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Overview of the Commercial Arbitration System in Indonesia

Release time：2023-12-21 14:43:26

Introduction

In the realm of international business activities, a common concern among business professionals is the potential for bias or legal obstacles in the local courts of their counterparts when resolving commercial disputes. This apprehension arises from the fear that local courts may favor domestic traders, and whether local judges possess ample experience in modern commercial transactions. Consequently, an increasing number of business professionals prefer commercial arbitration as the primary method for resolving commercial disputes. Against the backdrop of growing international trade and investment, the Indonesian government recognizes the importance of establishing a transparent and efficient international arbitration system to attract foreign investors.

Foundation of the Commercial Arbitration System

Since the 1990s, Indonesia has taken steps to establish non-litigious dispute resolution procedures within its judicial system. On August 12, 1999, Indonesia enacted Law No. 30 concerning “Arbitration and Non-Litigious Dispute Resolution Procedures” (hereinafter referred to as the “Arbitration Law”). This law laid the legal groundwork for the institutionalization of non-litigious dispute resolution procedures, facilitating the development of Indonesia’s commercial arbitration system and providing legal protection for parties engaged in commercial activities.

The internal functioning of Indonesia’s commercial arbitration system is supported by professional arbitration institutions. Currently, Indonesia has three major arbitration institutions: (1) Badan Arbitrase Nasional Indonesia (BANI), established in 1977 with the support and sponsorship of the Indonesian Chamber of Commerce, is the oldest and most active arbitration institution in Indonesian history, with offices in Jakarta, Surabaya, Bandung, Cundinamarca, Denpasar, and Medan. Its jurisdiction includes both domestic and international arbitration. (2) The Indonesian Islamic Religious Arbitration Board, primarily handling commercial disputes among Muslims and Islamic commercial trade. (3) The Indonesian Capital Market Arbitration Board.

Essential Elements of Arbitration Agreements

(I) Substantive Requirements of Arbitration Agreements

According to the Arbitration Law, arbitration is a mechanism for resolving civil disputes outside ordinary courts based on a written arbitration agreement reached by the parties in dispute. Parties can agree to submit their disputes to arbitration either before or after the dispute arises.

Article 7 The parties may agree that a dispute which occurs or which will occur between them will be resolved by arbitration

Article 9 1. Should the parties choose resolution of the dispute by arbitration after the dispute occurs, their agreement to this must be given in a written agreement, signed by the parties.

(II) Form Requirements of Arbitration Agreements

It is noteworthy that, according to the Arbitration Law, the form requirements for arbitration agreements differ based on when the agreement is signed.

(1) If the parties agree to resolve disputes through arbitration before the occurrence of a commercial dispute, the applicant must notify the respondent after the actual dispute arises via registered mail, email, or other means. The arbitration notice should include information such as the names and addresses of the parties, the arbitration clause or agreement cited, the subject matter of the dispute, the basis and amount of the arbitration request, the desired resolution, and any agreement on the number of arbitrators. If the number of arbitrators has not been agreed upon, the applicant may propose a number, but it must be odd.

(2) If the parties agree to submit the dispute to arbitration after the occurrence of a commercial dispute, the formal requirements are more stringent. On one hand, the parties must sign a written arbitration agreement or draft the arbitration agreement in the form of a notarized document witnessed by a notary public. On the other hand, the arbitration agreement reached between the parties must include detailed information, including the disputed issues, names and addresses of the parties, names and addresses of the arbitrators, the location where the arbitrator or arbitral tribunal will render the award, the name of the arbitration secretary, the deadline for resolving the dispute, the arbitrator's willingness to serve as an arbitrator, and the parties' willingness to bear all necessary costs for arbitration. If the arbitration agreement does not include the above content, it is deemed invalid.

Article 8

1. If a dispute arises, the claimant must inform the respondent by registered letter, telegram, telex, fax, e-mail, or by courier that the terms for arbitration between the claimant and respondent apply.

2. The notification of the arbitration as contemplated in paragraph (1), must clearly state: 

(a) the names and addresses of the parties;

(b) reference to the applicable arbitration clause or agreement; 

(c) the agreement or problem in dispute;

(d) the basis for the claim and the amount claimed, if any; 

(e) the method of resolution desired; and

(f) the agreement entered into by the parties concerning the number of arbitrators, or if no such agreement has been entered into, the claimant may submit a proposal about the odd number of arbitrators desired.

Article 9

1. Should the parties choose resolution of the dispute by arbitration after the dispute occurs, their agreement to this must be given in a written agreement, signed by the parties.

2. If the parties are unable to sign a written agreement, as contemplated in paragraph (1), the written agreement must be made in the form of a notarial deed.

3. The written agreement contemplated in paragraph (1) must contain: 

(a) details of the matter in dispute;

(b) the full names and places of residence of the parties;

(c) the full names and places of residence of the arbitrator or the arbitration tribunal;

(d) the place where the arbitrator or arbitration tribunal will make their decision; 

(e) the full name of the secretary;

(f) the period for resolution of the dispute;

(g) a statement of acceptance by the arbitrator; and

(h) a statement of acceptance from the disputing parties that they will bear all costs necessary for the resolution of the dispute through arbitration.

4. A written agreement that does not contain the matters specified in paragraph (3) will be void by the operation of law.

Characteristics of Arbitration Proceedings

According to the Arbitration Law, Indonesia’s commercial arbitration system has the following characteristics:

(1) Confidentiality of Arbitration Proceedings: Arbitration proceedings must be conducted confidentially. This is crucial for protecting trade secrets and maintaining the reputation of businesses.

(2) Language of Proceedings: The language of arbitration is Indonesian unless the parties mutually choose another language and the arbitral tribunal agrees.

(3) Equal Right to Present Case: The equal right to present a case is a fundamental principle of international commercial systems, and it is equally important in Indonesia’s commercial arbitration system, ensuring the fairness of arbitration proceedings.

(4) Proceedings Format: Dispute resolution is primarily conducted in writing. If both parties agree or the arbitral tribunal deems it necessary, oral proceedings may be conducted. The flexibility of the proceedings aids in the swift resolution of disputes.

(5) Choice of Arbitral Institution: Parties have the right to submit disputes to domestic or international arbitration institutions, promoting healthy competition among Indonesian arbitration institutions and providing a legislative basis for parties to choose foreign arbitration institutions.

(6) Timeframe for Proceedings: The award must be rendered within 30 days after the conclusion of the hearing.

Issuance of Arbitral Awards and Judicial Review

(I) Regarding the Content of Arbitral Awards

According to the Arbitration Law, an arbitral tribunal can issue interim or final awards. Once a final award is issued, it signifies the completion of the arbitrator’s duties, and the tribunal no longer has jurisdiction over the dispute between the parties. The specific content of a final award includes:

Article 54

a. An arbitration award must contain:

b. the hearing “DEMI KEADILAN BERDASARKAN KETUHANAN YANG MAHA ESA” (In the Name of Justice, Based on Belief in God Almighty);

c. full names and address of the Parties;

d. a short description of the dispute;

e. the arguments of the parties;

f. full names and address of the arbitrators;

g. the considerations and conclusions of the arbitrator or arbitration tribunal regarding the whole dispute;

h. the opinion of each arbitrator, if any differences of opinion arise within the arbitration panel;

i. the award;

j. the place and date of the award; and

k. the signature of the arbitrator or arbitration panel.

(II.) Annulment of Arbitral Awards

Unless the arbitration agreement explicitly prohibits appeals, a party dissatisfied with an arbitral award can appeal. The regular court appeal procedure can be applied, but the Arbitration Law does not provide for whether foreign arbitral awards can be appealed.

Specifically, a party seeking annulment must file the application within 30 days of the registration of the arbitral award with the court clerk. The substantive requirements for annulling an arbitral award include:

(1) The documents or evidence on which the award is based are forged;

(2) one party intentionally conceals documents that have a decisive impact on the case;

(3) One party uses fraudulent or coercive means to force the arbitral tribunal to issue an award.

(III.) Enforcement of Arbitral Awards

According to the Arbitration Law, the prerequisite for enforcing an arbitral award is that within 30 days of the issuance of the award, the arbitrator(s) or their legal representative must submit a copy of the award to the court for registration. If the arbitral tribunal fails to complete the registration procedures before its term expires, the parties cannot apply for the enforcement of the arbitral award. In addition, for domestic arbitral awards, the enforcement court must review the arbitration agreement and scope to ensure compliance with public policy. If it does not meet the requirements, the court has the authority to refuse enforcement.

Indonesia is also a signatory to the New York Convention, which means the country recognizes and enforces arbitral awards of other contracting states. For an international arbitral award to be recognized and enforced within Indonesian territory, it must meet the following conditions:

(1) The country issuing the award must have signed a bilateral or multilateral treaty with Indonesia regarding the recognition and enforcement of international arbitral awards.

(2) The subject matter of the award must fall within the category of legal relationships recognized as commercial under Indonesian law.

(3) The award is limited to enforcement within the territory of Indonesia and does not conflict with public order.

(4) For the enforcement of an international arbitral award in Indonesia, a writ of execution must be issued by the Central Jakarta District Court.

(5) If the Republic of Indonesia is a party to the international arbitral award, the Supreme Court of Indonesia must issue the writ of execution, and it will be enforced by the Central Jakarta District Court.

Indonesian courts, when dealing with foreign arbitral awards, generally respect the independence of international arbitral awards and only refuse enforcement in specific, limited circumstances. This is particularly crucial for the international business community.

Conclusion

In summary, Indonesia’s construction of an international commercial arbitration system demonstrates its identity as a modern and internationalized nation, providing a stable and predictable international dispute resolution solution for international economic and trade cooperation. Currently, APIAC and BANI are in discussions to establish a long-term cooperation mechanism, intending to facilitate information and experience sharing through training and seminars. This collaborative effort aims to inject new momentum into the more robust, diversified, and high-quality development of the commercial arbitration system in the Asia-Pacific region, including the joint development of the “Belt and Road” initiative.

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