England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		10th November 2016

Sir Jeremy Cooke:

Introduction

1. 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.
2. I take the background facts largely from TGI's skeleton argument for its application.
3. 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

4. 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.
5. 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.
6. 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."

7. 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.
8. 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).
9. 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.
10. 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.
11. 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

12. 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

13. 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.
14. 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 the issues which were put before it.

The inconsistency defence

15. The court was taken to the statements of case, written and oral submissions of the parties in some detail to show what exactly had been said to the Tribunal by TGI in one form or another and what had been understood by Conoco. The Tribunal itself, in its Award, made express reference to TGI's Statement of Defence, its Statement of Rejoinder and its Closing Presentation. It is not suggested that the Tribunal misquoted those parts of the documents to which it referred but it is suggested that they constituted an inadequate description of the arguments put and therefore failed properly to summarise TGI's contentions.
16. It is clear from the terms of the Award that the Tribunal found in favour of TGI in relation to the mandatory nature of the two Decrees and the Regulation under which they were promulgated. They found in terms that the effect was that from 11 August 2010 TGI could no longer charge the US dollar 0.69/mscf Tariff provided for in the GTA and that the Tariff provisions of the GTA were thus rendered unenforceable. Moreover, as a consequence of that, the Tariff provisions of the GTA were deemed to be deleted with effect from that date.
17. In consequence, they found, at paragraph 7.2.58 of the Award, that the effect of Decree 217, as a mandatory regulation under Indonesian law, had the effect of displacing or restricting Conoco's ability to rely upon the provisions of the GTA insofar as those provisions purported to preserve the original tariff agreed under the novated GTA. The tribunal referred to specific Articles of the GTA in that connection but TGI complained that, excluded from this list were the promissory warranties which the Tribunal found, later in the Award, to have been breached. At paragraph 7.2.59 of the Award, the arbitrators held that the effect of their conclusion in their preceding paragraph was that Conoco's case based on a breach by TGI of the GTA Tariff provisions must fail. They went on to find that the "no amendment provisions" of the GTA, which provided that there could not be an amendment except by agreement in writing signed by the parties was not breached and went on to deal with a series of representations and warranties in the GTA at paragraph 7.4 of the Award onwards.
18. Those which were alleged to have been broken were the representations, warranties and undertakings set out in Articles 21.1(c), 21.1(d), 21.2(a) and 21.5(b) of the GTA.
19. As to the first of these, Article 21.1(c), the Tribunal found that a promissory warranty that neither the execution of, nor the performance of TGI's obligations under the GTA or the Pipeline System Rules did or would violate any law or regulation to which TGI was subject, although reinforced by Article 21.5(a) which provided that the warranties should remain true, accurate and in force throughout the term of the GTA, was not broken. Relying on their earlier conclusion that the tariff provisions were rendered unenforceable at 11 August 2010, performance of TGI's obligation in relation to the tariff thereafter required charging at the enhanced rate set out in Decree 217, (the Regulated Tariff) rather than at the original rate (the Contract Tariff), As the Decrees were valid and mandatory Indonesian law, there was no violation of Indonesian law in charging at that rate - to the contrary, TGI was required to do so.
20. The Tribunal, however, went on to find that there was a breach of the promissory warranties set out in the other Articles to which I have just referred, namely Articles 21.1(d), 21.2(a) and 21.5(b) of the GTA, as well as Article 26.2(a) of the Pipeline System Rules.
21. The terms of Article 21.1(d) were critical to the Tribunal's decision. Insofar as material it provided:

"TGI represents, warrants and undertakes to [Conoco] that … this agreement, the PGN System Rules and the Co-ordination Agreement constitute legal, valid, binding and enforceable obligations of [TGI] in accordance with their terms … and this Agreement, the PGN System Rules under Co-ordination Agreement … contain no provision which is contrary to Indonesian law or which would not be upheld by the courts of Indonesia …"

22. This was supported by Article 21.5(a) which stated that Article 21.1(d), inter alia, would remain true, accurate and in force throughout the term of the GTA.
23. Because of their earlier finding on the validity of Decree 217 and Decree 261, the Tribunal was bound, therefore, to hold that the Tariff provisions of Article 6 of the GTA, as well as the terms of the GTA and the Pipeline System Rules that had been displaced by the Decrees, no longer continued to constitute legal, valid, binding and enforceable obligations on TGI, with the result that TGI was in breach of the promissory warranty contained in Article 21.1(d).
24. In similar vein, Article 21.2(a) was a provision under which TGI undertook:

"to obtain, maintain and comply with … all applicable laws and regulations as are necessary to enable [TGI] to fulfil in all material respects its obligations under this Agreement, the PGN System Rules and the Co-ordination Agreement throughout the term thereof and to enforce the same in good faith to the extent necessary to comply with its obligations under this Agreement, the PGN System Rules and the Co-ordination Agreement."

25. The Tribunal, pointing out that this obligation continued to operate throughout the term of the GTA, went on to find that, rather than seeking to obtain and maintain such Indonesian laws and regulations as were necessary to allow it to fulfil its obligations under the GTA and the Pipeline System Rules, TGI did exactly the opposite. In a series of seventeen private meetings with the Regulator, it sought and ultimately obtained from the Regulator the tariff increase for the service it provided under the GTA and approval for an Access Arrangement which displaced entirely the provisions of the Pipeline System Rules. The Tribunal thus found that TGI had breached the undertaking given under Article 21.2(a).
26. Of less significance, perhaps, was the breach found of Article 21.5(b) which required each party to undertake to notify the other parties of any matter or event coming to its attention at any time which showed that any of the undertakings given in Article 21.2 was expected to be, had been or might reasonably be expected to be breached or not performed in any material respect. Article 26.2(a) of the Pipeline System Rules was in similar terms to that of Article 21.2(a), save that the relevant compliance was to be with the Pipeline System Rules, rather than the GTA. That too, the Tribunal found, was breached by the meetings with BPH Migas and the presentation of an Access Arrangement which purported to terminate and replace the Pipeline System Rules in their entirety and which was put into effect by Decree 261. Thus, instead of maintaining and complying with all applicable laws and regulations to fulfil the Pipeline System Rules, TGI procured the setting aside of those rules and their replacement with the Access Arrangement with the provisions in it which were more advantageous to it and disadvantageous to Conoco.
27. Unsurprisingly, the arbitrators went on to find that there was a breach of the duty imposed by Indonesian law on TGI to act in good faith in performing the GTA. It was in these circumstances that the Tribunal then came to consider the inconsistency defence from paragraph 7.7.13 onwards in the Award. That paragraph reads as follows:

"[TGI's] final argument against an award of damages [in respect of the breaches of promissory warranty] is that any such an award would be inconsistent with/negate BPH Migas determination of TGI's income based on the tariff adjustment it made in Decree 217. The argument evolved over the course of the written and oral submissions."

28. In the succeeding paragraphs 7.7.14-7.7.16, the arbitrators referred to the submissions made by TGI in its Statement of Defence, its Statement of Rejoinder, and its Closing Presentation. Having done so, it then stated that the only Indonesian legal authority put forward by TGI in support of its argument of inconsistency was to be found in paragraph 152 of its Statement of Defence which contended that:

"The invalidity and unenforceability of Articles 13.3(a)(iii) and 23.1(g) of the GTA is also confirmed by Article 1320 and Article 1337 of the Indonesian Civil Code. Article 1320 confirms that a valid agreement must have a lawful cause and Article 1337 provides that a cause is forbidden if it is forbidden by the law, or if contrary to good morals or the public order."

29. The arbitrators then went on to find that Article 1320 was nothing to the point as there was no suggestion and no authority for the proposition that the giving of warranties, representations or undertakings in an agreement was unlawful in Indonesia. The Tribunal concluded, in consequence, that the promissory warranties in Articles 21.1(d), 21.2(a) and 23.2 of the GTA and Article 26.2(a) of the Pipeline System Rules did not fall foul of Article 1320. In relation to Article 1337 it was again pointed out that the Tribunal had been shown no Indonesian law which prohibited the claim for damages for breach of the promissory warranties and therefore, unless the giving or enforcement of those warranties was contrary to morality or public order, Article 1320 could not apply. At paragraph 7.7.20, the Tribunal stated that:

"Although it was nowhere plainly stated in the written proceedings, it became apparent at the oral hearing that TGI's inconsistency defence against an award of damages for its breach of its representations, warranties and undertakings (or for its breach of its obligation of good faith) rested on the argument that to make such an award would be contrary to Indonesian public policy (Article 1320's morality or public order wording."

30. Paragraph 7.7.25 of the Award then set out TGI's argument that the Oil & Gas law and the 2005 and 2008 Tariff Regulations indicated that it was Indonesian public policy that TGI should achieve a particular annual rate of return in each year of operation of the Regulated Tariff that was established by Decree 217. That policy would be breached if TGI was obliged to pay an award of damages because its income would not be at the level it would have achieved had it been paid the increased Tariff without being obliged to compensate Conoco for its contractual breaches.
31. The Tribunal went on to find that there was no evidence of any such public policy of Indonesia which prevented the operation of the promissory warranties, a finding of Indonesian law which is not and could not be challenged. Further, the Tribunal found that even if there had been any such evidence, it would have been necessary to weigh that against other public policy considerations in Indonesia, namely the sanctity and enforceability of contracts.
32. What is said however is that, in determining the dispute in this way, the Tribunal failed to deal with the primary argument put forward by TGI which was simply to the effect that, because the Decrees constituted mandatory law, anything inconsistent with them in the GTA was of no effect.

TGI's submissions to the Tribunal

33. Procedural Order No. 1 provided that, for each of their written submissions, the parties should indicate clearly the documentary evidence invoked in support, including legal authorities relied on. It also stated that the Tribunal would treat the pre-hearing skeleton arguments as containing each parties' best case on facts and law at the time of exchange. All legal authorities relied on in those arguments were to be produced separately and highlighted as to those parts to which the arbitrators' attention was to be drawn.
34. In TGI's Statement of Defence and Counterclaim, at section V, under the heading "Legal Analysis" TGI relied on the expert report of Professor Jimly, in stating that "a law is mandatory if the law relates to public order". TGI submitted that Decrees 217 and 261 both related to public order and if TGI were to agree with Conoco not to comply with those Decrees it would be committing a tortious act and would be contravening Article 23(a)(b) of the General Regulation on Laws and Regulations for Indonesia, since this provided that no agreement could waive Regulations relating to public order. "Further, giving effect to such an agreement would be contrary to Article 1337 of the Indonesian Civil Code, as it would be giving effect to an agreement contrary to Regulations and the Decrees, and hence contrary to public order." At paragraph 147 of TGI's Statement of Defence and Counterclaim, in support of the proposition that the Decrees and Regulations were mandatory Regulations, it was stated that they were such because they related to public order. It was contended that the Tribunal should give effect to mandatory rules of the proper law of the contract chosen by the parties and in so doing should not give effect to any agreement between the parties to that contract purporting to exclude those rules which would otherwise apply under the chosen law.
35. At paragraphs 151-153 of TGI's Statement of Defence and Counterclaim, the following appears:

"2.3 Any provisions of the GTA which are inconsistent with the Decrees and Regulations are invalid or unenforceable.

151 It follows from the above that any provisions of the GTA which are inconsistent with the Decrees or the Regulations are invalid or unenforceable.

152 The invalidity and unenforceability of Articles 13.3(a)(iii) and 23.1(g) of the GTA is also confirmed by Articles 1320 and Articles 1337 of the Indonesian Civil Code. Article 1320 confirms that a valid agreement must have a lawful cause and Article 1337 provides that a cause is forbidden if it is forbidden by law, or contrary to good morals or the public order.

153 Based on the principles explained above, other provisions of the GTA which are inconsistent with the Decrees or the Regulations and also unenforceable are listed in Schedule 3 of this Statement of Defence."

36. In oral argument in this court, TGI contended that paragraphs 147 and 151 represented its primary argument whilst paragraph 152 represented an alternative or additional argument. The former was not based on public policy; the latter was. It was said that the Tribunal had failed to deal with the primary argument which was that, because the Decrees were mandatory, any provisions of the GTA which were inconsistent with the Decrees (or the Regulations) were unenforceable. Reliance was placed upon the words in paragraph 151- "it follows from"- as set out above.
37. There is one overwhelming difficulty with this argument, as was pointed out to the Tribunal by Conoco, namely that it is impossible to identify any inconsistency between the terms of the Decrees on the one hand and the promissory warranties as to the continued lawfulness of performance of the GTA on the other. The terms of Decree 217 changed the tariff to be charged but did not touch upon the validity of any promissory warranty of the kind upon which Conoco relied. In consequence, if the point was to be made at all, it had to be made upon the basis that there was some underlying policy/public policy which meant that the Decree was to have the effect that TGI should actually receive income equivalent to the new tariff rate, with the result that any provision which provided for compensatory damages for a change in the law was to be ineffective. The point could not be made good solely on the wording of Decree 217 or the Regulation. There was therefore no inconsistency between the promissory warranties and the Decrees or the Regulation per se.
38. What is then described as an alternative argument appears therefore in reality to be the only available argument. This was set out in paragraphs 152 and 153 of TGI's Statement of Defence and Counterclaim. Paragraph 152 refers in the first line specifically to two Articles of the GTA which deal with the waiver of inconsistent provisions of Indonesian law and the entire agreement clause which were said to be unenforceable by reason of Articles 1320 and 1337, where the reference is made to that which is "forbidden by the law, or contrary to good morals or the public order". Paragraph 153 then relied on the same principles in relation to other provisions of the GTA which were said to be inconsistent with the Decrees or Regulations and listed those in Schedule 3 to the Statement of Defence and Counterclaim.
39. At Schedule 3, in a table, appears a number of Articles including some which were asterisked. The asterisk was said, in the Schedule, to designate a provision which was inconsistent with the GTA under an alternative argument put forward at paragraphs 151-153 of the Statement of Defence and Counterclaim. Each of Article 21.1(d), 21.2(a) and 21.5(b) were so asterisked.
40. In the Statement of Rejoinder, the inconsistency argument can be seen from paragraphs 12, 29, 32 and 49. There, it was stated that the object of the Regulations was to achieve an internal rate of return equating with TGI's weighted average cost of capital and that any attempt to undo the impact of the Regulations through representations and warranties was directly contrary to the Regulations (paragraph 12). At paragraph 32 it was said that TGI could not "absorb" the effect of the Decrees and that any provision of the GTA which had that effect was unenforceable as being contrary to the Decrees themselves. This was further explained at paragraph 49 where it was said that if the promissory warranties had the effect of allocating the risk of the changes to the Tariff and the changes effected by the Access Arrangement back to TGI, then those provisions were directly inconsistent with the Decrees and the Regulations under which they were made. Such provisions were therefore unenforceable.
41. It can therefore be seen that, by the time of the Rejoinder, the inconsistency argument was being put on the basis that the promissory warranties undermined the economic effect of the mandatory law in allocating the risk of changes to the Tariff to TGI. As the Decree nowhere stated this and it was never suggested that it did, the argument could only rest upon some underlying policy rationale.
42. In TGI's skeleton argument for the five day hearing, at paragraphs 33 and 34, TGI said that any representations and warranties which sought to undo the impact of the Decrees were inconsistent with the Decrees and were unenforceable under the relevant principles of Indonesian law. This was footnoted with references to the paragraphs of the Statements of Defence and Counterclaim and Rejoinder to which I have already referred, including in particular paragraphs 151-153 of the former.
43. In its oral opening at the hearing, Conoco's advocate advanced four reasons against the contention that the promissory warranties were in some way inconsistent with the Decrees and therefore unenforceable. The first point was that the argument conflated the Decrees with the impact of them. There was nothing, it was pointed out, in the Decrees themselves, which prevented parties from agreeing to assume risks associated with mandatory laws. The second argument was based on the fact that TGI had procured the change in the law, thus breaching its undertakings.
44. In TGI's oral opening, its advocate stated that the key point in the Regulation was the concept of the internal rate of return which would equal the weighted average cost of capital. Two of the arbitrators asked the advocate why the obligation to enforce the Tariff under the mandatory law would have the effect of prohibiting a private agreement between the parties whereby one was bound to compensate the other for a change in the law. The answer given by the advocate was that it was not a question of whether the tariff prohibited the private agreement. It was a question of application of the mandatory law. When pressed on the point as to why there could not be an agreement to shift the risk of a change in the regulations, the advocate agreed that this would be because it was said to violate the public purpose behind the regulations. It was said that the Indonesian Government required the Government-regulated entity to receive a certain amount of income so there could be no shifting of the "allocation of economic effect" which undermined the purpose underlying the Tariff change. The requirement of the Regulator would be frustrated because the Regulator required a certain level of income and the Regulator was charged with the responsibility of ensuring that an important piece of infrastructure, important to the Indonesian people and to the Indonesian Government, was maintained.
45. In its closing submissions to the Tribunal, Conoco referred to TGI's defence in respect of the promissory warranties as being the unavailability of compensation for breach because of its inconsistency with the public order and the Decrees themselves. The point was made that TGI had procured the Decrees, that compensation for a contract breach was different from a refusal to apply the Decree and in fact deductions had previously been made from the Tariff rate. Reliance was also placed on what appears to have been an acceptance by Professor Jimly in answer to questions from the Tribunal, that parties could, as a matter of private civil law, agree to pay compensation for a change in the Tariff.
46. In its closing, TGI contended that once Indonesian law had been chosen as the proper law, its mandatory laws had to be applied even if they were characterised as purely domestic public policy. The mandatory law was about a regulator saying that TGI should receive a certain level of income, that being a regulatory function performed in the public interest. Where the intended economic effect of the decree was undermined by some other allocation of responsibility by the contract, the intention of the Regulation was defeated. Emphasis was placed on the public function of the regulator and the public duty to make sure that the pipeline, which was a public infrastructure, was maintained for the national good of the Indonesian Government and people. This was the basis upon which it was being said that the promissory warranties were unenforceable as being inconsistent with the mandatory law.
47. In the final reply submissions of Conoco and in its written outline of its closing argument at the arbitration hearing, it was pointed out that there were no legal sources and no legal authority relied on for the proposition that the party was prohibited from doing or enforcing promissory warranties which had the effect of assuming the risk of a change in the local law. In a slide presentation to the Tribunal in its closing, TGI had stated that the relief claimed by Conoco sought to negate the effect of the stipulated Tariff and that the representations and warranties relied on were unenforceable to the extent that they were inconsistent with mandatory Indonesian law. Reference was made to the Statement of Defence and Counterclaim but the only rationale put forward for the inconsistency of the promissory warranties with the Decree was a separate slide to which the Tribunal itself referred at paragraph 7.7.16 of its Award, where the headline point was that Decree 217 "determines TGI's income and any award would negate that termination".
48. In the result, the arbitrators held that the assertion of inconsistency with the mandatory law could only be founded on some concept of policy, which, in the context of Decrees which were said to be mandatory because they related to public order, meant the public policy which underlay the Regulation and/or Decrees. As was submitted by Conoco to this court, the concepts of mandatory law, public order (ordre public) had to be combined by TGI in order to make any semblance of an argument that the promissory warranties were unenforceable. That was the point that was made by the arbitrators at paragraph 7.7.20 of the Award.

The section 68 challenges

49. TGI accepted that it had to establish that a serious irregularity had occurred which fell within the closed list of matters set out in section 68(2) of the Act and that such a relevant serious irregularity had caused or would cause it substantial injustice. It further accepted that section 68 imposes a high threshold and should be viewed as a "long stop, only available in extreme cases, where the Tribunal has gone so wrong in its conduct of the arbitration in one of the respects listed in the section, that justice calls out for it to be corrected". There is an abundance of authority to this effect to which I need not recite.

Ground 1 - The Tribunal failed to comply with section 33 of the Act in determining the dispute on the basis of an issue that neither party had raised nor had an opportunity to address – section 68(2)(a) of the Act.

50. It was said that the Tribunal committed a serious irregularity here by purporting to decide a key issue in the arbitration on a basis for which neither party had made submissions, namely public policy. The Tribunal therefore failed to give the claimant a reasonable, or in fact any, opportunity to state its case as was required by section 33 of the Act.
51. This argument is untenable. It was accepted in argument before the court that, at the very least, paragraphs 152 and 153 of the Statement of Defence and Counterclaim and Schedule 3 thereto put forward an alternative argument based on public order or public policy by reference to Articles 1320 and 1337 of the Indonesian Civil Code. This argument the Tribunal, undoubtedly and admittedly, determined against TGI.
52. I find it difficult to understand how this ground could ever have been put forward in the light of paragraphs 151-153 of the Statement of Defence and Counterclaim and the way in which the argument was developed as set out earlier in this judgment.

Ground 2 – the Tribunal exceeded its powers by issuing an award which is contrary to Indonesian law – section 68(2)(b) of the Act

53. This ground is also untenable. It amounts to no more than saying the arbitrators erred in the application of Indonesian law. As Lord Steyn explained in Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 at paragraph [24] at page 223, the question to be addressed is whether the Tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is the latter, no excess of power under section 68(2)(b) is involved. Section 68(2)(b) assumes that the Tribunal has acted within its substantive jurisdiction and, as explained at paragraph [31] by Lord Steyn, the sub-section is aimed at the Tribunal exceeding its powers under the arbitration agreement, the terms of reference or the 1996 Act. In order to decide whether the sub-section is engaged it is necessary to focus on the particular power under an arbitration agreement, the terms of reference or the Act which is involved, assessed in all the circumstances of the case. An exercise of an available power, an error of law or an error of fact would not amount to an excess of power under section 68(2)(b).
54. What is alleged here is that the Tribunal exceeded its power under section 46(1) of the Act which requires that a Tribunal shall decide the dispute "in accordance with the law chosen by the parties as applicable to the substance of the dispute". In the present case that was Indonesian law.
55. The argument proceeds on the basis that the Tribunal found that Decree 217 is a mandatory regulation under Indonesian law because of its general application and as such displaced or restricted Conoco's ability to rely on the provisions of the GTA insofar as those provisions purported to preserve the Contract Tariff. It is then said that, despite these findings, the Tribunal made an order which was designed specifically and expressly to circumvent mandatory Indonesian law. The damages awarded to Conoco were calculated to put the parties in the same position as if the Contract Tariff applied rather than the Regulated Tariff, by awarding compensation in respect of the difference between the two, brought about by the Decree which TGI had procured. The conclusion drawn is that in doing so, the Tribunal has made an award which is contrary to Indonesian law. Analysing the issue as a matter of language, context and logic, the Tribunal has rendered an award that was beyond its power to render. This argument is ill-founded because what is actually being said is that the Tribunal erred in its application of Indonesian law, which is for the purposes of this application in this court, a question of fact. The Tribunal held that the result flowed from the contractual promissory warranties, as a matter of the law of Indonesia, which they sought to apply. There is no question of the Tribunal exceeding its powers in making that decision. The complaint is simply that the Tribunal was wrong.
56. In my judgment, this is a ground which should never have been put forward.

Ground 3 – the Tribunal failed to deal with an issue put to it by failing to deal with the Inconsistency Defence - section 68(2)(d) of the Act

57. I have set out earlier in this judgment the way in which the arguments were presented to the Tribunal and the way in which the Tribunal determined the matter in its Award. The first point to note is that the arbitrators plainly determined the inconsistency defence, as they saw it. In paragraphs 7.7.13-7.7.30 of the Award, they determined the point against TGI.
58. It is in this connection that I was referred, inevitably, to Petrochemical Industries Co (KSC) v Dow Chemical Co [2012] 2 Lloyd's LR 691 where Andrew Smith J at paragraph [16] set out the distinction drawn in the authorities between on the one hand "issues" and on the other hand what are variously referred to as "arguments", "points", "lines of reasoning" or "steps" in an argument. As he put it, the concern has sometimes been emphasised by reference to "essential", "key", or "crucial" issues but he considered that those adjectives simply alluded to the requirement of the Act that the serious irregularity had to result in substantial injustice rather than providing a gloss on the words of the statute itself.
59. It is clear that a Tribunal does not have to set out each step by which it reaches its conclusions or deal with every point made by a party in an arbitration. Nor does a Tribunal fail to deal with an issue that it decides without giving reasons. As the judge held at paragraph [27], in considering an award in order to decide whether a Tribunal has dealt with an issue, the approach of the court is to read the award in a "reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it". This approach may involve taking account of the parties' submissions when deciding whether, properly understood, an award deals with an issue. Although submissions do not dictate how a Tribunal is to structure the disposal of a dispute referred to it, often awards do respond to the parties' submissions and they are not being interpreted in a vacuum.
60. In my judgment, it is plain that the arbitrators did deal with the "inconsistency defence" as it was referred to. The reality of the matter is, as appeared from the parties' submissions, and as the arbitrators found, that there was no authority put forward in support of the argument other than what appeared in paragraphs 151-153 of the Statement of Defence and Counterclaim. The assertion of inconsistency gained no support from the wording of Decree 217 itself and the only arguable basis which TGI could and did put forward was that of a policy/public policy which underlay the Regulation and Decree which was said to have the effect that the parties were prevented from agreeing to allocate the risk of changes in the Tariff.
61. There was no serious irregularity in dealing with the inconsistency defence in the way the Tribunal did nor in saying, as it did, that the argument had evolved over the course of the written and oral submissions. In the context of the submissions and the questions asked by the Tribunal itself, it obviously became increasingly plain to them that there was no basis for the advancement of the inconsistency defence, save for some policy which would prevent the promissory warranties from being effective. As described by Conoco in its skeleton argument to this court, TGI's presentation of its defence to the promissory warranties in the arbitration was amorphous and difficult to address because there was nothing to support the assertion that there was a mandatory requirement under Indonesian law that TGI's income levels be protected and thus prohibited an award of damages. The Tribunal appears to have struggled to understand the basis upon which the defence was being put, and the bald assertion of inconsistency- hence the questions being asked by them of TGI's advocate (and later repeated in a different form to their expert Professor Jimly, who appeared to accept that the private agreement of the parties in the promissory warranties could be effective). Apart from the policy argument, there was nothing to be said.
62. Taken all in all, the nub of the issue was whether there was a mandatory requirement under Indonesian law that TGI's rate of return be protected with the result that there could be no award of damages against it for breach of promissory warranty. That issue was argued, was the subject of such evidence as could be adduced in relation to it, was considered and was decided against TGI by the Tribunal. As is plain from the terms of the Award, the only legal basis the Tribunal could ascertain for putting forward the inconsistency defence were the Articles of the Indonesian Civil Code which they found to be irrelevant unless there were aspects of public policy which fell to be considered. They found that there were none.
63. So far from there being a fundamental mistake upon the part of the Tribunal in mis-stating the inconsistency defence by describing it as a public policy defence when it was a mandatory law defence, in not addressing the inconsistency defence as a defence and instead addressing an entirely different issue, namely a public policy defence, the Tribunal did deal with the issue put before it and the only rationale that TGI was able to present in support of that defence.
64. The final point taken by TGI in this connection rests upon what it contended to be a "glaring illogicality in the reasoning of the award" inasmuch as the Tribunal found that the Regulated Tariff had to be given effect but on the other hand awarded damages which reverse the impact of that Tariff being charged. There is, for the reasons set out above, no glaring illogicality at all. The promissory warranties were, as found by the Tribunal, designed to impose responsibility on TGI for any changes in the law which gave rise to damaging results to Conoco. Those warranties would only bite in circumstances where there was such a valid change in the law, as was found to have occurred here. There was therefore no glaring illogicality contained in the central reasoning in the Award within the meaning of paragraph [21] of Metropolitan Property Realisations Ltd v Atmore Investments Ltd [2008] EWHC 2925 (Ch).
65. In my judgment, this ground was also doomed to fail from the outset. Whilst those responsible for bringing this application do not appear to be those who presented TGI's case in the arbitration, an examination of the submissions and the Award reveals the position as I have stated it to be.

Ground 4 – the Award is contrary to public policy - section 68(2)(g) of the Act

66. Under this head it is said that the Award orders TGI to pay damages to Conoco notwithstanding that such payment is designed to circumvent Indonesian legislation and is therefore a breach of mandatory laws of Indonesia, the governing law of the GTA and the place where the agreement out of which the arbitration arose is to be performed. In support of this contention, TGI produced another report from Professor Jimly in which he expressed the view that the Award, in finding that the promissory warranties were enforceable, was inconsistent with Decree 217 (without providing any further rationale for that), that the Award was not enforceable in Indonesia in consequence, being "contrary to public order and public interest" and that both Conoco and TGI would be in breach of mandatory Indonesian law if the Award was enforced outside Indonesia. He also expressed his opinion that if the Award was paid by TGI, it would be in breach of its obligation to enforce the Tariff provisions and could be exposed to sanctions threatening its business activities.
67. The essence of the point being taken here is the same as that which was taken in the arbitration and decided against TGI by the Tribunal. It is once again being said that the Tribunal erred in its application of Indonesian law. This does not however engage English public policy. TGI accepted, on the basis of paragraph [10] in the judgment in Cuflet Chartering v Carousel Shipping Co Ltd [2001] 1 AER (Comm) 398, where a dictum of Sir John Donaldson MR was cited, that "it has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the State are exercised."
68. As has been previously stated, it is neither necessary nor desirable to attempt to define the circumstances in which section 68(2)(g) can be invoked. It is however clear in my judgment that this Award could not be set aside because it is contrary to English public policy.
69. What is said is that, despite the Tribunal finding that there was no evidence that its award of damages for breach of the promissory warranties would constitute a violation of Indonesian public policy, performance of the Award would be illegal in Indonesia, the place of performance of the GTA and a friendly foreign State. Consequently, the Award was said to be contrary to English public policy on the basis that an English court will decline to enforce an English law contract in which two parties agree to infringe Indonesian mandatory law in Indonesia.
70. Whatever may be the position about enforcement of the Award in Indonesia, the arbitrators have reached conclusions on Indonesian law which are unchallengeable here for the reasons already given. The point being advanced in this court, albeit on the basis of fresh evidence to which there has been no objection as such, amounts to an attempt to relitigate the very points which have been decided in arbitration.
71. Furthermore, the Award does not require performance in Indonesia in any event. The Award may be enforced in any number of countries in the world where TGI may have assets. Questions of enforceability in those jurisdictions will be a matter for the public policy of that country. So far as this country is concerned, it cannot be contrary to English public policy to uphold the Award of arbitrators who have considered the question of Indonesian public policy and concluded that no basis has been put forward which could establish the unenforceability of the promissory warranties. The decision of the Court of Appeal in Westacre Investments Inc v Jugo Import-SPDR Holding Co Ltd [2000] 1 QB 288 is in point in the context of enforcement of an award and the same principles apply to the application to set it aside.
72. In these circumstances, there can be no basis for setting aside the Award on this ground either.

Enforcement of the Award

73. The same public policy point was taken by TGI in relation to enforcement of the Award as was taken in support of the argument for setting it aside. It must fail for the same reasons. Apart from that point, the only points which TGI otherwise sought to make against enforcement of the Award related to the asserted absence of any TGI assets in the jurisdiction and the potential sanctions to which TGI might be subject in Indonesia if the Award was enforced against it. These were said to be discretionary factors which the court could take into account, as compared with the absence of prejudice to Conoco if the order for enforcement were not made.
74. None of these factors carry any weight at all in the context of the application to enforce the Award. In the absence of any basis for setting aside the Award, Conoco is entitled to an order under section 66 of the Act whether or not there are any TGI assets in the jurisdiction and whatever consequences there may be to it or to TGI in consequence.

Conclusion

75. In these circumstances:

(1) TGI's section 68 application is dismissed. In my judgment, it is an application which should never have been brought.

(2) Conoco's application for leave to enforce the Award in the same manner as a judgment of this court is granted.

76. It is self-evident that costs must follow the event. The parties may be able to agree on the basis and quantum of the costs order and the overall form of order which follows from this judgment and I invite them to do so. In the absence of agreement, I will make any necessary determination.