CHOICE OF LAW

In the DUTCH-INDONESIA BIT

The Case of PT. Newmont Nusa Tenggara and Republic of Indonesia

(ICSID Case No. ARB/14/15)

In July 2014, Newmont Mining Corporation brought a case against Indonesia

using the Indonesia-Netherlands BIT at the International Centre for the Settlement of

Investment Disputes (ICSID). In making the legal claim, the mining giant argued that

the Indonesian Government’s plans to implement a ban on unprocessed mineral

exports would violate the investment agreement between Indonesia and the

Netherlands. The case at ICSID was presented four months after Indonesia announced

it would not renew its Bilateral Investment Treaty (BIT) with the Netherlands when it

expires in July 2015. After one month, Newmont withdrew its case against Indonesia

but only after it had reached an agreement with the Indonesian government, giving the

mining company special exemptions from the new mining law. After Newmont

withdrew its case from ICSID, a Memorandum of Understanding (MoU) was signed

with the Indonesian government, very similar to the one with Freeport, allowing the

company to resume exporting under the condition that it would build a processing

plant to strengthen the country’s mineral industry.1

Article 9 paragraph (4) on the Agreement between the Government of the

Kingdom of the Netherlands and the Government of the Republic of Indonesia on

Promotion and Protection of Investment stated that “Each Contracting Party hereby

consents to submit any legal dispute arising between that Contracting Party and a

national of the other Contracting Party concerning an investment of that national in

the territory of the former Contracting Party to the International Centre for Settlement

1 Hilde van der Pas & Riza Damanik, “The case of Newmont Mining vs Indonesia,”

https://www.tni.org/files/download/newmont-indonesia-case-4.pdf, November 2014, accessed on 19

November 2017.
of Investment Disputes for settlement by conciliation or arbitration under the

Convention on the Settlement of Investment Disputes between States and Nationals of

other States opened for signature at Washington on 18 March 1965.”Hereby it was

agreed by the parties that if in any case there is a dispute arising of the contract, and

the dispute can not be settled amicably by the parties than the parties will have to

submit the case before the Tribunal of International Centre for Settlement of

Investment Disputes.

But like any other BIT, this Dutch-Indonesia BIT did not provide any

clause regarding on which laws are applicable to the dispute. Hence according to

the ICSID Convention it is stated “ in accordance with the law agreed to by the

parties, in the absence of such agreement, a Tribunal shall apply the law of the

Contracting State Party to the dispute and such rules of international law as may be

applicable.” Meanwhile under UNCITRAL Rules it is stated that “as designated by

the parties or, if there is no such agreement, as determined by the Tribunal according

to the choice-of-law rules it considers applicable (1976 Rules) or the“it considers

appropriate”(2010 Rules)”

Hence, according with the ICSID Convention and UNCITRAL Rules, if there

is an absence of the choice-of-law clause in the BIT, then the law applicable must

refer to the law of the Contracting Party or the international law, thus it must refer to

the International Private Law’s principles. In the International Private Law, there are

principles to be referred, such as Lex Loci Contractus, Lex Loci Solutionis, The

Proper Law of the Contract, and The Most Characteristic Connection.

 Lex Loci Contractus is the Latin term for "law of the place where the contract

is made”.2 It generally means that the law of the place where a contract was entered

into should be applied to decide any issue arising out of that contract. 3 Occasionally,

courts also use the phrase to mean the law by which a contract is to be governed.4

Unfortunately, in the Indonesia and Netherlands BIT, it was not clearly stated where

the agreement was signed by each party, or where the contract was made, thus, we

have to refer to the next principle, which is Lex Loci Solutionis. Lex Loci Solutionis is

the Latin term for “The law of the place of performance”, The law of the jurisdiction

in which a contract will be performed or the jurisdiction which a contract is being

performed.5 The agreement was performed as the agreement between PT. Newmont

Nusa Tenggara and the Government of Republic of Indonesia, which the business of

PT. Newmont Nusa Tenggara was conducted in Indonesia, hereby, we can assume

that the law that should be applicable is Indonesian Law.

In the case if Lex Loci Solutionis was not referred by Parties, then the Parties

could refer to the doctrine of The Proper Law of the Contract. To begin with, the

proper law of the contract was the main system of law applied to decide the validity

of most aspects to the contract including its formation, validity, interpretation, and

performance.6 Each state produces a set of rules to guide the choice of law, one of the

most significant rules which the law applied in any given situation was the proper

2 US Legal, “Lex Loci Contractus”, https://definitions.uslegal.com/l/lex-loci-contractus/,

accessed on 19 November 2017.

3 US Legal, “Lex Loci Contractus Law and Legal Definition “,

https://conflictoflaws.uslegal.com/laws-applicable-to-contracts/lex-loci-contractus/, accessed on 20
November 2017.
4 Ibid.
5Oxford References, “lex Loci Solutionis”,

http://www.oxfordreference.com/oso/viewentry/10.1093$002facref$002f9780195369380.001.0001$002f
acref-9780195369380-e-1257;jsessionid=C9B679D6510591F4557F8997DC7145F5, accesed on 20
November 2017.
6 Law Teacher, “The Proper Law of The Contract”, https://www.lawteacher.net/free-law-

essays/commercial-law/the-doctrine-of-proper-law-of-contract-commercial-law-essay.php, accesed on
20 November 2017.
law, this is the law which seems to have the closest and most real connection to the

facts of the case.7

The last but not least is the doctrine of The Most Characteristic Connection, is

the law of the Party who is performing business which is the characteristic of the

agreement (the main characteristic of the contract). The party doing the performance

of the contract is of course PT. Newmont Nusa Tenggara which was performing the

mining business in Indonesia, thus according to this doctrine, Dutch Law is applicable

to the dispute.

7 Ibid.