Three-star Kartika Plaza hotel showcases arbitration process
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)