Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia
PCA · Investment (ICSID and treaty) · Indonesia · 29 Mar 2019
Why it matters
This case is significant for its detailed analysis of the legality requirement under the BIT, particularly the distinction between investment authorization and compliance with host state law. The tribunal's rejection of jurisdiction due to the investment not being made in accordance with Indonesian law reinforces the importance of legality clauses in investment treaties. It also clarifies the temporal application of BITs to investments made before the treaty's entry into force.
Summary
Indian Metals & Ferro Alloys Ltd (IMFA), an Indian company, invested in PT SRI, an Indonesian company holding a coal mining license (IUP) in East Barito, Kalimantan. The license overlapped with other licenses, rendering SRI's concession useless. IMFA initiated arbitration under the India-Indonesia BIT, claiming expropriation, unfair treatment, and other violations. Indonesia objected to jurisdiction on several grounds, including that the investment was not made in accordance with Indonesian law (the legality objection). The tribunal, applying the BIT and the UNCITRAL Rules, first addressed jurisdiction. It found that the BIT's temporal scope covered investments made before its entry into force, but the investment must be made in accordance with the host state's laws. The tribunal examined Indonesian mining laws and concluded that SRI's IUP was invalid because it was issued in violation of spatial planning requirements and overlapping with other licenses. Therefore, the investment was not made in accordance with Indonesian law, and the tribunal lacked jurisdiction. Consequently, the tribunal dismissed all claims and ordered IMFA to pay Indonesia's costs. The award underscores the critical role of legality clauses in investment treaties and the need for investors to ensure compliance with host state law at the time of investment.
The detail
Parties: Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia
Case number: PCA Case No. 2015-40
Outcome: The Tribunal dismissed all claims and ordered Claimant to pay Respondent's costs.
Applicable law: India-Indonesia BIT (1999), UNCITRAL Rules 1976
Issues in play: The dispute involved the interpretation of the BIT's temporal scope, the legality of the investment under Indonesian law, and the standards of fair and equitable treatment, full protection and security, and expropriation.
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