Aside from the novel fact that a dispute between two Indonesian
companies was settled by an Australian court, the decision in PT
Arutmin Indonesia v PT Thiess Contractors Indonesia is a remarkable
lesson for parties who operate internationally, or hold contracts
subject to foreign laws.
Thiess was engaged by mine operator Arutmin to provide services
under a contract. However changes to Indonesian law required
Arutmin to engage Indonesian companies through a tender process and
if none were available other companies could be engaged. The
Indonesian government then amended Thiess' mining permit so
that it could no longer carry out certain extraction or processing,
which was a component of the work under the contract.
Arutmin argued that the contract was frustrated for supervening
illegality and impossibility of performance due to Thiess'
inability to provide part of the agreed mining services. This was
rejected by the Queensland Supreme Court which pointed out that the
contract provided mechanisms to handle changes to applicable laws
(which Arutmin decided to ignore), and Thiess could have continued
if the scope of its work had been amended. In fact, the Court found
that the alleged frustration was actually brought about due to
Arutmin's default, not supervening illegality.
So what's the lesson to be learned?
Consider a stabilisation clause. Over the life of a contract,
the laws and regulations applicable to it may change. A
stabilisation clause will "freeze" the law applicable to
a contract so that either: (i) changes to legislation enacted after
the date of the contract will not apply, or (ii) if there is an
inconsistency between the contract and any new legislation, the new
legislation will not apply to the extent that it is
Consider mechanisms that account for changes in law. Where a
jurisdiction does not allow for the use of stabilisation clauses,
parties may set out a contractual mechanism that regulates how
change should be dealt with, including whether the services carried
out under a contract may be varied.
A judgment in your favour doesn't mean anything if you
can't enforce it, so consider your dispute resolution options.
If Arutmin don't pay Thiess will try to enforce an Australian
judgment against an Indonesian company in the Indonesian courts.
Good luck with that.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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