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 inconsistent.
- 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.