Pt Transportasi Gas Indonesia v Conocophillips (grissik) Ltd and Another
| Jurisdiction | England & Wales |
| Judge | The Hon. Sir Jeremy Cooke,Sir Jeremy Cooke |
| Judgment Date | 10 November 2016 |
| Neutral Citation | [2016] EWHC 2834 (Comm) |
| Docket Number | Case No: CL-2016-000143 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 November 2016 |
[2016] EWHC 2834 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Jeremy Cooke
Sitting as a Judge of the High Court
Case No: CL-2016-000143
Matthew Weiniger QC (Linklaters LLP) for the Claimants
Thomas K. Sprange QC and Ruth Byrne (King & Spalding) for the Defendants
Hearing dates: 2nd November 2016
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Hon. Sir Jeremy Cooke Sir Jeremy Cooke Introduction
There are two applications before the court arising out of a Final Award made on 8th February 2016. The first is an application made by the Claimant (TGI) under section 68 of the Arbitration Act 1996 (the Act) to set aside that Award on the ground of serious irregularity affecting that Award. The second is an application by the Defendants (to whom I shall refer together as Conoco) for leave to enforce the Award in the same manner as a judgment under section 66(1) of the Act.
I take the background facts largely from TGI's skeleton argument for its application.
The underlying dispute between TGI and Conoco arises out of a Gas Transportation Agreement (the GTA) dated 12 February 2001 and novated on 2 June 2004. TGI owns and operates a pipeline which stretches through Indonesia, from Grissik to the Indonesian-Singapore border called the "Grissik-Singapore pipeline". Conoco are shippers of gas, who use the pipeline to move gas from fields which they operate in Indonesia to the Singaporean market. The price which was originally to be paid by Conoco to TGI for the transportation of gas through the Grissik-Singapore pipeline was set, pursuant to the GTA, at USD 0.69/mscf. This is referred to as the "Contract Tariff".
The UNCITRAL Arbitration
On or around 19 May 2014 an UNCITRAL arbitration was commenced by the Defendants by way of a Notice of Arbitration served on TGI. The principal issue in the arbitration concerned the tariff to be paid by Conoco for the transportation of gas through the Grissik-Singapore pipeline from the gas fields operated by them.
Conoco's primary argument in the arbitration was that TGI had breached the tariff provisions in the GTA in seeking to impose, with effect from August 2010, a higher tariff than provided for in the GTA for the transportation of natural gas.
TGI's defence in the arbitration was based upon the fact that the tariff and terms of access to the Grissik-Singapore pipeline are now subject to regulation by the downstream regulator of the oil and gas industry in Indonesia, BPH Migas. In particular:
(a) In November 2001, following execution of the GTA but prior to the novation by which TGI and Conoco became parties to the GTA, an oil and gas law came into effect in Indonesia (the "Oil & Gas Law"). The Oil & Gas Law provided, amongst other things, that BPH Migas was to regulate and stipulate the tariff payable for the transportation of gas through gas pipelines in Indonesia.
(b) The first tariff regulations were promulgated in 2005 and the first regulated tariff under the GTA was fixed by decree made in 2005. That regulated tariff corresponded to the Contract Tariff. Consequently, there was no claim by Conoco under the GTA in respect of that regulated tariff.
(c) In July 2008 a new regulation was promulgated in Indonesia pursuant to the Oil & Gas Law which stipulated how the GTA tariff was to be determined (the "2008 Tariff Regulation"). BPH Migas was obliged to have regard to the 2008 Tariff Regulation in fixing the tariff.
(d) TGI and Conoco are obliged to enforce any tariff stipulated pursuant to the 2008 Tariff Regulation. Specifically, Article 21(2) of the regulation provides that "[t]he Transporter and the Shipper must enforce the Tariff."
It is not disputed that in February 2009, TGI made an application to BPH Migas for the Contract Tariff to be increased. It is said that TGI's application was prompted by additional operating, maintenance and capital costs, as well as costs incurred from an annual levy imposed on it by BPH Migas.
Further to the 2008 Tariff Regulation, BPH Migas issued Decree 217 (the Decree) in August 2010 increasing the tariff payable for the transportation of gas in the Grissik-Singapore pipeline from USD 0.69/mscf (the Contract Tariff) to USD 0.74/mscf (the Regulated Tariff).
The Award also deals with claims arising from Decree 261 made by BPH Migas in September 2011 which provides, amongst other things, that users of the Grissik-Singapore pipeline were obliged to tolerate 0.4% loss of gas during transportation. Decree 217 and Decree 261 are together referred to as the "Decrees". The challenge to the Award made in these proceedings is primarily concerned with Decree 217.
As a result of the 2008 Tariff Regulation and its preceding tariff regulations, and the decrees made pursuant to those regulations, TGI maintained that the tariff payable for transportation of gas through the Grissik-Singapore pipeline was no longer a matter of private negotiation between the parties. Rather, legislation made in respect of that pipeline, including Decree 217, overrode the tariff agreement reached between the parties to the GTA. This was accepted by the Tribunal.
The GTA is governed by Indonesian law. Accordingly, TGI submitted in the arbitration that the Tribunal was bound to apply the mandatory rules of the law chosen by the parties to govern the dispute, namely, Indonesian law. This was accepted by the Tribunal. As Indonesian legislation made in respect of the Grissik-Singapore pipeline is a mandatory part of Indonesian law, TGI further submitted that none of the representations or warranties or other terms of the GTA could be enforceable against TGI to the extent that they were inconsistent with or negated the effect of mandatory Indonesian law. For ease of reference this is referred to by TGI as its 'inconsistency defence'.
The Award
The seat of the arbitration was London but a five day oral hearing was held in Singapore in October 2015 following exchanges of statements of case and skeleton arguments. Copies of the written submissions of the parties and of transcripts of parts of the oral hearing, including the evidence of Professor Jimly on Indonesian law were put before the court. TGI summarised the effect of the Award in its skeleton for the court hearing in the following way:
"In the Award, the Tribunal found that the Regulated Tariff was applicable because the parties adopted Indonesian law, without reservation, to govern the GTA, of which the tariff–setting decrees were a part. Accordingly, the Claimant had not breached the tariff provisions of the GTA. Nevertheless, the Tribunal held that the Claimant had breached certain representations, warranties and undertakings in the GTA and breached its duty to perform its obligations under the GTA in good faith. As a result of these breaches, damages were awarded against the Claimant for the Defendants' past and future losses amounting to US$74 million, as well as interest and costs. The measure of damages was expressly calculated so that its effect was to put the Defendants in the same position as if the Contract Tariff applied, rather than the Regulated Tariff. It therefore reversed the tariff increase, since the tariff was a payment between the Claimant and the Defendants. The Tribunal granted this relief notwithstanding its finding that the Regulated Tariff was valid and the provisions of the GTA giving effect to the Contract Tariff were unenforceable."
The challenge to the Award under section 68
TGI contended that its inconsistency defence could be expressed concisely. The argument was that none of the representations, warranties or other terms of the GTA were enforceable to the extent that they were inconsistent with or negated mandatory Indonesian law, including the Regulated Tariff. Evidence was adduced from Professor Jimly as to the principles of Indonesian law and the Tribunal found that both Decree 217 and Decree 261, and the regulation pursuant to which they were made, were mandatory because they were of general application and related to the ordre public of Indonesia. It is said that, however, the Tribunal made a fundamental mistake in its Award by treating TGI's inconsistency defence as a defence of public policy under Article 1320 of the Indonesian Civil Code when TGI's case was simply that, because the Decrees and Regulations pursuant to which they were made were mandatory under principles of Indonesian law, any provisions of the GTA which were inconsistent with those Decrees and Regulations were invalid or unenforceable. The Decrees could not be over-ridden by contract, with the result, in TGI's submission, that a claim based upon promissory warranties about the continuing validity under Indonesian law of the provisions of the contract were inconsistent and unenforceable.
TGI, ambitiously, sought to found its challenge under section 68(2)(a) – failure by the Tribunal to comply with the section 33 general duty of fairness; section 68(2)(d) – failure by the Tribunal to deal with all the issues that were put to it; section 68(2)(b) – excess of powers by the Tribunal; and section 68(2)(g) – the Award was contrary to public policy. The main focus of the argument, however, related to the inconsistency defence, it being suggested that the Tribunal had failed to deal with the main argument put forward for it and had decided the point on the basis of an argument which was not put. Thus it was said that the Tribunal had failed in its general duty of fairness and had failed to deal with all...
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