Three-star Kartika Plaza hotel showcases arbitration process

JAKARTA (JP): The three-star Kartika Plaza hotel on Jl. Thamrin, in the heart of Jakarta, has been a superb case study over the last decade for law students interested in international arbitration.

The case is even more interesting because the Indonesian government is a party in the dispute.

The dispute started in 1981 when the National Investment Coordinating Board (BKPM) canceled the business license of PT Amco Indonesia, an American joint venture company, because the U.S. partner violated the terms of Indonesian foreign investment law.

According to Prof. Sudargo Gautama in Perkembangan Arbitrase Dagang International Indonesia (the Development of International Commercial Arbitration in Indonesian), PT Amco Indonesia agreed to build Kartika Plaza Hotel in 1968 and to operate it for 30 years.

The company however reneged on its obligation to invest US$3 million and only put in $983,000.

BKPM then decided to take over the company's assets by force, assisted by the military, in 1980 and canceled the company's business license the following year.

Since Indonesia had ratified the convention of the International Center for the Settlement of Investment Disputes (ICSID), PT Amco had the right to bring the government of Indonesia to the arbitration forum to settle the dispute.

It did this in 1981.

PT Amco appointed Canadian lawyer Edward Rubin to represent it at ICSID. Indonesia chose Prof. Isi Foighel, a noted Danish law scholar who is also Denmark's finance minister. Noted French law expert Prof. Berthold Goldman was named head arbitrator.

After a long and expensive process, Goldman, Rubin and Foighel decided to make an award of merits on Nov. 20, 1984. The ruling said that BKPM's 1980 action was wrong and awarded $4.2 million in damages to PT Amco.

Indonesia then asked ICSID to review its decision saying that the arbitrators ignored articles in the convention which ruled that local law must be at the basis of their examination.

ICSID then appointed an ad hoc committee, chaired by Prof. Ignaz Seidl Hohenveldern of Austria, to study the possibility of changing the ruling.

In May 1986, the committee concluded that the earlier arbitration team had exceeded its powers and annulled part of the award and determined that the Indonesian government's decision to cancel PT Amco's business license in 1980 was lawful.

The committee ruled, however, that the Indonesian government must pay damages to PT Amco for forcibly taking over the hotel in 1980. (mas)