(September 22, 2022) In Indonesia, arbitration is regulated by Law No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (“Law 30/1999”).
As defined in Law 30/1999, arbitration is a method for civil dispute settlement outside of litigation proceedings, based on an arbitration agreement that is made in writing by both disputing parties. Arbitration involves an arbitrator, or panel of arbitrators, who acts as a neutral third party to examine the case and render a final and binding decision for both disputing parties. Unlike court proceedings, the arbitration process is carried out in a closed and confidential manner, and thus can only be attended by the disputing parties.
As mentioned above, an arbitration can only be carried out if there is an arbitration agreement made in writing by the disputing parties. Arbitration agreement refers to an agreement in the form of an arbitration clause in a written agreement that is made by both parties before the dispute occurs. Usually, parties include an arbitration clause in the dispute resolution clause in the primary agreement. However, parties that do not include an arbitration clause in the primary agreement can reach a separate arbitration agreement after a dispute has occurred.
Pursuant to Article 11 paragraph (1) of Law 30/1999, the existence of an arbitration clause in an agreement negates the right of the parties to bring a dispute to the district courts. Thus, district courts may not intervene in a dispute that the parties have agreed to settle through arbitration.
Notice of Arbitration
In addition to the arbitration agreement requirement, an arbitration can only be conducted if the claimant has notified the respondent in advance by an official note, telegram, telex, facsimile, email, or expedition book (no definition provided in Law 30/1999). This notification shall inform the respondent that the prerequisites for carrying out arbitration, i.e., fulfilment of the terms and conditions to carry out an arbitration provided in the arbitration clause and Law 30/1999, as well as its notification, have been fulfilled and thus the parties can move forward with the arbitration proceedings.
The notice to arrange arbitration must contain:
- names and addresses of both parties;
- reference to the relevant arbitration clause or agreement;
- agreement or issue that is the subject of the dispute;
- grounds for any claims and the amounts that are claimed, if any;
- the desired method of settlement; and
- agreement between the parties regarding the number of arbitrators, or if no such agreement exists, the claimant may propose the desired number of arbitrators (must be an odd number).
Disputes That Can Be Settled by Arbitration
Not all disputes are eligible to be resolved by arbitration. Disputes that can be resolved by arbitration are only disputes in the field of trade and disputes regarding rights which according to laws and regulations are fully controlled by the disputing parties.
Article 66 letter b of Law 30/1999 stipulates that the scope of trade law refers to activities in the following sectors:
- capital investment;
- intellectual property rights.
As provided under Article 48(1) of Law 30/1999, the examination of a dispute in an arbitration shall be completed within a maximum of 180 days after arbitral tribunal is formed. However, this can be extended with the approval of the disputing parties and if deemed necessary by the arbitrator(s) for any of the following reasons:
- there is a submission of a petition by one of the disputing parties concerning a special matter, for instance a claim outside of the merits of the dispute;
- as a consequence of the establishment of a provisional award or other interlocutory award; or
- for examination purposes by the arbitral tribunal.
The arbitrator(s) must issue an arbitral award a maximum 30 days after the examination has been concluded. An arbitral award is final and binding to the parties, and thus no legal remedies (e.g., appeal, cassation, judicial review) can be submitted against the arbitral award. Pursuant to Article 56(1) of Law 30/1999, the arbitrator(s) may issue an arbitral award based on legal provisions or based on the view of justice and propriety (ex aequo et bono). However, the arbitrator(s) can only apply the principle of ex aequo et bono if authorized to do so by the disputing parties in the underlying arbitration agreement.
If the arbitrator(s) is given the authority to issue an arbitral award based on the principle of ex aequo et bono, the material legal provisions can be set aside. If the arbitrator(s) is not authorized to issue an arbitral award based on ex aequo et bono, the arbitrator(s) may only issue an arbitral award based on material legal provisions, as is done by judges in court proceedings. Nevertheless, the law of coercion (dwingende regels) must still be applied by the arbitrator(s).
Parties can waive the maximum time limit for the examination of a dispute and the application of the principle of ex aequo et bono in the arbitration agreement.
Within a maximum of 30 days from the date the award is pronounced, the original or an authentic copy of the arbitral award must be submitted and registered by the arbitrator or his/her proxy to the Registrar of the District Court where the respondent is domiciled. Thus, if one of the parties does not implement the arbitral award voluntarily, the arbitral award may be executed based on an order from the Head of the District Court at the request of one of the disputing parties.
A foreign arbitral award may also be recognized and enforced in Indonesia. Pursuant to Law 30/1999, a foreign arbitral award is recognized and enforceable in Indonesia if:
- The award is given by an arbitrator or tribunal in a state that is, along with Indonesia, a party to a bilateral or multilateral treaty that recognizes foreign arbitral awards.
- The award is limited to what is considered to fall within the scope of commercial law in Indonesia.
- The award does not contravene public order.
- The award has received an execution order from the Central Jakarta District Court.
- If the award involves the Republic of Indonesia as one of the parties in dispute, the award may only be enforced after receiving an execution order from the Indonesian Supreme Court.
Arbitration Institutions in Indonesia
Arbitration in Indonesia is categorized into two types, i.e., institutional arbitration and ad hoc arbitration.
- Institutional Arbitration
Institutional arbitration involves a specialized institution with the sole purpose of resolving disputes by way of arbitration. Several arbitration institutions have been established and are commonly used in Indonesia. These include the (i) Indonesian National Arbitration Board (Badan Arbitrase Nasional Indonesia or “BANI”); (ii) National Sharia Arbitration Board (Badan Arbitrase Syariah Nasional or “BASYARNAS”); (iii) Indonesian Capital Market Arbitration Board (Badan Arbitrase Pasar Modal Indonesia or “BAPMI”); and (iv) Alternative Institutions for Dispute Resolution in the Financial Services Sector (Lembaga Alternatif Penyelesaian Sengketa Sektor Jasa Keuangan or “LAPS SJK”).
b. Ad Hoc Arbitration
Ad hoc arbitration is administered by a body that is formed incidentally to resolve certain disputes within a certain period of time. After the arbitral tribunal renders its award, the ad hoc arbitration will be dissolved.
For more information, please contact:
Mahareksha Dillon, Partner
Talitha Amanda Ekadhani, Associate
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