Karaha Bodas Co v Perusahaan/Ministry of Indonesia case brief summary

Karaha Bodas Co v Perusahaan/Ministry of Indonesia (2^nd Cir 2002)

o   Background:

§ P (US) and D (Indonesia) executed a contract

·         D waived “any right of immunity”

·         The contract didn’t address whether P had a right to attach particular assets in case of default or breach by D

§ Indonesia experienced a fiscal crisisàcontract was suspended

§ Indonesia Arbitration

·         awarded P damages for lost investments and profits

·         P got the award enforced and registered in the US

§ Dist Ct New York

·         D was to pay P out of D’s Production Sharing Percentage (i.e. D’s share of the net income), which D was transferred directly to the Rep of Indonesia

·         Ct concluded that the Rep of Indonesia did indeed own all the funds EXCEPT a 5% “Retention” portion, which belonged to D and which P could therefore attach

·         D challenged, saying that the Rep of Indonesia owned ALL the funds, including the Retention

o   Issue: Who owns the disputed Retention funds, and can those funds be attached under New York Law? (a Choice of Law analysis)

§ Holding: Indonesia law controls, and under that law most of the funds belong to Indonesia; the remaining funds (the 5% “Retention”) belong to D and can be attached

o   Reasoning:

§ FSIA + Sovereign Immunityà

·         A foreign sovereign shall be immune from having his U.S.-located property be attached, EXCEPT as provided in sections 1610 and 1611

o   §§1610 + 1611: when a foreign sovereign’s property is used for a commercial activity within the US, it does not enjoy the immunity

·         Here:

o   The contracts b/w P and D used the property for a commercial activity

o   so D waived any right of sovereign immunity, and its share of the property is thus attachable

§ Determining D’s share: Choice of Law (NY v Indonesia?)

·         We should use Indonesian law here, b/c

o   1) there is no actual conflict of law and Indonesia provides the only specific rules and

o   2) Indonesia has stronger Interests

·         Under Indonesian law, D possesses the Retention funds

§ Attaching the Retention

·         “Under NY law, a D has an interest in funds if any part of the money is within the present or future control of D.”

·         That is the case here, so the Retention is validly subject to attachment