The
principle source of the law of arbitration in Indonesia is Law No. 30 of 1999
concerning Arbitration and Alternative Dispute Resolution (August 12, 1999)
(the “Indonesian Arbitration Law”). Where appropriate, this paper will also
address the Rules of Arbitration Procedure of the Indonesian National
Arbitration Body (Badan Arbitrasa Nasional Indonesia or “BANI/BANI Rules”).
The
legal requirements of an arbitration agreement under the Indonesian Arbitration
Law are as follows:
a)
The
agreement to arbitrate must be in writing and signed by the parties or in
notarial deed form (Articles 4(2), 9(1) and 9(2) of the Indonesian Arbitration
Law).
b) If
the agreement is made prior to the dispute, the agreement (i.e., the
arbitration clause) must clearly state that all disputes arising out of a
particular legal relationship between the parties shall be settled through
arbitration (Article 2 of the Indonesian Arbitration Law).
To
avoid any unnecessary legal risks, the arbitration clause should be in
Indonesian if both parties to the agreement are Indonesian, although the
agreement may be in English or a national language used by one of the parties
with an Indonesian translation if at least one of the parties is foreign (Article
31 of Law No. 24 of 2009 regarding the National Flag, Language and Emblem and
the National Anthem.
Based
on Indonesian arbitration practice, an arbitration agreement should also
specify:
1) the arbitration rules (if any)
to be followed;
2) the language of proceedings;
3) the place of arbitration; and
4) whether the award is to be made on the basis
of law or
5) fairness and appropriateness
(ex aequo et bono).
A
written arbitration agreement obviates the rights or the parties tobring a
dispute in the District Courts, which would otherwise have jurisdiction over
civil disputes (Article 11(1) of the Indonesian Arbitration Law). The District
Courts have no authority to hear disputes where parties are bound by an
arbitration agreement (Article 3 of the Indonesian Arbitration Law), and are
required to reject, and not participate in the resolution of, disputes which
have already been adjudicated by arbitration, except in limited circumstances
as provided in the Arbitration Law (Article 11(2) of the Indonesian Arbitration
Law). Indonesian courts honour arbitration agreements with increasing frequency.
It is nonetheless not uncommon for parties who lose (orexpect to lose) an
arbitration, and in particular an international arbitration, to attempt to
bypass an arbitration agreement or award by bringing a suit in a District Court
on a theory of tort or fraud. The argument is that the purported tort or fraud
renders thearbitration agreement unenforceable or occurs outside the scope of the
arbitration agreement. It is possible that a suit on this basis may initially
enjoy success in the District Court, although this is not always the case and
decisions along these lines are frequently reversed on appeal and/or cassation.
Choice of Law
Rules
The
Indonesian Arbitration Law concerns questions of procedural Law and not
substantive Law. The Law applicable to the substance of a dispute is determined
under general rules governing the choice of Law, which are not clear. If the parties to an agreement have elected a
choice of Law, then that choice of Law will generally be honoured by the
Indonesian courts under the principle of freedom of contract, embodied in Article
1338 of the Indonesian Civil Code. The choice of Law may be challenged if it is
in violation of statute or contrary to good morals or public order, as per
Article 1337 of the Indonesian Civil Code. The choice of Law applies only to
matters of contract (i.e.,matters governed by Book III of the Indonesian Civil
Code) and not to matters of person (Book I of the Indonesian Civil Code),
property (Book II of the Indonesian Civil Code) or statutory Law. If a contract
does not stipulate a choice of Law, then Indonesian choices of Law rules apply.
Indonesian Law does not specifically prescribe a rule for determining the
governing law of a contract. A court will be likely to apply the rule
applicable to legal acts generally, namely that the Law governing a legal act
is the Law of the jurisdiction in which the act occurs.
