Andi Yusuf Kadir provides an insight into the Indonesian dispute resolution marketplace, offering an overview on practices in the country as well as highlighting some of the recent trends and developments in the field.
The Indonesian arbitration framework is based on Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (Arbitration Law). The law does not follow the UNCITRAL Model Law. Through Presidential Decree No. 34 of 1981, Indonesia has ratified the New York Convention. Consequently, an arbitration award having a seat in Indonesia benefits from the New York Convention and therefore can be enforced in other jurisdictions worldwide.
Several arbitration institutions have been established in Indonesia, eg, the Indonesian National Board of Arbitration (BANI); the Indonesian Syariah Arbitration Agency (BASYARNAS) which specialises in commercial disputes governed by shariah law; and the Indonesia Capital Market Arbitration Board (BAPMI) which specialises in capital market disputes. Among those institutions, the most active and most commonly used is BANI. It was established in 1977, on the initiative of the Indonesian Chamber of Commerce.
There is a growing trend to resolve commercial disputes through BANI arbitration. Specifically in the oil and gas industry, a procurement of services and goods agreement that contains an arbitration clause must designate BANI or, with prior approval from the Special Task Force for Upstream Oil and Gas Business Activities (SKKMigas), another arbitration body (including international bodies such as SIAC and ICC) so long as the seat of arbitration is Indonesia. Publication also shows that 310 matters were submitted to BANI between 2010 and 2014. This article will provide an overview of the regulatory framework of BANI arbitration, and its benefits and pitfalls.
Under the Arbitration Law, a valid arbitration agreement is mandatory to resolve a dispute through arbitration. The agreement must be in writing and signed by both parties. If the agreement is contained in an exchange of correspondence, including letters, telexes, telegrams, faxes, e-mail or any other form of communication, it must be accompanied by a record of receipt of such correspondence.
The court will have no jurisdiction to hear the case if the parties are bound by an arbitration agreement. Nevertheless it is not uncommon for parties, despite the existence of a mutually agreed arbitration agreement, to file claims in the courts. The justification commonly used is that the dispute is outside the contractual sphere, and instead falls under the notion of an unlawful act under Article 1365 of the Indonesian Civil Code (ICC). In other words, the argument is that an unlawful act claim is not arbitrable. In 2005, the Supreme Court issued a guideline to district courts affirming that district courts do not have jurisdiction to hear disputes between parties bound to an arbitration agreement, even if the claims are based on an unlawful act under Article 1365 of the ICC. In spite of this guideline, there have been a small number of cases in which a party bound by an arbitration clause filed a claim in court and tried to characterise a contractual claim dispute as an unlawful act claim.
The Arbitration Law stipulates that only disputes in the commercial sector which concern rights fully controlled by the parties in dispute can be settled by arbitration. The following areas are considered to be within the commercial sector:
One of the key benefits of arbitration is the parties' flexibility to choose the arbitrators. This is also the case for BANI arbitration. Under BANI rules, the parties can agree on a sole arbitrator or three arbitrators and on the arbitrators' qualifications. BANI provides an extensive list of arbitrators (currently 121 arbitrators consisting of 68 Indonesian arbitrators and 53 foreign arbitrators). However, foreign investors should be aware that unlike other arbitration institutions (such as SIAC), BANI arbitrators generally can only be chosen from BANI's list. The parties can only appoint an external arbitrator in limited circumstances, upon approval of the chairman of BANI.
Under the Arbitration Law, the parties can agree that the language used in arbitration hearings will be English or another language. It is common for BANI arbitration to use English language. BANI rules also provide that the arbitrators must decide the disputes in accordance with the law governing the underlying agreement.
Under the Arbitration Law, the maximum period allowed for settling a dispute is 180 days after the arbitrator or arbitration panel has been established. It can be extended based on the parties' agreement or at the arbitrators' discretion in the interest of the arbitration proceedings. Generally, BANI arbitration does not exceed one year as the arbitration hearings are generally held on a weekly or bi-weekly basis.
There is no discovery process in BANI arbitration. Typically, like other civil law countries, the disputing parties present their own evidence to argue their case. A separate evidentiary session is held once the parties have completed the submission of their pleadings. Generally, evidentiary rules mirror the Indonesian civil procedural code. For example, BANI rules require witness testimony to be given under oath.
Under the Arbitration Law, the arbitrators are authorized to render provisional decisions or other interlocutory decision they deem appropriate for resolving the dispute, including issuing a decision to attach the respondent's assets, or ordering the deposit of certain goods with third parties or the sale of perishable goods pending the issuance of a final award.
Any arbitration awards sought to be enforced in Indonesia must be registered at the district court having jurisdiction. The registration of domestic awards must be carried out within 30 days from the time the awards are rendered. This registration will be carried out by BANI. It is important to note that failure to register domestic awards within that statutory time frame will render them unenforceable. But that statutory time-limit does not apply for the registration of foreign awards. This position was affirmed by the Supreme Court in Pertamina v Lirik Petroleum in 2010.
BANI awards are final and binding on the parties, and therefore no appeal may be filed. It is possible, however, to set aside an award based on limited grounds.
It is widely accepted that annulment action can be made against domestic awards only. Indonesian courts have no jurisdiction to hear any application to set aside foreign arbitration awards.
In Pertamina v Karaha Bodas , the Supreme Court relied on article V (1e) of the New York Convention to determine whether the Indonesian courts have jurisdiction to hear any action to set aside a foreign award. The Supreme Court took the view that the phrase “under the law of which … that award was made” in article V (1e) of the New York Convention refers to the law of the seat of arbitration. Consequently, the Supreme Court decided that it has no jurisdiction to set aside an award rendered in Geneva under the UNCITRAL rules.
This position has been consistently advocated by the Supreme Court in subsequent cases. In Bungo Raya Nusantara v Jambi Resources , the Supreme Court confirmed that Indonesian courts have no jurisdiction to set aside SIAC awards made in Singapore. In Harvey Nichols and Company Limited v PT Hamparan Nusantara, PT Mitra Adiperkasa Tbk , the Supreme Court decided that Indonesian courts have no jurisdiction to set aside an ad-hoc arbitration award where the seat of arbitration is in London. Further, in PT Global Mediacom Tbk v KT Corporation , the same decision was rendered in respect of a setting-aside application against an ICC award made in London.
Timeframe for court process
Under the Arbitration Law, the court is required to decide on a setting-aside application within 30 days after registration of the application. Unlike ordinary court proceedings, any appeal against a court decision is directly made to the Supreme Court which then decides the matter as the court of final instance. The same time frame is imposed for the Supreme Court. The Arbitration Law does not suggest that the court has discretion to deviate from this statutory timeframe.
Long-term observers, however, will note Indonesian courts' inconsistent approach to arbitration cases. There is no consistent treatment of this statutory timeframe issue. In PT Niko Securities Indonesia v. PT Bank Permata Tbk , the court strictly followed this statutory timeframe. The setting-aside application was registered on 12 November 2012 and the decision was rendered on 11 December 2012. But in other cases, the courts have been quite relaxed with the timeframe mandated by the Arbitration Law. In Karaha Bodas v Pertamina , the Central Jakarta District Court took more than five months to render its decision on Pertamina's setting-aside application. In PT Bumigas Energi v. Indonesian National Board of Arbitration , the South Jakarta District Court took about four months to render its decision. In Thio Inge Catherine v Niniek Soetrisno , the South Jakarta District Court took more than two months to render its decision.
Reason for setting aside: Article 70 of the Arbitration Law?
Article 70 of the Arbitration Law provides that one can file an application to the Indonesian courts to set aside an award based on the following grounds:
The elucidation of article 70 stipulates, "Reasons for setting aside mentioned in this article must be proven by the court decision. If the court decides the reasons are proven or are not proven, this court decision can be used by the court as a basis to grant or reject an application."
Some commentators have argued that article 70 is inoperative. Under article 71 of the Arbitration Law, setting-aside applications must be submitted to the court within 30 days after the registration of the awards at the relevant court. Article 59 (1) further requires domestic awards to be registered within 30 days after the award is rendered. In other words, applicants have 60 days to obtain a court decision proving the reasons under article 70, which is practically impossible. Notwithstanding the fact that this interpretation is inoperative, the Supreme Court has consistently advocated this position in PT Padjadjaran Indah Prima v. PT Pembangunan Perumahan , PT SMG Consultants v Indonesian National Board of Arbitration (BANI) , PT Binasentra Muliatata v PT Bawana Margatama , PT Nindya Karya v PT Tranfocus  and PT Bank Permata v PT Nikko Securities Indonesia .
However, on 11 November 2014, the Indonesian Constitutional Court issued Decision No. 15/PUU-XII/2014 to invalidate the elucidation of Article 70 of the Arbitration Law (ie, that the reasons for setting aside in the article must be proven by a court decision) on the grounds that it is unconstitutional. The Constitutional Court argued that the elucidation of Article 70 has created legal uncertainty in respect of its application particularly on whether one needs to obtain a court decision proving one of the reasons under Article 70 has been fulfilled before commencing setting-aside proceedings against an arbitration award.