Saturday, May 17, 2014

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

Karaha Bodas Co v Perusahaan/Ministry of Indonesia (2nd 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

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