no
weight. KBC’s motion was granted Page 9 but the Court
ordered the actual turnover stayed in accordance with its
previous orders.
On October 6, 2004, after two days of argument and
testimony, the Court held that the funds restrained in the
remaining “unadjudicated” accounts belonged to Pertamina.
Then, on October 22, this Court issued its final judgment
ordering a turnover of the amount of the award plus
interest to KBC, but stayed the award pending appeal. The
Second Circuit summarily affirmed the judgment on March 9,
2006. Pertamina then applied to the Supreme Court for
certiorari.
KBC had moved to impose sanctions on Pertamina and its
attorneys. Oral argument on this motion was held on August
25, 2006. In the course of the hearing, the Court asked
whether, if the Supreme Court denied certiorari, the funds
restrained in New York would be paid to KBC and there would
be “no further issue.” (Minutes pp. 14-15). The attorney
for KBC replied that there was a further issue that had
come up recently in the proceedings brought by KBC in
Singapore, where Pertamina raised the claim that KBC had
obtained the Arbitral Award by fraud. The KBC attorney said
that Pertamina had told the court in Singapore that if that
court issued a finding of fraud, Pertamina “was going to
start a new action in the United States to try to recover
all the funds that had been paid, a new fraud action in the
United States.” In the sanctions hearing, the Court then
questioned counsel for Pertamina: Page 10
[W]hat about that? Is there any intention to have further
litigation, or can we end it? If the Supreme Court denies
cert., will the money simply be paid to KBC or not?
The Pertamina attorney replied that he had no instructions
to commence an action. The Court then asked for a more
definite statement of Pertamina’s position, as follows:
The question is, and I have absolutely a good reason for
asking such a question in view of the record here, I want
to know, assuming that the Supreme Court denies cert., I
want to know if Pertamina will now agree to the payment of
the judgment, which would mean the release of the funds
which are now held to secure that judgment, immediate
release.
(Minutes pp. 16-17). On August 28, 2006 the attorney for
Pertamina wrote the Court as follows:
Pursuant to the Court’s direction, we are writing to
address the question posed by the Court at last Friday’s
hearing with respect to the payment of the outstanding
portion of KBC’s judgment by Pertamina. Our understanding
of Your Honor’s question is whether, in the event that the
Supreme Court denies the petitions for certiorari filed by
Pertamina and the Ministry of Finance of the Republic of
Indonesia, Pertamina will agree to the payment of KBC’s
judgment. We have been instructed by Pertamina to inform
the Court and counsel for KBC that, in the event that the
Supreme Court denies the pending petitions, and assuming
that the Court issues a turnover order with respect to
the restrained funds appropriate in form and amount,
Pertamina will not object before this Court to the payment
of the judgment.
On October 2, 2006 the Supreme Court denied Pertamina’s
certiorari petition. Page 11
The Cayman Islands Action
A little over two weeks after the August 28 letter, on
September 15 Pertamina commenced an action against KBC in
the Grand Court of the Cayman Islands for fraud in
connection with the joint venture and the arbitration.
Pertamina’s New York attorney wrote the Court on September
19, 2006 stating that he was “unaware on August 25 that
such a proceeding was planned.” Presumably the attorney
meant August 28, the date of his letter. However, there can
be no doubt about the fact that Pertamina was planning the
Cayman Islands action as of August 28, and probably for a
substantial period of time before that. Also, there can be
no doubt about the fact that both Pertamina and its
attorneys knew full well that the Court’s questions were
directed to finding out whether the Supreme Court’s denial
of certiorari would mean final termination of all
litigation, so that KBC could be paid out of the funds
restrained in New York. Obviously the Court did not know
enough to ask specifically if Pertamina planned to bring a
new action in the Cayman Islands. But an honest look at the
Court’s inquiry and an honest response would have led to
the disclosure of the plan to bring such an action.
There was, of course, no such disclosure. The
circumstances strongly support an inference that
concealment by Pertamina was deliberate and with a purpose.
Now that an action has been brought, Pertamina is asserting
that this Court cannot interfere with such an Page 12
action because such interference would tread on the
sovereignty of a foreign state. Had the plan for an action
been disclosed beforehand, there may well have been legal
issues about how to deal with Pertamina’s strategy, but the
case law about anti-suit injunctions, now relied on by
Pertamina, would not have been directly applicable.
Pertamina alleges in the Cayman Island action that KBC
overstated the size of geothermal resources in 1997 and
relied on those falsehoods in the arbitration proceedings.
The statement of plaintiff’s claim in the action is
contained in the Writ of Summons, dated September 15, 2006,
and signed by Pertamina’s Cayman Islands attorney.
Pertamina claims that the fraud of KBC affected various
notices issued by KBC to Pertamina in 1997. Pertamina
further contends that KBC was guilty of fraud in presenting
the Notice of Arbitration dated April 30, 1998 and in the
procuring of the Arbitral Award dated December 18, 2000,
and that the fraud was “such as to vitiate the Arbitral
Award.” (Writ of Summons § 1). Pertamina seeks
damages, accounting, and restitution, as well as
An injunction restraining the defendant . . . from (i)
dealing with or disposing of, in any manner whatsoever,
any sums received . . . as a consequence of the said fraud
. . . and (ii) taking any steps whatsoever in furtherance
of the said wrongs including . . . commencing or
continuing or prosecuting or assisting in the prosecution
of any proceedings directed to enforcing, whether by
themselves or by assignment, and/or from receiving the
benefit by enforcing, the Arbitral Award. Page 13
(Writ of Summons § 9). On September 21 Pertamina
filed an Amended Summons with the Cayman Islands court,
requesting
That the defendant . . . be restrained until the
conclusion of the trial of this action or further order in
the meantime from taking any steps to dispose or direct
the disposal of any funds belonging to or in the name of
or due to Plaintiff [Pertamina] collected or received by
way of enforcement of the Arbitral Award dated 18 December
2000 entered in favour of Defendant [KBC] against the
Plaintiff following the initiation of arbitration
proceedings by the Defendant through the Notice of
Arbitration dated 30 April 1998, . . .
(Am. Summons § 2). The Amended Summons also requests
that KBC be restrained in the terms of an attached Draft
Order. This Draft Order, entitled “Injunction Prohibiting
Disposal of Assets Worldwide,” would prohibit KBC from
disposing of its assets up to $316 million, whether in or
outside the Cayman Islands, and specifically includes
within the definition of assets, “any sums received or to
be received by the Defendant pursuant to any order of the
United States District Court for the Southern District of
New York . . . pursuant to proceedings issued by the
Defendant directed to enforcing the Arbitral Award.”
Other materials relating to the Cayman Islands action,
which have been filed by Pertamina on the current motion
before the Southern District, are as follows:
Affidavit of Simson Panjaitan, dated September 21, 2006.
“Skeleton Argument,” dated September 22, 2006. Page 14
Amended Writ of Summons, dated October 6, 2006.
Statement of Claim, dated October 6, 2006.
As will be described more fully later in this opinion, an
important, and perhaps essential, argument of Pertamina in
opposing KBC’s current motion is that the action in the
Cayman Islands is not to set aside the Arbitral Award, but
is “a totally new fraud claim.” What has just been quoted
from the pleadings in the Cayman Islands action bears, of
course, on that issue. In addition, the Court notes the
portion of the document entitled “Skeleton Argument,”
dealing with the remedies sought in the Cayman Island
proceedings. According to paragraph 7 of that document,
Pertamina is seeking damages and ancillary orders. The
damages sought are the amount of the Arbitral Award,
Pertamina’s costs in the arbitration, and interest on those
sums. As to ancillary orders, paragraph 7 states that “a
finding of fraud would mean that the award is vitiated by
fraud and a nullity,” which “would preclude any further
enforcement actions by KBC.” Pertamina seeks to have the
Cayman Islands court “restrain KBC from taking any such
steps.”
The Amended Writ of Summons, dated October 6, 2006, is the
same, in all material respects, as the original Writ of
Summons, and contains the same language quoted from the
original Writ of Summons earlier in this opinion. Page 15
The Statement of Claim, dated October 6, 2006, contains a
section entitled “Particulars of Loss and Damage” in
paragraph 54. These are consistent with what is in the
Skeleton Argument.
The Current Motion
On September 21, 2006 KBC filed its motion in the Southern
District requesting an order prohibiting Pertamina from
engaging in legal proceedings in the Cayman Islands. In its
brief Pertamina expanded the motion to embrace any similar
actions in other jurisdictions. Oral argument was held on
September 26.
During the argument, counsel for Pertamina represented that
by bringing suit in the Cayman Islands, Pertamina was not
seeking to interfere with the mechanisms of this Court and
stated that Pertamina would not oppose the turnover of
funds to KBC in the event that the Supreme Court denied
certiorari. However, counsel did not agree that Pertamina
would withdraw the claim that the fraud vitiated the
Arbitral Award. Moreover, counsel took the position that
Pertamina (while agreeing, through New York counsel, to
have the funds turned over to KBC) was free to petition the
Cayman Islands court to enjoin KBC from distributing or
disposing of the funds that it received from the litigation
in the federal court in New York.
In view of the uncertainty as to how quickly the Cayman
Islands court might move, at least with respect to
provisional relief, the federal Page 16 court at the
September 26 oral argument issued an immediate order, which
was in effect a temporary restraining order. This was
embodied in a formal order of September 27, as follows:
1. Pertamina agrees to, and this court orders, that
Pertamina is prohibited from making, or proceeding with
any request to the courts in the Cayman Islands (or any
other forum) [for] an order or injunction that would
interfere with the procedures of this court in enforcing
the arbitration award, including turnover of restrained
funds in the even that certiorari is denied by the Supreme
Court.
2. Pertamina is prohibited from making, or proceeding
with any request to the courts in the Cayman Islands (or
any other forum) seeking any order or injunction against
KBC interfering with KBC’s use or disposition of funds
that may be turned over to it as a result of the
proceedings in this court.
The Court did not make a final decision on KBC’s motion,
but reserved decision. The present opinion constitutes the
Court’s decision on that motion.
As noted above, on October 2, 2006 the Supreme Court
denied certiorari. Prior to this time a total of
$55,243,209.70 had been paid to KBC out of the funds
restrained in New York. As noted earlier, KBC recovered
$898,682.90 in Hong Kong. After the Supreme Court action,
KBC requested that the additional sum of $260 million be
turned over to KBC from the funds restrained in New York. A
small additional amount was thought to be due when the
final calculations were made, but KBC wished to have
immediate payment of $260 million. Accordingly, on October 6
the Court signed an Interim Turnover Order directing that
Page 17 $260 million be turned over to KBC immediately.
However, this was subject to the direction the Court had
issued in a memorandum of September 27 to the effect that
KBC could not distribute these funds without further
permission of the Court. The purpose of this was to allow
the Court to make a final ruling on KBC’s motion, and
specifically to deal with Pertamina’s claim that it could
use the Cayman Islands action to prevent KBC from disposing
of the funds. KBC had represented to the Court that it
would, if allowed to proceed normally, distribute the funds
as dividends to the owners of KBC.
On November 15, 2006 a Stipulation and Order was entered,
providing for the payment of a final $3,469,268.43 to KBC.
This finally satisfies the judgment. A grand total of
$319,611,161.03 has been paid. The September 27 memorandum
applies to both the $260 million and the $3,469,268.43, but
not the $55,243,209.70, which is no longer in KBC’s hands.
Discussion
The Nature of the Cayman Islands Action
In arguing the motion now before the Southern District,
Pertamina lays considerable emphasis on the idea that
Pertamina is not suing in the Cayman Islands to set aside
the Arbitral Award, but is making a “new fraud claim” for
damages. At the argument of the motion on September 26,
2006, the Court asked if the action in the Cayman Islands
was the Page 18 first time that Pertamina engaged in
affirmative litigation to set said the Arbitral Award for
fraud, as distinct from using fraud allegations to defend
enforcement proceedings by KBC. (Minutes pp. 36-37).
Counsel for Pertamina responded as follows:
But I would disagree, your Honor, the action in Cayman is
not to set aside the arbitration award. It’s a totally new
fraud claim, as I understand it.
* * *
No, it is to — it is a damage claim, your Honor, it
is to get damages for an alleged fraud.
(Minutes p. 38).
It is not entirely clear why Pertamina seeks to make this
distinction. The Cayman Islands action is what it is, and
labels do not change it. In any event, the theory that the
Cayman Islands action is nothing but a “new fraud claim,”
merely seeking damages is wholly without substance.
To be sure, Pertamina alleges fraud in the Cayman Islands
court. However, the entire point of the fraud allegations is
to show that the Arbitral Award must be deemed to be
vitiated — i.e., to be a nullity. The “damages”
sought are almost entirely the amount of the Arbitral Award
plus the interest which has accrued during enforcement
proceedings.
Although counsel for Pertamina stated at the September 26
hearing that Pertamina has no intention to use the Cayman
Islands action for the purpose of enjoining proceedings in
the United States Page 19 courts, that is exactly what is
sought both in the original Writ of Summons and the Amended
Writ of Summons.
It is true that there was very little left to enjoin, in
connection with the proceedings in the United States courts,
when the Cayman Islands action was commenced. But this does
not take away from the fact that Pertamina filed suit in
the Cayman Islands with the clear objective of stopping
whatever could be stopped by way of legal proceedings to
enforce the Arbitral Award. Pertamina is still seeking to
achieve that objective.
At the time the Cayman Islands action was brought,
Pertamina’s petition for certiorari was still pending
before the United States Supreme Court. Of course, there
was no attempt to have the Cayman Islands court interfere
with what was going on in the Supreme Court. After the
Supreme Court denied certiorari, all that was left was to
have judgment entered directing that restrained funds be
turned over to KBC to satisfy the Texas federal court
judgment. In the August 28, 2006 letter, counsel for
Pertamina had stated that “Pertamina will agree to the
payment of KBC’s judgment,” in the event that the Supreme
Court denied certiorari.
What was in fact left for Pertamina to restrain by way of
the Cayman Islands action? In fact, Pertamina found
something of great importance. In the Amended Summons of
September 21, 2006 Pertamina requested the Cayman Islands
court to issue an order to the Page 20 effect that KBC
would be restrained from disposing of any funds collected
through the enforcement of the Arbitral Award.
But the basic nature of the Cayman Islands action was
confirmed in the Amended Writ of Summons filed by Pertamina
on October 6, 2006. This was after the Supreme Court had
denied certiorari. It was after counsel for Pertamina had
stated at the September 26 hearing that in the Cayman
Islands action Pertamina was not seeking to interfere with
the mechanisms of this Court. It was after an affidavit of
a Pertamina officer filed with the Cayman Islands court,
purporting to make the same point. Nevertheless the October
6 Amended Writ of Summons repeated the allegations and
claims of the original Writ of Summons of September 15,
contending that the Arbitral Award should be considered
“vitiated” and that KBC should be restrained from
prosecuting any proceedings to enforce the Arbitral Award.
This showed that the purpose of the Cayman Islands action
was and still is to halt, in whatever way is available, the
judicial proceedings in the United States and the
consummation of those proceedings.
It should be noted that, out of the $319 million collected
by KBC, as described earlier, approximately $55 million has
already been distributed to the owners of KBC. The sum of
approximately $263 million, recently turned over to KBC is
still in KBC’s hands. It is this amount which would be
reached if the Cayman Islands court entered an order
restraining KBC from disposing of funds. Page 21
It is apparent beyond question that the effort to prevent
KBC from using the money, as a full owner of such money, is
part and parcel of the attempt to nullify the Arbitral
Award. If the action in the Cayman Islands were about some
completely unrelated matter, and the effort to restrain KBC
from disposing of the funds were for the purpose of
securing a judgment in such unrelated matter, that would be
a completely different situation. But the Cayman Islands
actions is all about defeating KBC’s Arbitral Award, and is
about preventing KBC from realizing the funds of that
award.
Beyond this, the Cayman Islands action has the obvious
purpose of nullifying the judgment of the federal court in
Texas confirming that award and the judgments of the
Southern District of New York, allowing KBC to recover from
funds restrained in New York. The objective of the Cayman
Islands action is to prevent the completion and
consummation of the carrying out of those judgments.
Remedies to Vacate Judgment
As was just explained, Pertamina is in effect seeking to
overturn not only the Arbitral Award, but the judgments of
the federal courts in Texas and New York. To do so,
Pertamina has commenced the action in the Cayman Islands.
KBC, at least at the present, is not relying upon the
presentation of defenses to the Cayman Islands court. KBC
is moving in the Southern District of New York to prevent
Pertamina from Page 22 going forward with its Cayman
Islands suit. This necessarily requires consideration of
the judicial authorities relating to anti-suit injunctions.
These authorities will be discussed in the next section of
this opinion. However, the Court has thought it instructive
to discuss United States law regarding the ability of a
judgment creditor to set aside the judgment against him on
grounds of fraud.
Fed.R.Civ.P. 60(b)(3) allows a motion to be brought to
relieve a party from a final judgment for “fraud (whether
heretofore denominated intrinsic or extrinsic),
misrepresentation, or other misconduct of an adverse party.”
A party bringing a Rule 60(b)(3) motion must establish by
clear and convincing evidence “(1) that the adverse party
engaged in fraud or other misconduct, and (2) that this
misconduct prevented the moving party from fully and fairly
presenting his case.” Hesling v. CSX Transp., Inc., 396
F.3d 632, 641 (5th Cir. 2005). Additionally, Rule 60(b)
requires that the motion be brought in the court that
rendered the judgment, within one year of the judgment.
Rule 60(b) goes on to provide:
This rule does not limit the power of a court to
entertain an independent action to relieve a party from a
judgment, order, or proceeding, or to grant relief to a
defendant not actually personally notified as provided in
Title 28, U.S.C., § 1655, or to set aside a
judgment for fraud upon the court. Page 23
It should be noted that the reference to 28 U.S.C. §
1655 has no relation to the present case. It concerns the
enforcement of liens against absent defendants.
The provision for “an independent action” is designed to
preserve the traditional remedy in equity to overturn
judgments. 12 Moore’s Federal Practice § 60.80. The
most common ground asserted in independent actions is
fraud. Id. § 60.81. Although it is not entirely
clear from the text, the drafters of the rule apparently
intended to distinguish between an “ordinary” independent
action for fraud, and an action charging “fraud on the
court,” although the two are (understandably) sometimes
confused. Id. § 60.81[1][b][v]. “Fraud upon the
court” refers to matters such as the bribery of a judge,
jury tampering, or fabrication of evidence by an attorney.
Illustrative cases are Hazel-Atlas Glass Co. v.
Hartford-Empire Co., 322 U.S. 238, 246 (U.S. 1944); Root
Refining Co. v. Universal Oil Prods. Co., 169 F.2d 514 (3d
Cir. 1948); and Platt v. Threadgill, 80 F. 192 (C.C.W.D.
Va. 1897). It appears that the general provision about “an
independent action” may allow claims of fraud on a broader
basis. However, for reasons that will appear, it is not
necessary in the present case to be concerned about the
possible distinctions in the rule or about the exact
boundaries of an independent action seeking to set aside a
judgment for fraud.
The important thing, for present purposes, is to recognize
that the use of an independent action to set aside a
judgment for fraud has Page 24 definite limitations under
the decided cases. The Supreme Court has stated in United
States v. Beggerly:
Independent actions must, if Rule 60(b) is to be
interpreted as a coherent whole, be reserved for those
cases of “injustices which, in certain instances, are
deemed sufficiently gross to demand a departure” from
rigid adherence to the doctrine of res judicata.
Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S.
238, 244 (1944).
524 U.S. 38, 46 (1998). The Supreme Court went on to state
that “an independent action should be available only to
prevent a grave miscarriage of justice.” 524 U.S. at 47.
The Court reversed the vacating of a judgment, finding in
that case that the failure to thoroughly search for certain
records and to make full disclosure to the court rendering
the judgment did not amount to grave miscarriage of
justice. Id. The Court did, however, cite Marshall v.
Homes, 141 U.S. 589 (1891), to illustrate when setting
aside a judgment for fraud would be justified. There a
judgment had been obtained by means of a forged letter.
The courts also adhere to the equitable rule that there
must be a showing of no adequate remedy at law. Cresswell
v. Sullivan & Cromwell, 922 F.2d 60, 71 (2d Cir. 1990). The
Second Circuit stated in Campaniello Imports, Ltd. v.
Saporiti Italia S.p.A.,
It is fundamental that equity will not grant relief if
the complaining party has, or by exercising proper
diligence would have had, an adequate remedy at law, or by
proceedings in the original action . . . to open, vacate,
modify, or otherwise obtain relief against, the judgment.
Page 25
117 F.3d 655, 662-663 (2d Cir. 1997). Also, the party
seeking relief must comply with the equitable “clean hands”
standard. 12 Moore’s Federal Practice § 60.82[2].
Although there is no statute of limitations for an
independent action, the equity doctrine of laches applies.
Simmons v. United States, 452 F.2d 1110, 1116 (2d Cir.
1971); 12 Moore’s Federal Practice § 60.83.
It is obvious that the defenses and limitations just
described will generally be applied in the courts where
actions are brought to set aside the judgments.
In the present case, of course, KBC is not arguing these
points in the Cayman Islands, but is moving to have the
Southern District of New York prohibit Pertamina from
proceeding further in the Cayman Islands. It is the view of
this Court that the law about the use of independent
actions to overturn judgments must be considered on the
issue of whether KBC’s motion should be granted.
Anti-Suit Injunctions
There are well-defined limits on anti-suit injunctions
against suits in foreign countries. These limits are based
largely on considerations of international comity. But
where a judgment has been entered in an American court,
that court has authority to enjoin a party before it from
suing in a foreign country where such suit is an abusive
attempt to undermine that judgment. Page 26
Judge Mukasey of this Court has observed that, “after
judgment in the domestic litigation, some showing of
harassment, bad faith or other equitable circumstance is
sufficient to support enjoining the foreign litigation.”
Farrell Lines Inc. v. Columbus Cello-Poly Corp., 32 F.
Supp. 2d 118, 131 (S.D.N.Y. 1997), aff’d sub nom, Farrell
Lines Inc. v. Ceres Terminals Inc., 161 F.3d 115 (1998).
Similarly, the D.C. Circuit has stated that when “the
injunction is requested after a previous judgment on the
merits . . . a court may freely protect the integrity of
its judgments by preventing their evasion through vexatious
or oppressive relitigation.” Laker Airways Ltd. v. Sabena
Belgian World Airlines, 731 F.2d 909, 928 (D.C. Cir. 1984).
On the other hand, Pertamina relies on a group of cases
where courts have ruled that anti-suit injunctions should
not be granted. See e.g., China Trade & Dev. Corp. v. M.V.
Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987); Laif X Sprl v.
Axtel, S.A. de C.V., 390 F.3d 194, 199 (2d Cir. 2004). In
those cases there were parallel proceedings occurring
simultaneously in the United States and in a foreign forum.
The principal case is China Trade. There, the Court was
faced with a litigant who brought suit in Korea while the
same issue was being litigated in the Southern District of
New York. Emphasizing that parallel proceedings in two
forums are “ordinarily tolerable” and should be allowed to
proceed simultaneously, 837 F.2d at 36, the Court reversed
the District Court’s granting of the injunction. However,
the holdings in China Trade and the Page 27 other
parallel proceedings cases, and what is referred to as “the
China Trade test,” are not applicable in the present case.
The case at hand is not a parallel proceedings case. Here
judgments were entered in the American courts (Texas 2001
and New York 2004) well before the Cayman Islands action
was commenced (September 2006). This is a case where the
issue is whether there is a misuse of the foreign court to
evade the American judgments. It is of interest that both
Judge Mukasey and the D.C. Circuit gave consideration to
international comity in accordance with the China Trade
line of cases, but they acknowledged that a “more lenient
standard” would apply once a judgment has been entered, and
proceeded to speak decisively of the need to protect
against abusive foreign litigation mounted following entry
of the American judgments. Farrell, 32 F. Supp at 131; see
also Laker Airways, 731 F.3d at 928; Silva Run Worldwide
Ltd. v. Gaming Lottery Corp., No. 96-Cv-3231, 2002 U.S.
Dist. LEXIS 8307, at *20-21 (S.D.N.Y. May 8, 2002), aff’d,
53 Fed. Appx. 597 (2d Cir. 2002).
Aside from the need to protect against abusive foreign
litigation, other considerations are relevant to the
appropriateness of granting an anti-suit injunction. One
concern is the need for the Court to protect its
jurisdiction. Both Laker Airways and China Trade recognized
the propriety of enjoining a suit in a foreign court where
such an injunction is necessary to protect the American
court’s jurisdiction. Laker Airways, Page 28 731 F.2d at
927-31; China Trade, 837 F.2d at 36-37 (citing Laker
Airways, 731 F.2d 909).
Another relevant consideration to this Court’s ability to
act in the face of comity considerations is the extent to
which a litigant attempts to avoid the forum’s important
public policies. The D.C. Circuit commented that “deference
to the foreign proceeding may be denied because of the
litigant’s unconscionable evasion of the domestic laws.”
Laker Airways, 731 F.2d at 931 n. 71. Indeed, the Second
Circuit has held that “orders of foreign courts are not
entitled to comity if the litigants who procured them have
deliberately courted legal impediments to the enforcement
of a federal court’s orders.” Motorola Credit Corp. v.
Uzan, 388 F.3d 39, 60 (2d Cir. 2004). In the present case,
Pertamina is seeking to avoid the application of
well-settled American law and policies about the limited
methods which can be used to interfere with the normal
finality of judgments.
It should be noted that KBC has once before sought an
anti-suit injunction in this case. In March 2002, several
months after the federal district court in Texas issued its
final judgment in favor of KBC, Pertamina filed suit in
Indonesia seeking to annul the Arbitral Award, and sought
an injunction to prevent KBC from seeking to enforce the
award. Before the application on the injunction was
scheduled to be heard in Indonesia, KBC applied to the
court in Texas for a temporary restraining order to prevent
Pertamina from seeking its injunction in Page 29
Indonesia. The district court granted KBC’s application.
Pertamina did not withdraw its request and the Indonesian
court issued a provisional injunction. KBC then moved for a
preliminary injunction against Pertamina’s further pursuing
the Indonesian action. The district court granted the
injunction. The Fifth Circuit reversed. Karaha Bodas Co.,
L.L.C., v. Perusahaan Pertambangan Minyak Dan Gas Bumi
Negara, 335 F.3d 357 (5th Cir. 2003).
The Fifth Circuit’s opinion rested chiefly on the idea that
the New York Convention, the operative treaty under which
KBC sought to enforce its award, allows simultaneous
enforcement and annulment proceedings in other countries.
As a result, the United States courts “have discretion
under the Convention to enforce an award despite annulment
in another country.” Id. at 369. Thus, the “Indonesian
court’s annulment fails to jeopardize the enforcement of
the award elsewhere.” Id. The court reasoned that since
there was no real threat to enforcement in the United
States, comity counseled against issuing the injunction.
Clearly, the anti-suit injunction sought now by KBC
presents itself in a much different procedural and temporal
context. The policies underlying the New York Convention no
longer apply. Pertamina is not seeking to annul the award
under the New York Convention’s procedures and has no need
of protection of any right under such Convention. Pertamina
is indeed seeking to “jeopardize the enforcement of the
award” Page 30 in the United States by means of the
injunction it is seeking in the Cayman Islands. Finally,
the litigation has proceeded to an entirely different
juncture than where it stood in 2003. The significance of
this will be dealt with later in this opinion. In short,
the Fifth Circuit’s decision is not instructive on what
should be done now.
An Injunction Should Be Issued
As already described, the motion before this Court is to
enjoin Pertamina from pursuing the litigation in the Cayman
Islands and similar litigation elsewhere. It is not for
this Court to deal with the merits of Pertamina’s suit in
the Cayman Islands, or to determine whether Pertamina’s
allegations of fraud do or do not have merit. However, this
Court does have the responsibility of making certain
findings with respect to the nature of the Cayman Islands
action in relation to federal court judgments in the United
States.
The previous section of this opinion, dealing with
Fed.R.Civ.P. 60(b), illustrates the fact that under American
law, a final judgment in a litigation is given a very high
degree of protection, and can be overturned in a new and
independent lawsuit only under exceptional circumstances,
even when fraud is alleged. One of these circumstances is
where “fraud upon the court” is proven. However, no such
thing is alleged in the Cayman Islands. No claim is made
there of forged evidence or bribery or anything else of
that nature. What is claimed in the Cayman Islands is Page
31 that, during the dealings between KBC and Pertamina, KBC
made misrepresentations regarding the quantity of
geothermal reserves or resources. As already described, the
issue of the accuracy of KBC’s representations on this
subject was before the arbitrators. What has now occurred
is that Pertamina claims it has new evidence showing that
KBC defrauded Pertamina on the subject of the quantity of
geothermal reserves or resources, something which Pertamina
apparently did not literally allege in the arbitration.
There is surely a serious question about whether the
situation involves the kind of gross injustice or grave
miscarriage of justice, demanding a departure from
adherence to the doctrine of res judicata, within the
meaning of the Supreme Court’s holding in United States v.
Beggerly, 524 U.S. 38, 46-47 (1998).
But beyond this, it is necessary to reckon with the
tactics employed by Pertamina. The alleged new evidence of
fraud comes from documents voluntarily turned over by KBC
to Pertamina in Indonesia. KBC asserts that the documents
became available to Pertamina in March 2001. Pertamina
states that it was not until November 2002 when this
happened.
It will be recalled that summary judgment confirming the
Arbitral Award was issued by the federal court in Texas on
December 4, 2001. If Pertamina had the documents in March
2001, as KBC claims, it had ample time to file a motion
under Rule 60(b)(3) in the Texas district court within the
one year time limit. And even if Pertamina did not have
the Page 32 documents until November 2002, the one year
time limit had still not expired at that time. Furthermore,
even after the expiration of that one year, a prompt filing
of an “independent action” could have brought Pertamina’s
fraud allegations before the Texas district court.
Of course, Pertamina asserts that it did not look at the
documents until August 2005, and therefore did not
appreciate their significance until that time. Even if this
is true, there is surely a serious problem about
Pertamina’s diligence. During the arbitration, Pertamina
had raised suspicions about the amount of reserves which
KBC had represented, and this was enough of an issue to
cause the arbitrators to cut substantially the amount of
the award for lost profits from what KBC had requested. The
award was still very large ($150 million) and Pertamina has
fought strenuously to prevent KBC from recovering even the
reduced award. In view of this campaign against KBC, it is
difficult to justify Pertamina’s delay of three years or
more in looking at documents left in its possession by KBC.
But even if it is assumed that Pertamina was justified in
waiting until August 2005 to discover the evidence now
relied upon, what Pertamina did after that raises grave
questions. Pertamina knew by then that recovery on the
Arbitral Award would occur almost entirely by means of
enforcement proceedings in the United States. Sufficient
funds had been restrained in New York City, under process
of the Southern District of New York, to provide over $300
million to pay the amount of Page 33 the Arbitral Award
plus interest. Although it was too late by August 2005 to
file a motion under Rule 60(b)(3) to set aside the judgment
of the district court in Texas, it was open to Pertamina to
attempt an “independent action” under Rule 60(b). This
would have been a direct and straightforward method to
determine whether there was a right to overturn, on grounds
of fraud, the Arbitral Award and the judgment based
thereon.
However, Pertamina did no such thing. What it did was to
raise its alleged fraud claim in Hong Kong and Singapore by
way of defense against enforcement actions brought by KBC
in those locations. But Hong Kong and Singapore had
virtually no significance in the KBC-Pertamina contest. As
it turned out only 3/10 of 1% of the judgment debt was
collected in Hong Kong, and nothing in Singapore. Almost
the entire judgment debt (99 7/10%) was paid from funds
restrained in the federal court in New York, in proceedings
based on the judgment of the federal court in Texas. Yet
Pertamina made no move to submit the fraud claim to any
court in the United States.
As is now known, Pertamina developed a different strategy
to prevent collection of the 99 7/10% in the United States.
After 2 1/2 years of hard-fought litigation in the Southern
District, a judgment was entered in that court on October
22, 2004, which would allow collection of the amount due of
over $300 million. The Second Circuit affirmed the judgment
on March 9, 2006. Pertamina then applied to the Supreme
Page 34 Court for certiorari. A decision on this certiorari
petition was expected in early October 2006. The likelihood
of the Supreme Court granting the petition was admittedly
small.
At this point it appeared that the litigation between KBC
and Pertamina was at long last about to be concluded. There
was no indication of any remaining issues to be resolved,
except in the unlikely event that the Supreme Court would
review proceedings which had taken place in the Southern
District of New York and the Second Circuit. However, in an
attempt to head off possible further problems, the Court,
in August 2006, asked counsel for Pertamina whether there
would be any further issue which might come up following
the likely denial of certiorari by the Supreme Court. On
August 28, 2006 the attorney for Pertamina wrote the Court
basically assuring the Court that a denial of certiorari by
the Supreme Court would be the end, and specifically stating
that Pertamina did not object to payment of the judgment.
Counsel for Pertamina has stated to this Court that he did
not know, when he wrote that letter, that Pertamina planned
to file the action in the Cayman Islands. But, of course,
Pertamina knew. It deliberately concealed its plan from
this Court and deliberately failed to have its attorney
disclose that plan in the August 28 letter. No other
conclusion is possible. Page 35
A little over two weeks later, on September 15, 2006,
Pertamina commenced the action in the Cayman Islands.
Shortly thereafter, as expected, the Supreme Court denied
Pertamina’s certiorari petition.
It is significant that, on December 31, 2003, Alfred
Rohimone, Pertamina’s Finance Director, told the prominent
Indonesian newspaper Komas that the arbitration decision
could no longer be disputed, but that “what Pertamina is
doing now is actually only buying time.” Pertamina’s
tactics in the Cayman Islands action are completely
consistent with “buying time.” Even under Pertamina’s own
version, it knew of the so-called new evidence of fraud by
late 2005. But it made no use of that evidence in a timely
action in the United States where such an action would
naturally have been brought if Pertamina had sought to
litigate in a fair and direct fashion. Indeed, no timely
action was brought even in the Cayman Islands. Instead,
Pertamina held back, waiting until the very last moment
before the litigation was to be terminated. It concealed
its strategy from this Court in response to a direct
inquiry, and then filed an action in a foreign court.
By suing in the Cayman Islands, Pertamina is not merely
seeking a judgment in a foreign court with consequences in
the foreign venue. The main objective of Pertamina is to
have the Cayman Islands court reach out to the United
States and frustrate the consummation of the long and
difficult litigation in the United States. It is true that
KBC is a Cayman Islands limited liability company. But the
court actions which have Page 36 resulted in the recovery
of $319 million by KBC, have occurred in the United States.
Pertamina is seeking to have the Cayman Islands court enter
orders preventing the completion and consummation of this
United States litigation.
Pertamina takes the position that it is not seeking,
through the Cayman Islands action, to interfere in any way
with the jurisdiction or the processes of the American
courts. According to Pertamina, since those processes have
now been completed with final judgments and full payment to
KBC of the judgment debt, no interference with or harm to
the American proceedings can occur by merely having the
Cayman Islands court prohibit KBC from disposing of the
$263 million still in KBC’s hands. This is the argument
made by counsel for Pertamina at the September 26, 2006
hearing (Minutes pp. 20 et seq.). Counsel went on to urge
that what is being pursued in the Cayman Islands is a “new
claim based on new matter,” and that Pertamina is merely
asking the court to do something which is “an every day
event” in courts — that is, to secure possible
future judgments by an injunction or an attachment or a
garnishment (Minutes pp. 24-25).
The problems with these theories are numerous. In the
first place, the Cayman Islands action is not a new action
in the sense of raising new issues unrelated to the United
States proceedings. As pointed out earlier in this opinion,
the entire premise of the Cayman Islands action is that the
Arbitral Award should be nullified, and that all
proceedings to Page 37 enforce that award should be
stopped. Of course, by the time the Cayman Islands action
was brought, the proceedings in the United States to
enforce the Arbitral Award had been virtually completed.
But Pertamina’s pleadings in that action requested that all
enforcement proceedings be halted by the Cayman Islands
court. What that means, from a practical standpoint, is that
the Cayman Islands court should take steps to stop whatever
it is possible to stop in the way of enforcement
proceedings. Moreover, there can be no doubt that the
overall purpose of the Cayman Islands action is to cancel
out what KBC has achieved in the United States courts by
way of enforcement of the Arbitral Award. This is surely
made clear by the fact that the “damages” sought in the
Cayman Islands would, under the clear definition in the
pleadings there, amount to the very same $319 million, which
has been awarded to KBC in the United States.
It is now necessary to deal with the argument of Pertamina
that this Court should not be concerned about any effect on
the American judicial process because the judgments have
been entered, KBC has been paid, and that is the end of the
matter as far as the jurisdiction and interest of the
federal courts in the United States are concerned. This
Court disagrees. To explain this disagreement, certain
obvious propositions must be stated. A federal court in
Texas has determined that KBC is entitled to be paid the
amount of the Arbitral Award plus interest. This means
that, as far as the litigation between KBC and Page 38
Pertamina regarding the Arbitral Award is concerned, KBC is
entitled to receive the money, to own the money, and to
dispose of that money as it sees fit. The litigation in the
Southern District of New York determined that certain funds
of Pertamina, located in New York banks, can be used to pay
the judgment debt to KBC. Again, the premise of the
proceedings in New York has been that, as far as the issues
between KBC and Pertamina about the Arbitral Award are
concerned, KBC is entitled to have the funds turned over to
it, is entitled to own those funds, and is entitled to
dispose of those funds as it sees fit. The judgments
referred to above are not conditional, or qualified, or
limited in any way as to KBC’s rights with respect to the
monies awarded.
On the other hand, it is obvious that when a judgment
creditor receives money awarded by a judgment, there may be
many reasons why that money might be attached or might be
subject to some lien or some question of title. A judgment
creditor might be subject to other lawsuits or other claims
of various kinds, independent of the lawsuit in which the
judgment was entered.
But, if the judgment debtor is seeking to tie up the
proceeds of the judgment in an action to vacate or overturn
the judgment, as this Court has found that Pertamina is
attempting to do, then there are definite rules about when,
and under what conditions, this can be done. And courts are
surely not hospitable to subterfuge designed to avoid
applicable rules. For instance, if a judgment debtor files
something Page 39 called an action for damages against the
judgment creditor, and seeks damages in the precise amount
of the judgment, our courts would undoubtedly not allow
this strategy as a means for evading the rules relating to
proper grounds for setting aside judgments. The Cayman
Islands action brought by Pertamina is exactly the kind of
action just spoken of.
This Court does not accept the proposition that, under
these circumstances, it has no legitimate interest in the
matter and no power to protect KBC from abusive litigation,
even in a foreign court. This Court believes that
Pertamina’s attempt to use the injunctive powers of the
Cayman Islands court would, if successful, truly interfere
with the jurisdiction of the federal courts in the United
States. Such jurisdiction surely embraces the sanctity and
finality of judgments and the rights obtained under those
judgments. For reasons already indicated, it is no answer
to this to say that the only thing sought is a remedy
against KBC’s disposition of the funds, rather than a
remedy against some ongoing court process. If KBC cannot
have full ownership rights to the money, including the
right to pay it to the owners of KBC, then all of the
process leading up to the award of the money to KBC has
been in vain.
This Court has the power, and indeed the duty, to deal
with abusive litigation tactics used by a party before it.
In the present case the salient fact is that, after almost
six years of litigation in district and appellate courts
based on the Arbitral Award, the American courts had Page
40 finally resolved all the issues presented to them about
whether the Arbitral Award should be confirmed and about
the method by which KBC should recover the large amount
due. Although procedures were available under federal law
for Pertamina to make its claim of fraud and to seek to
prevent KBC from recovering the $319 million, there was no
attempt whatever by Pertamina to make use of such
procedures. Instead, Pertamina engaged in the six years of
litigation in the United States without any mention of its
claim of fraud. Finally, at the very moment when the
litigation was to be legitimately ended, Pertamina brought
the action in the Cayman Islands after engaging in literal
subterfuge in dealing with the Court in New York. The
purpose of this lawsuit is to effectively wipe out the
effect of the United States judgments and to do this with
as great an amount of delay as possible.
Conclusion
Under all the circumstances, the Court grants KBC’s motion
in the following manner. At the very least, KBC is entitled
to an injunction prohibiting Pertamina from applying to the
Cayman Islands court or any other court for any order
restricting KBC in the use or disposition of funds awarded
to it pursuant to the judgments. Beyond this, the Court
believes that the record justifies an injunction entirely
prohibiting Pertamina from pursuing the Cayman Islands
action or any similar Page 41 action in any court, because
KBC is entitled to be protected against litigation designed
to delay the completion of this lengthy court contest.
In its notice of motion, KBC requests that the Court grant
“such other and further relief as the Court deems just and
proper.” The Court deems it just and proper to accompany
the injunction with a declaratory judgment. The nature of
the declaratory judgment follows inevitably from what has
been decided in this opinion. Therefore the Court will
issue a declaratory judgment declaring that the funds
recovered by KBC pursuant to the judgments in this matter
are the property of KBC, that KBC has full right to dispose
of such funds as KBC sees fit, and that, in the event that
Pertamina should for some reason obtain an order of the
Cayman Islands court or any other court, based upon matters
relating to the Arbitral Award, purporting to interfere
with KBC’s rights to dispose of the funds, KBC has no
obligation to comply with such order.
The parties will settle an Order and Judgment based on
this opinion. When that Order and Judgment is signed by the
Court, the Order of September 27, 2006, will be deemed
vacated, as will the Memorandum of September 27, 2006
restricting KBC’s ability to distribute funds. However, in
connection with the settlement of the Order and Judgment
based on this opinion, the Court will entertain an
application for a stay pending appeal if any party wishes
to make such an application. Page 42
SO ORDERED Page 1