KARAHA BODAS CO. LLC v. PERUSAHAAN PERTAMBANGAN AND ANOTHER

HCCT28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.28 OF 2002

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DECISION

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1. The plaintiff ("KBC") and the defendant ("Pertamina") have been engaged in a lengthy and substantial arbitration hearing. It was held in Paris and concerned a major contract in Indonesia. KBC were successful in the arbitration. The award in KBC's favour was substantial (approximately US$270 million). Many enforcement proceedings in a variety of jurisdictions, including Hong Kong, soon followed.

2. In accordance with the usual procedure this court granted KBC leave to enforce the award in Hong Kong in the same manner as a Hong Kong judgment together with leave to enter judgment in the amount of the award, ex parte. In the usual way also Pertamina was granted 14 days in which to apply to set aside the ex parte order.

3. It is common ground between the parties that KBC was then required to serve the ex parte order on Pertamina in Indonesia, "in accordance with the laws of Indonesia". In this application under Orders 2 rule 1, 12 rule 8 and 11 rule 5 of the Rules of the High Court, Pertamina seek, primarily, a declaration that the purported service of the order in Indonesia was defective and that, as a result, there has been no proper service.

4. This application gives rise to two issues. Firstly, was service effected in accordance with the law of Indonesia? Secondly, if it was not, should this court exercise the discretion conferred on it by Order 2(1) and nonetheless affirm the validity of the purported service?

5. KBC has been represented by Mr Paul Shieh, Pertamina by Mr Charles Manzoni.

SERVICE "IN ACCORDANCE WITH THE LAW OF INDONESIA"

6. Each side has produced expert evidence concerning the law on service of documents in Indonesia. Pertamina's experts say that the service which actually took place was bad, KBC's expert says it was good.

7. On 24 July 2002, two working days before this application was due to commence, Pertamina made an application for leave to call an expert from each side for them to give oral evidence and to be cross-examined. I decided to reserve my decision as to whether I would hear oral expert evidence on the issue, until after I had heard the arguments on paper. The usual course when a court is asked to make a finding of fact on foreign law is to hear the matter on evidence by affirmation and legal argument. The hearing on 29 July 2002 therefore commenced without oral testimony.

8. In a nutshell, the competing advice was as follows. Pertamina's case was that service was only good if it was served by the District Court in which the defendant had its domicile. That service by the court official had to be personal service at the defendant's place of domicile or residence. The domicile of a legal entity such as Pertamina was its head office.

9. KBC, on the other hand, submitted that such law as there was in Indonesia governing the service of documents applied only to the service of domestic documents. KBC's case was that there was no express law as to how foreign proceedings should be served. Therefore provided the court was satisfied that the order had actually been brought to the attention of the defendant any method of service can be used. This would include court service, personal service on the company's lawyers, by post or even by a newspaper announcement. On the question of domicile, KBC submitted that there was no support for the contention that a company's domicile was its head office and that, in fact, Pertamina's declared domicile was Jakarta.

THE SERVICE WHICH ACTUALLY TOOK PLACE

10. A number of witnesses have affirmed as to how service was actually attempted on 26 March 2002. There are some differences but I do not think the differences are of any great consequence. KBC concede that they did not serve the documents through the appropriate District Court and they further concede that they did not serve them on Pertamina's head office. KBC's service was by a solicitor on a member of the staff at Pertamina's Marketing GM Office address. Thereafter there was a degree of to-ing and fro-ing of the documents. The solicitor told the Pertamina staff member to send them to the head office, they were later returned unaccepted, an attempt was made to serve them at the head office but it was closed, they were then sent to the "Upstream Directorate's Office" (also in Jakarta) and so on. The documents ultimately, on 15 April 2002, found their way on to the desk of the appropriate senior personnel of Pertamina.

11. The factual dispute as to what happened is only relevant to demonstrate that, in any event, KBC went to considerable lengths and efforts to effect service. This is of some relevance to the issue of discretion, to which I turn later. For present purposes the issue is - do the Indonesian rules of procedure which govern service of documents apply to foreign court orders? If they do KBC have failed to comply. The relevant articles are :

"Article 388 HIR

(1) All court servers, court officers and all public officers are entitled and obliged to serve summons, notifications and other documents issued by the court servers and to execute court orders and decisions.

(2) If there are no such persons, then the Chairman of the Court in which jurisdiction the court documents are to be served must appoint the proper and trusted person.

Article 389 HIR

The court server of a District Court in Jakarta, Semarang and Surabaya must declare the service of court documents in a written report. Court servers of other District and other persons appointed by the District Court to serve the court documents, if necessary, it is sufficient if the report is given orally to the judge or another officer who is authorized, concerning all notices, summons and other court documents, which they have served; the respective judge or officer shall record or order the matter to be recorded.

Article 390(1) HIR

Every court document, except those mentioned hereunder, must be served personally to the respective person at his domicile or residence, if the person can not be met there, then to the Chief of the Village or his deputy, who is obliged to directly serve the court documents on the said person himself."

If these articles do not apply to foreign court orders then KBC's contention that it has made a valid service is considerably strengthened.

12. Because of the way I have decided to resolve this matter (as seen hereafter) I do not propose to recite in great detail the competing submissions. The following points however do merit brief mention.

For Pertamina's case

(a) A 1990 Indonesian case was cited which supported the contention that Articles 388-390 do apply to foreign orders.

(b) KBC's expert is far from independent, he being a partner in the firm of solicitors who attempted to make the service.

(c) It is inherently unlikely that Indonesia would have a set of rules for domestic documents and no rules for foreign documents.

(d) It is more likely that a company's head office is the proper place for service because otherwise any out of town branch office would suffice.

(e) It is inconsistent to say that, on the one hand, any service which actually brings the order to the notice of the defendant is sufficient, but, at the same time submit that service by a newspaper announcement would have this effect.

(f) In the absence of rules expressly for foreign documents then the only rules (Articles 388-390) should be followed even though they do not specifically state that they are applicable to both domestic and foreign documents.

For KBC's case

(a) Criticism is made of one of Pertamina's experts, Mrs Asnahwati. It is not necessary for this court to investigate or place much weight on this criticism. It relates to the only previous occasion she has given expert evidence, namely in the English High Court, where it was said there were "language difficulties".

(b) Articles 388-390 do not say they apply to foreign court orders.

(c) There is no reference in the articles from which it could be discerned that they apply to all documents, whether domestic or foreign.

(d) On the contrary, the articles refer to "documents issued by the court". "The court " must be a reference to a domestic court.

(e) The 1990 authority relied on by Pertamina should be treated with some scepticism. Firstly it is the only case which has been found on the subject. Secondly it is 12 years old. Thirdly, its language (in the translation) is sometimes difficult to follow and understand. Fourthly, in a parallel case involving the same parties concerning the validity of service in London, a challenge was made because Indonesian law had not been complied with in London. However the court appeared to make an inconsistent finding, by rejecting the challenge in spite of the non-compliance. Thus, the challenge in Indonesia succeeded in the Indonesian party's favour, but a similar challenge in London failed, also in favour of the Indonesian party. I emphasize that I make no finding one way or the other on this criticism. I merely note it as one of the points being made by KBC in support of their contention that little or no weight should be attached by this court to the 1990 Indonesian authority.

(f) KBC cannot be criticised for not serving the documents at Pertamina's head office. Firstly because their "domicile" is plainly Jakarta and not a particular office address within Jakarta. Secondly, the address at which the documents were served was an important central address. It was not of the type described by Mr Manzoni as an out of town branch office but was the very address given by Pertamina as the company's address in all the arbitration proceedings. It may not have been "the head office" address but it was arguably the company's address for the purpose of this contract within its domicile of Jakarta.

COURT'S DECISION

13. Having set out, briefly, and considered the competing arguments, I find myself unable to make a finding of fact on the issue. I am left with a sense of uncertainty about Indonesian law. No cogent evidence has been adduced by either side as to what happens in practice in Indonesia. Foreign documents must be served frequently. Are there, for example, newspaper announcements of service from time to time? Or, is the District Court server slavishly engaged every time?

14. At best, the evidence before me only enables me to say that it is arguable that the service was not in accordance with Indonesian law. Happily, however, as will be seen hereafter, this insufficiency of evidence does not prevent this court from making a final decision on this application. I am able to make a final decision because, even assuming that the service was not in accordance with Indonesian law I am satisfied that this court should, for reasons which follow, affirm the service as a result of the exercise of the court's discretion. I thus turn to the discretion issue on the assumption that the service did not comply with Indonesian law but without making a specific finding to that effect.

15. Before turning to the discretion issue I should say this. If at some future date, it is determined that this court has exercised its discretion erroneously and is therefore invited to revisit the question of the proper Indonesian law, then it will be necessary to call the experts to give evidence and be cross-examined. For the purpose of this judgment however I refuse the defendant's application to call oral testimony but make no order as to costs on a nisi basis.

THE DISCRETION ISSUE

16. The burden is on KBC to satisfy the court that the discretion should be exercised. The discretion is conferred by Order 2 rule 1 RHC :

"Non-compliance with rules (O.2, r.1)

1. - (1) Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.

(2) Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1) and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit."

17. The first hurdle for KBC to surmount is to satisfy the court that the (assumed) non-compliance amounted to an irregularity in the service procedure and not that it was so fundamental as to render it a nullity. If it was a nullity then the court should not even consider the question of discretion. I have no doubt that the nature of the non-compliance was not a nullity, it was an irregularity. The reasons being that the correct papers were served, legal advice had been sought as to the correct method of service, service was effected at a significant and important address of the company and the documents did, as a matter of fact, come to the actual notice of the company officials and their solicitors within a relatively short time. With this background any non-compliance with Indonesian law could only amount to an irregularity rather than a nullity.

18. The second sub-issue which arises is what is the proper test to apply when deciding whether or not to exercise the discretion in KBC's favour? Both counsel have referred me to a number of authorities on the point. The issue boils down to whether the proper approach is that discretion should only be exercised in "exceptional circumstances" (as contended for by Mr Manzoni) or whether "good reason" or "good cause" is sufficient (as submitted by Mr Shieh). At the end of the day the difference may be (a) more semantic than real and (b) academic, for the following reasons.

19. It may be more semantic than real because, on analysis, it is arguable that there is no difference between the two expressions. "Exceptional circumstances" are not extreme circumstances. They are circumstances which are unusual and therefore merit an exception being made. When should an exception be made? When there is a good reason or good cause to do so, might be the answer. After all, a reason or cause which is "good" should surely not be ignored or overlooked. However, I am conscious of the fact that the authorities cited do make a distinction which suggests that the standards are different, so I proceed with caution.

20. It is academic because on an analysis of the reasons advanced by Mr Shieh in favour of exercising the discretion I am satisfied that they satisfy both expressions.

21. I now refer briefly to some of the authorities cited in argument upon which I have been persuaded that the correct approach in this case is that the discretion should be exercised if there is good reason or good cause to do so.

22. Mr Manzoni relied, inter alia, on Leal v. Dunlop Bro Process [1984] 1 WLR 874 and Camera Care Limited v. Victor Hasselbad AB [1986] 1 FTLR 348. Both are distinguishable from our case in two respects. In both cases the irregularity in the service was that leave was required for service but had not been obtained. In both cases there was an additional factor of a potential time bar to the service of a writ. Such backgrounds are different from the present case.

23. This court prefers and follows the judgment of Sir John Megaw in the Goldean Mariner [1990] 2 Lloyd's Rep. when delivering the majority judgment he commented on certain earlier authorities and said :

" When one studies the judgment of Lord Justice Slade, as also the judgment of Lord Justice Stephenson, see p. 879E, it becomes apparent that they were both acting on the then-accepted principle that leave to extend the validity of a writ after the limitation period had expired could not be granted under O. 6, r. 8 'unless there are exceptional circumstances'. Hence followed the reasoning that 'exceptional circumstances' must equally be the criterion for the exercise of the discretion under O. 2, r. 1 in respect of the plaintiffs' failure to obtain leave to issue the writ. The criterion of 'exceptional circumstances' was based on my judgment in Heaven v. Road and Rail Wagons Ltd., [1965] 2 Q.B. 355. After the date of the judgments of this Court in Leal v. Dunlop and the Camera Care case, that criterion of 'exceptional circumstances' was disapproved by the House of Lords in The Myrto. In The Myrto (No. 3) [1987] 2 Lloyd's Rep. 1 at p. 11, col. 1; [1987] A.C. 597 at p. 619E Lord Brandon said :

... what is required to justify extension is 'good cause' or 'good reason' rather than the more stringent 'exceptional circumstances'.

It appears to me to follow that, in seeking guidance from Leal v. Dunlop as to the exercise of the Court's discretion under O. 2, r. 1 in respect of proceedings involving service out of the jurisdiction, it must be borne in mind that, if analogy is sought to be drawn from the criterion under O. 6, r. 8, the relevant criterion is no longer 'exceptional circumstances', as was thought to be the criterion by the Court in Leal v. Dunlop, but would now be 'good cause' or 'good reason'.

In all circumstances, I do not find any real assistance from Leal v. Dunlop as to the correct exercise of the discretion in the present case."

24. Thus I turn finally to the question of what are the factors in this case which add up to circumstances which merit the exercise of the discretion.

25. Part of the chronology of events should be set out first. Once the arbitration award was delivered it sparked off numerous enforcement proceedings worldwide. We are now in the midst of numerous global legal skirmishes. One which requires particular mention is the one in Texas.

20 February 2002	Judgment was formally entered in the Texas Court.
14 March 2002	Pertamina commenced proceedings in the Indonesian Court to annul the Award. In the same action Pertamina also claimed an injunction restraining KBC from enforcing the Award anywhere in the world.
15 March 2002	Order by this court giving leave to enter Judgment against Pertamina and Judgment entered.
26 March 2002	Service of the Documents on Pertamina in Indonesia. This is the service the validity of which is being disputed by Pertamina in this application. At an inter partes hearing the Texas Court made a Temporary Restraining Order against Pertamina, directing it to withdraw its request for injunctive relief in Indonesia, which was due to be heard on 1 April 2001.
29 March 2002	As part of the same order KBC was also enjoined temporarily from taking steps in other jurisdictions which would prejudice Pertamina.
1 April 2002	Despite the temporary restraining order, the hearing of Pertamina's injunction application went ahead in Indonesia and the Indonesian court granted an injunction enjoining KBC from enforcing the Award anywhere in the world, subject to a daily fine of US$500,000.
2 April 2002	The Texas Court found Pertamina to have been in contempt of court by proceeding with the injunction application in Indonesia on 1 April 2002, in breach of the temporary restraining order.
17 April 2002	The Documents found their way to "the right hands" at the correct office of Pertamina.
26 April 2002	Texas Court granted Preliminary Injunction restraining Pertamina from pursuing injunctive relief in Indonesia. This injunction excluded the "cross restraint" against KBC in the 29 March temporary order.
7 May 2002	Court in Indonesia declared itself competent to examine and decide the annulment proceedings.

26. Thus there is presently in place an injunction in Indonesia. Both the fact of the injunction and the background and chronology surrounding its implementation are factors I take into account on the issue of discretion. I will enlarge on them hereafter.

FACTORS IN FAVOUR OF EXERCISING DISCRETION IN KBC'S FAVOUR

28. For all the above reasons I affirm the purported service. I declare it to be valid. I dismiss the defendant's summons dated 3 June 2002. Time for Pertamina to oppose the courts ex parte order dated 15 March 2002 is extended to 28 days with effect from the date of this ruling. The costs of the summons shall be to the plaintiff in any event.