Brief Analysis of the Annulment Proceedings of Churchill Mining v. Republic of Indonesia

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Churchill Mining v. Republic of Indonesia is an international investment arbitration case litigated at ICSID (International Center for Settlement of Investment Dispute) Case No. ARB/12/40, with the subject matter of the dispute being the revocation of the mining license owned by Churchill Mining through its subsidiary PT Ridlatama Group, by the Regent of East Kutai. The revocation of the mining permit was carried out on the basis of a BPK (Badan Pemeriksa Keuangan, Indonesian Audit Board) audit that found five fake mining licenses, which were found out due to the inconsistencies in the numbering code of the license given to Ridlatama. Churchill Mining considers itself disadvantaged because it has invested US$ 40 million to the project and sued for damages up to US$ 2 billion.

Churchill Mining felt that it had lost and received unfair treatment, therefore it filed an arbitration claim to ICSID, and demanded compensation of US$ 2 billion, equivalent to 31 trillion IDR. The basis of Churchill Mining’s lawsuit was Indonesia’s Bilateral Investment Treaty (BIT) with the United Kingdom, in which Churchill accused Indonesia of violating 3 provisions of the Indonesia-UK BIT, which are Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims; Arbitrary, unreasonable and/or discriminatory measures, and third, Indirect expropriation. After undergoing the arbitration process for more than three years, the ICSID ruled in favour of the Government of Indonesia as it was proven that the mining license held by Churchill through Ridlatama was fake and obtained via fraud. Despite this, Churchill Mining on March 31, 2017 filed an annulment application to ICSID, on the basis of Article 52 of the ICSID Convention.

Article 52 of the ICSID Convention regulates the conditions for filing a request for annulment of an arbitral award, namely:

(a) that the Tribunal was not properly constituted; which means that the tribunal was not properly constituted and run, in accordance with existing provisions;

(b) that the Tribunal has manifestly exceeded its powers; which means that the tribunal exceeds its powers (ultra vires);

(c) that there was corruption on the part of a member of the Tribunal;

(d) that there has been a serious departure from a fundamental rule of procedure; which means that there has been a substantial deviation from agreed procedural rules; and/or

(e) that the award has failed to state the reasons on which it is based, which means that the award fails to state the reasons for the award.

Indeed, any one of these five grounds is sufficient to constitute grounds for annulment of an arbitral award at ICSID, but in the case of Churchill Mining v. Republic of Indonesia it was argued that the tribunal went against Article 52 (b) that the Tribunal has manifestly exceeded its powers, 52 (d) that there has been a serious departure from a fundamental rule of procedure, and 52 (e) that the award has failed to state the reasons on which it is based.

The Ad Hoc Annulment Tribunal then held that Article 52 (b), (d), and (e) were not violated by the tribunal because: First, regarding Article 52(b) on “exceeded its Powers,” the Ad Hoc Tribunal held that the notion of “exceeded powers” is a rebuke to the exercise of powers by an organ beyond the limits of its constituent instrument which, in the circumstances of this arbitration, is governed by the arbitration clause in the BIT and the ICSID Convention and Arbitration Rules, and has been followed by the initial ICSID Arbitral Tribunal. Secondly, in relation to Article 52(d), the Ad Hoc Tribunal concluded that at the time of the authentication of the documents, the procedural course of the evidence did not violate Churchill and Planet’s right to be heard, and the Claimants were not shown to have been deprived of the opportunity to present their case on State responsibility. Third, as to Article 52(e), the Ad Hoc Tribunal is of the opinion that the Arbitral Tribunal had already explained in paragraphs 509–527 of the original award the seriousness of the forgery and fraud and gave reasons for Churchill’s lack of initial diligence in regarding to the procurement of the original mining permit, in essence the Ad Hoc Tribunal considers that the reasons given in the case that gave the win to the government of Indonesia were clear and straightforward.

From the above circumstances, The Ad Hoc Tribunal concluded that the Churchill Mining v. Indonesia Case cannot be annulled because it has been carried out in accordance with the agreed ICSID rules and according to the provisions of the BIT(s) mentioned, that there has been no occurance or circumstance in regards to the exceeding of the powers of the Arbitral Tribunal, and that the reasons for the ruling of the arbitral award are clear in the initial award. The annulment proceeding means that Indonesia can still collect an award on costs of $9.4 million USD and the government is free from Churchill Mining’s compensation claim.

References

Sophie Dinda Aulia Brahmana, Budiman Ginting, and Mahmul Siregar, “Penyelesaian Sengketa Penanaman Modal Melalui Arbitrase Internasional (Studi Kasus Pencabutan Izin Kuasa Pertambangan Churchill Mining Oleh Pemerintah Daerah Kabupaten Kutai Timur),” TRANSPARENCY 1, no. 2 (March 31, 2013), https://jurnal.usu.ac.id/index.php/transparency/article/view/1890.

ICSID, “ICSID CONVENTION, REGULATIONS and RULES,” October 14, 1966, https://icsid.worldbank.org/sites/default/files/ICSID%20Convention%20English.pdf

ICSID, “Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40 | Italaw,” www.italaw.com, March 18, 2019, https://www.italaw.com/cases/1479.