International arbitration in Indonesia is governed by Law No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (the "Arbitration Law"), which is not based on the UNCITRAL Model Law.1 Indonesia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") in 19812, which facilitates the enforcement of international arbitration awards. The Arbitration Law was ratified as a consequence of Indonesia's adhesion to the New York Convention.3 The Arbitration Law, however, has been unchanged for more than 24 years and is perceived as concerning by scholars and professionals who worry that it might discourage international users from having recourse to arbitration under this law.4
International arbitration in Indonesia should, however, experience a relative increase given the recent enactment of Supreme Court Regulation No 3 of 2023 on the Procedures for Appointment of Arbitrators by Courts, Challenges against Arbitrator Appointments, and Examination of Requests to Enforce and Set Aside Arbitral Awards (SCR 3/2023).6 An English machine translation of SCR 3/2023 is available here.
Arbitral Institutions in Indonesia
Several arbitration institutions have been established in Indonesia, such as the Indonesian National Arbitration Board ("BANI"), the most prominent arbitration institution in the country, the National Sharia Arbitration Board, and the Indonesian Capital Market Arbitration Board.7
International or Domestic Arbitration
A feature of international arbitration in Indonesia is that awards are defined as domestic when the arbitration is held in Indonesia, regardless of the nationality of the parties or other factors; they are considered international if they are held outside Indonesia.8
Until now, the Arbitration Law encompassed both domestic arbitration proceedings and the enforcement of domestic and international awards without separating the two.9 Some changes were, however, introduced with the enactment of SCR 3/2023, which are addressed below.
Formal Requirements of the Arbitration Agreement
According to Article 1(1) of the Arbitration Law, the arbitration agreement must be made in writing. It can be either an arbitration clause within a written contract or a separate written agreement to arbitrate after the dispute has arisen. Article 9(3) of the Arbitration Law provides for the formal requirements that a separate agreement to arbitrate must contain, the failure of which renders the arbitration agreement null and void.10
In any event, the existence of an arbitration agreement precludes the parties from pursuing the resolution of their disputes before the domestic courts under Article 11(1) of the Arbitration Law. Consequently, the courts should in principle also refuse to examine disputes subject to an arbitration agreement, according to Article 11(2).11
Arbitrability
Article 5 of the Arbitration Law provides that only commercial disputes or those concerning rights which, according to laws and regulations, "fall within the full legal authority of the disputing parties", may be arbitrated.12
Article 66(b) of the Arbitration Law further stipulates that foreign arbitral awards that are recognised and enforceable in Indonesia are limited to commercial disputes. These disputes encompass, among others, disputes concerning:13
- trade;
- banking;
- finance;
- capital investment;
- industrial matters; and
- intellectual property rights.
Separability
There is no express reference to the principle of separability under Indonesian law. Article 10(f) of the Arbitration Law, however, states that the agreement to arbitrate shall survive even if the main contract is declared void.14
Kompetenz-Kompetenz
There is no explicit reference to the principle of Kompetenz-Kompetenz either in the Arbitration Law. According to literature, it is, however, considered that it is implicit from Articles 3 and 11 of the Arbitration Law that only the arbitral tribunal has the power to decide upon its own jurisdiction, as well as whether a matter is capable of being arbitrated.15
Confidentiality of the Proceedings
International arbitration in Indonesia is governed by the principle of confidentiality of the hearings according to Article 27 of the Arbitration Law (as is domestic arbitration). Confidentiality covers all documentation involved in the arbitration proceedings, including submissions, evidence and witness statements.16
Composition of the Arbitral Tribunal
Article 13 of the Arbitration Law provides that domestic courts (the chief of the district court having jurisdiction) appoint the sole arbitrator or the arbitral tribunal in the absence of an agreement between the parties.
In practice at the BANI, if the number of arbitrators is not regulated in the arbitration agreement, the claimant may propose the number of arbitrators in its request for arbitration, which must be agreed by the respondent.17
If the arbitration agreement provides for a sole arbitrator, the chief of the relevant district court can appoint the sole arbitrator if the parties cannot reach an agreement within 14 days after the respondent receives the Claimant's proposal.18
In case the arbitration agreement provides for three arbitrators, each of the parties appoints one arbitrator, and the two arbitrators appoint the presiding arbitrator.19 According to Article 15(3), however, if within 30 days after the respondent receives notification of the arbitration one of the parties fails to appoint an arbitrator, then the arbitrator chosen by the other party shall act as sole arbitrator, and his/her award shall be binding upon both parties.
In addition, if the two appointed arbitrators fail to appoint the third one within 14 days, the chief of the relevant district court can, again, assist the parties and appoint the third arbitrator.20
Finally, pursuant to Article 24(3) of the Arbitration Law, the appointment of an arbitrator can be challenged within 14 days of his or her appointment. A challenge can be brought if there is "sufficient cause and authentic evidence to give rise to doubt that such arbitrator will not perform his/her duties independently or will be biased in rendering an award".21 The appointment can also be challenged if a party can prove that the arbitrator has a "family, financial or employment relationship with one of the parties or its respective legal representatives."22
Requirements for Arbitrators
According to Article 12 of the Arbitration Law, arbitrators must be at least 35 years old and have at least 15 years of experience in their field of expertise. These requirements have been subject to criticism owing to their vagueness and lack of rationale behind a minimum age criterion.23 In any event, the BANI proposes over 100 arbitrators of Indonesian or foreign nationality.24
Supreme Court Regulation No 3 of 2023 (SCR 3/2023)
In terms of the appointment of arbitrators, SCR 3/2023 details the mechanism for making requests to the domestic courts for the appointment of arbitrators and challenging the appointments made by the court. The regulation requires the court to issue a decree appointing arbitrators within 14 calendar days after receiving a request to do so. Submission of any challenges to the appointment of an arbitrator made by the court must also be made within 14 days from the issuance of the court's decree. The court also has 14 days to issue its decision (from the date of receipt of the submission).25
However, rules of arbitration (institutional or ad hoc) which provide for autonomous mechanisms of appointment of the arbitrators and challenges thereon take precedence over the abovementioned provisions.
In relation to the recognition and enforcement of foreign awards, the Supreme Court officially stated that the 30-day timeline under Article 59(1) of the Arbitration Law to register domestic awards does not apply to foreign awards. A shorter period is required for the registration of foreign awards, which is only 14 days after submission of the request. Similarly, the exequatur of a foreign award must be issued within 14 calendar days upon application. The Supreme Court also allows these submissions to be made electronically, while partial enforcement of arbitral awards is now allowed.26
Finally, SCR 3/2023 gives a new definition of public policy, providing that it is now defined as "everything that constitutes the very foundation essential for the functioningof the legal system, economic system, and socio-cultural system of the Indonesian community and nation".27
This new definition offers a more detailed approach to interpreting and applying public policy in enforcing arbitral awards. It is perceived as "establish[ing] a robust foundation for ensuring the integrity of the arbitral enforcement process", although the impact of this new framework on the judges' approach to interpreting the public policy requirement in relation to foreign awards remains to be seen.28
Conclusion
The new regulation is welcome in the landscape of international arbitration in Indonesia as it addresses "longstanding concerns with outdated laws". It thus contributes to making Indonesia a more efficient, transparent, modern and globally competitive arbitration hub.29
Footnotes
1 M. S. Dillon, T. A. Ekadhani, In Brief: Arbitration Formalities in Indonesia (30 June 2024), https://www.lexology.com/library/detail.aspx?g=d16685d3-1e64-4ac9-a586-ad2af888fd03 (last accessed 10 July 2024).
2 K. Mills, M. Rose, Guide to Arbitration Places (12 January 2024), p. 3.
3 Anggraeni and Partners, A general introduction to international arbitration in Indonesia (8 July 2024), https://www.linkedin.com/pulse/general-introduction-international-arbitration-indonesia-vf8dc/ (last accessed 10 July 2024).
4 E. Hertiawan et al., A New Dawn for Arbitration in Indonesia under Supreme Court Regulation No. 3 of 2023, https://www.ahp.id/a-new-dawn-for-arbitration-in-indonesia-under-supreme-court-regulation-no-3-of-2023/ (last accessed 10 July 2024).
5 E. Hertiawan et al., A New Dawn for Arbitration in Indonesia under Supreme Court Regulation No. 3 of 2023, https://www.ahp.id/a-new-dawn-for-arbitration-in-indonesia-under-supreme-court-regulation-no-3-of-2023/ (last accessed 10 July 2024).
6 E. Hertiawan et al., A New Dawn for Arbitration in Indonesia under Supreme Court Regulation No. 3 of 2023, https://www.ahp.id/a-new-dawn-for-arbitration-in-indonesia-under-supreme-court-regulation-no-3-of-2023/ (last accessed 10 July 2024).
7 N. A. Putra Mooduto, International Arbitration Laws and Regulations 2024, https://www.globallegalinsights.com/practice-areas/international-arbitration-laws-and-regulations/indonesia/ (last accessed 10 July 2024).
8 K. Mills, M. Rose, Guide to Arbitration Places (12 January 2024), p. 6.
9 Anggraeni and Partners, A general introduction to international arbitration in Indonesia (8 July 2024), https://www.linkedin.com/pulse/general-introduction-international-arbitration-indonesia-vf8dc/ (last accessed 10 July 2024).
10 1999 Arbitration Law, Article 9(4).
11 1999 Arbitration Law, Article 11.
12 1999 Arbitration Law, Article 5.
13 N. A. Putra Mooduto, International Arbitration Laws and Regulations 2024, https://www.globallegalinsights.com/practice-areas/international-arbitration-laws-and-regulations/indonesia/ (last accessed 10 July 2024).
14 1999 Arbitration Law, Article 10(f).
15 K. Mills, M. Rose, Guide to Arbitration Places (12 January 2024), p. 4.
16 N. A. Putra Mooduto, International Arbitration Laws and Regulations 2024, https://www.globallegalinsights.com/practice-areas/international-arbitration-laws-and-regulations/indonesia/ (last accessed 10 July 2024).
17 M. S. Dillon, T. A. Ekadhani, In Brief: Arbitration Formalities in Indonesia (30 June 2024), https://www.lexology.com/library/detail.aspx?g=d16685d3-1e64-4ac9-a586-ad2af888fd03 (last accessed 10 July 2024).
18 1999 Arbitration Law, Article 14.
19 1999 Arbitration Law, Article 15(1)-(2).
20 1999 Arbitration Law, Article 15(4).
21 1999 Arbitration Law, Article 22(1).
22 1999 Arbitration Law, Article 22(2).
23 M. S. Dillon, T. A. Ekadhani, In Brief: Arbitration Formalities in Indonesia (30 June 2024), https://www.lexology.com/library/detail.aspx?g=d16685d3-1e64-4ac9-a586-ad2af888fd03 (last accessed 10 July 2024).
24 M. S. Dillon, T. A. Ekadhani, In Brief: Arbitration Formalities in Indonesia (30 June 2024), https://www.lexology.com/library/detail.aspx?g=d16685d3-1e64-4ac9-a586-ad2af888fd03 (last accessed 10 July 2024).
25 A. Kadir, B. Sihombing, Indonesia: Regulation of the Supreme Court of the Republic of Indonesia No. 3 of 2023 – further guidance on the courts' roles in aiding arbitration and enforcing arbitral awards (1 May 2024), https://insightplus.bakermckenzie.com/bm/dispute-resolution/indonesia-regulation-of-the-supreme-court-of-the-republic-of-indonesia-no-3-of-2023-further-guidance-on-the-courts-roles-in-aiding-arbitration-and-enforcing-arbitral-awards (last accessed 10 July 2024).
26 C. Heyder et al., Advancing arbitration in Indonesia: Key changes under Supreme Court Regulation No 3 of 2023 (SCR 3/2023) (22 May 2024), https://www.engage.hoganlovells.com/knowledgeservices/news/advancing-arbitration-in-indonesia-key-changes-under-supreme-court-regulation-no-3-of-2023-scr-32023 (last accessed 10 July 2024).
27 E. Hertiawan et al., A New Dawn for Arbitration in Indonesia under Supreme Court Regulation No. 3 of 2023, https://www.ahp.id/a-new-dawn-for-arbitration-in-indonesia-under-supreme-court-regulation-no-3-of-2023/ (last accessed 10 July 2024).
28 E. Hertiawan et al., A New Dawn for Arbitration in Indonesia under Supreme Court Regulation No. 3 of 2023, https://www.ahp.id/a-new-dawn-for-arbitration-in-indonesia-under-supreme-court-regulation-no-3-of-2023/ (last accessed 10 July 2024).
29 E. Hertiawan et al., A New Dawn for Arbitration in Indonesia under Supreme Court Regulation No. 3 of 2023, https://www.ahp.id/a-new-dawn-for-arbitration-in-indonesia-under-supreme-court-regulation-no-3-of-2023/ (last accessed 10 July 2024).
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