Our Country Chapters set out key aspects of the arbitration framework of each jurisdiction highlighted in our website, covering basics like judicial hierarchy and domestic arbitral institutions to substantive issues such as conflicts of laws and the extent of adoption of the UNCITRAL Model Law. New topics will be added periodically, with recent additions such as responding to court proceedings in breach of the arbitration agreement, tribunal powers and jurisdictions, and more.
1. Legal System and Framework
Indonesia is a civil law jurisdiction, and as such the legal system is heavily driven by the enactment of statutory laws (undang-undang). A law is enacted by the President of Indonesia after it has been passed by the House of Representatives. To support a law, the government can enact government regulations; the President can enact presidential regulations; a minister can enact ministerial regulations; and a government agency can enact its regulations. Provincial and city governments, and their governors/mayors, can also enact their own regulations.
Judicial power is exercised by the Supreme Court and Constitutional Court. Cases are heard in the first instance before a district court located in each city. A high court in a province heads the district courts in its jurisdiction and adjudicate appeals. The Supreme Court heads all district courts and high courts and has jurisdiction to adjudicate a final appeal (kasasi) and an extraordinary appeal (peninjauan kembali).
Based on the Arbitration Law, Indonesian courts are not authorised to adjudicate cases between parties who are bound by an arbitration agreement.
A district court having jurisdiction over the legal domicile of the losing party in a domestic arbitral award, is authorised to set aside or enforce that domestic arbitral award. A setting aside decision by a district court is subject to an immediate appeal to the Supreme Court.
The Central Jakarta District Court has the jurisdiction to recognise and enforce a foreign arbitral award.
The main sources of law are the New York Convention as ratified by Indonesia, the Arbitration Law (Law 30 of 1999 on Alternative Dispute Resolution and Arbitration), arbitration agreement (contractual), arbitration rules (contractual, extension of the agreement between the parties) and custom/practice.
Indonesia has not adopted the UNCITRAL Model Law. The main differences of the Arbitration Law are as follows:
- The eligibility of an arbitrator is subject to several requirements.
- It does not recognise incorporation by reference per se.
- It strictly prohibits courts from adjudicating cases where parties are bound by an arbitration agreement.
- Indonesian is the default language for arbitration unless otherwise agreed.
- It regulates the content of an arbitral award, including the obligation for legal consideration.
- Parties are not allowed to request for interpretation of the award.
- The setting aside of a domestic arbitral award is limited only to instances where one of the following has been established:
- forged evidence;
- the concealment of material evidence; or
Yes, the Arbitration Law differentiates domestic arbitration and international arbitration based on the domicile of the arbitral institution or individual arbitrator pronouncing the arbitral award.
An international arbitral award means an arbitral award given by an arbitral institution or individual arbitrator(s) outside the jurisdiction of the Republic of Indonesia, or an award by an arbitral institution or individual arbitrator(s) that is deemed as an international arbitral award based on Indonesian law.
In principle, the Arbitration Law clearly stipulates that if the parties have agreed to resolve their disputes by arbitration, then courts do not have and may not take jurisdiction over such disputes.
However, there are several circumstances where domestic courts take part in the conduct of arbitration and the enforcement of the arbitral award. Those roles are as follows:
- Both domestic and international arbitral awards shall be registered with the domestic court. For international arbitral awards, the registration must be submitted before the Central Jakarta District Court.
- Domestic arbitral awards may be sought to be set aside before the district court. The district court decision setting aside a domestic arbitral award is subject to an appeal to the Supreme Court. Subsequently, the Supreme Court will issue a final and binding decision on such a case.
- The Chairman of the District Court holds certain powers relating to the appointment and replacement of an arbitrator. For example, Article 13 of the Arbitration Law stipulates that if the parties cannot reach an agreement on the choice of arbitrators or if no terms have been set concerning the appointment of arbitrators, then the Chairman of the District Court has the power to appoint the arbitrator or establish the composition of the arbitral tribunal.
- In an ad hoc arbitration, the parties may request the Chairman of the District Court to appoint one or more arbitrators to resolve a dispute if there is any disagreement between the parties with regards to the appointment of the arbitrator(s).
2. Arbitral Institutions
Please note that there are multiple arbitral institutions in Indonesia, most of them being industry-specific. The most significant arbitral institution in Indonesia is the Indonesia National Board of Arbitration (Badan Arbitrase Nasional Indonesia, or “BANI“), which was established in 1977. Since its establishment, BANI has examined thousands of disputes referred to it. In addition to arbitration, BANI also provides a service of binding opinions, being one of the alternative dispute settlements provided for under the Arbitration Law.
In addition to BANI, there are also other industry-specific arbitral institutions that have been registered with the Financial Services Authority (Otoritas Jasa Keuangan) such as:
- the Indonesian Insurance Arbitration and Mediation Agency (Badan Mediasi dan Arbitrase Asuransi Indonesia, or “BMAI“) for the insurance sector;
- the Indonesian Alternative Dispute Resolution Institution (Lembaga Alternatif Penyelesaian Sengeta Perbankan Indonesia, or “LAPSPI“) for the banking sector; and
- the Indonesian Capital Market Arbitration Board (Badan Arbitrase Pasar Modal Indonesia or “BAPMI“) for the investment sector.
There are also other arbitral institutions that are not registered with the Financial Services Authority, including:
- the National Shariah Arbitration Board (Badan Arbitrase Syariah Nasional, or “BASYARNAS“) which specifically resolves the disputes arising out of shariah transactions;
- the Indonesian Centre of Arbitration and Alternative Dispute Resolution for Construction (Badan Arbitrase dan Alternatif penyelesaian Sengketa Konstruksi Indonesia, or “BADAPSKI“) for construction-related disputes;
- the Indonesian Sport Arbitration Board (Badan Arbitrase Keolahragaan Indonesia, or “BAKI“) for disputes regarding sports activities; and
- the Indonesian Centre of Arbitration and Mediation (Pusat Arbitrase Mediasi dan Mediasi Indonesia, or “PAMI“) which was established by the Employers’ Association of Indonesia (Asosiasi Pengusaha Indonesia, or “APINDO“).
4. The Law of the Arbitration and Conflicts of Law
In general, the parties to a dispute have the discretion to determine which law will be applicable for the arbitration of any dispute which may arise or which has arisen among them, pursuant to Article 56 paragraph (2) of the Arbitration Law.
The Arbitration Law recognises the concept of the seat of arbitration. If the parties do not determine otherwise, then the law applied to the arbitration is the law where the arbitration is conducted, based on Article 56 paragraph (2) of the Arbitration Law.
The law applicable to the substance of the parties’ dispute will be subject to the agreement made by the parties as usually stipulated in the governing law clause of contract. If there is no agreement between the parties on the law applicable to the substance of the parties’ dispute, the arbitrator usually applies “the most characteristic connection” doctrine.
Yes, so long as the parties have agreed on the application of the law of another jurisdiction, it will allow the arbitral tribunal to recognise and apply the law agreed by the parties in examining the substantive obligations with respect to the subject matter of the dispute. In such circumstances, Indonesian law will be no longer applicable in examining the substantive obligations.
Indonesian substantive law is not compulsorily applicable to the parties even if the arbitration is seated in Indonesia, insofar as the governing law of the substantive contract is not Indonesian and there is no other connection between the dispute and Indonesia. Under the Arbitration Law, unless otherwise agreed by the parties, seat of arbitration will only determine the law applicable to the arbitration (not the substantive law).
The main regulation on private international law in Indonesia is still the Algemeene Bepalingen van Wetgeving voor Nederlands Indie (“AB“) Staatsblad 1847 No 23 of 1847, which is inherited from the Dutch colonial era. Pursuant to Article 18 of the AB, any dispute will be tried based on the laws applicable in the country where the conduct is performed (locus regit actum). This article would also be applicable for an unlawful act or tort. Therefore, the applicable law to claims in tort will be determined by the place where the tort occurred.
Therefore, the applicable law to claims in tort will be determined by the place where the tort occurred.
Indonesian law distinguishes between the law applicable to the arbitration and the law governing the arbitration agreement. The Arbitration Law provides that the law applicable to arbitration will be determined by the seat of arbitration, unless otherwise agreed by the parties. The Arbitration Law is, however, silent on the governing law of the arbitration agreement. In general, the governing law of the arbitration agreement would be determined by the choice of the parties and if it is silent, it should follow the law of the substantive agreement.
Limitation periods or time bars are stipulated under the Indonesian Civil Code (“ICC“). Article 1967 of the ICC states that all legal claims cease to exist after 30 years. In view of this article, it should be interpreted that the right to claim is deemed to have been erased within such period. Therefore, the limitation period under Indonesian law should be considered substantive as the provision does not require the claim to be filed before 30 years or prohibits the party to file a claim after 30 years; it instead emphasises that after the lapse of 30 years, there will no longer be any claimable rights.
The above limitation period would be applicable if the governing law of the substantive agreement is Indonesian law.
5. Arbitration Agreements
An arbitration agreement is a written agreement in the form of an arbitration clause entered into by the parties before a dispute arises, or a separate written arbitration agreement made by the parties after a dispute arises. An arbitration agreement needs to also satisfy the requirements of the validity of a contract as contained in Article 1320 of the ICC.
However, if the arbitration agreement was only entered after a dispute has already arisen, the Arbitration Law requires the parties to have a written agreement made before a notary in the form of a notarial deed. The written agreement must contain information on:
- the subject matter of the dispute;
- the full names and addresses of residence of the parties;
- the full name and place of residence of the arbitrator or arbitrators;
- the place the arbitrator or arbitration panel will make their decision;
- the full name of the secretary;
- the period in which the dispute shall be resolved;
- a statement of willingness by the arbitrator(s); and
- a statement of willingness of the disputing parties that they will bear all costs necessary for the resolution of the dispute through arbitration.
The Arbitration Law is silent on such recognition. However, in general, electronic agreements are recognised in Indonesia.
The Arbitration Law is silent on the applicability of the incorporation by reference. However, Indonesian civil law in general allows parties in an agreement to bind themselves to a clause in a separate agreement, including an arbitration clause, so long it has been expressly consented to by the parties.
The Arbitration Law limits the scope of arbitration to commercial disputes and only to the extent that the rights concerned fall within the full legal authority of the parties to determine. Arbitration may not be resorted to in the case of disputes for which no amicable settlement would be permissible.
In light of the above, tortious claims or claims regarding fraud, in particular, may be arbitrable under the Arbitration Law so long that the arbitration clause has explicitly covered that any disputes, including tort and fraud, which arise from the agreement should be settled before the arbitration.
The Arbitration Law provides that once the parties have agreed to settle their dispute by arbitration, the said arbitration agreement still stands even if the underlying agreement is subsequently declared as invalid.
6. Proceedings in Breach of the Arbitration Agreement
Yes. Article 11 of Law No. 30 of 1999 on Alternative Dispute Resolution and Arbitration (“Indonesian Arbitration Law“) eliminates the right of a party to initiate action or seek resolution in court if the dispute falls under the scope of the arbitration agreement. Similarly, Articles 3 and 11(2) of the Indonesian Arbitration Law also prohibit courts from declaring jurisdiction over a dispute that falls within the scope of an arbitration agreement.
The party resisting the court proceedings can submit a challenge to the District Court’s jurisdiction. In Indonesia, this type of challenge is referred to as an “absolute” jurisdiction challenge. This is to be differentiated from other types of challenges, e.g. a “relative” jurisdiction challenge, where the defendant challenges the court’s jurisdiction due to the court lacking jurisdiction over the defendant’s legal domicile.
If there is a question on the court’s absolute jurisdiction, the court must examine the challenge without examining the merits of the case. The court will then rule on its own jurisdiction through an interim decision.
Similarly, the Indonesian Arbitration Law allows for a challenge to be submitted for a foreign-seated arbitration if an arbitration agreement exists.
Since the enactment of the Indonesian Arbitration Law in August 1999, the Indonesian court will typically issue an “interim decision” to protect the right of the parties to arbitrate. As indicated in question 6.2 above, Articles 3 and 11 of the Indonesian Arbitration Law bar the right of the parties to litigate before Indonesian courts if there exists an arbitration agreement between them.
There is no difference if the arbitration is seated in a foreign jurisdiction.
The absolute jurisdiction challenge (see question 6.2) is the only legal avenue available for a party to respond to proceedings in breach of the arbitration agreement.
Unless parties have agreed on specific relief in the arbitration agreement, the party initiating court proceedings may be ordered to pay for the court fees incurred thereby. This is exemplified in the Supreme Court Decision No. 1944 K/Pdt/2019, between Darma Widjaya and PT Tunas Dipta Persada. In this case, Darma Widjaya was ordered to pay court fees incurred by the other party for having submitted a claim in the District Court despite the existence of a written arbitration agreement.
7. Jurisdiction and Powers of the Arbitral Tribunal
Article 5 of the Indonesian Arbitration Law limits the scope of arbitrable disputes to commercial disputes, and only to the extent that the disputed rights fall within full control of the parties. Examples provided in Article 5 include disputes on:
- General trade;
- Banking activities;
- Financial services;
- Industrial; and
- Intellectual properties.
In addition to the above, the Indonesian Arbitration Law also stipulates that if a dispute concerns a case where an amicable settlement is impermissible, then such dispute is not arbitrable.
Indonesian law imposes several limitations on a tribunal’s powers with respect to the grant of final relief as set out below:
a. The award must meet the formal requirements mandated under Article 54 of the Indonesian Arbitration Law. Examples include the full names and addresses of the parties and arbitrators, as well as the basis for the award.
b. An arbitral tribunal shall not render an award under the basis of fairness and equity (also known as ex aequo et bono) unless the parties have expressly agreed that the tribunal is to do so. This is pursuant to Article 56(1) of the Indonesian Arbitration Law, which distinguishes between the tribunal’s power to either render an award based on (a) applicable laws and regulations, or (b) the notion of fairness and equity.
c. Where Indonesian law is the governing law of the agreement, an arbitral tribunal shall not render an award that obliges the losing party to pay the other party’s attorney fees. It is a rule in Indonesia that attorney fees should be borne by the respective parties to the dispute.
An arbitral tribunal has wide powers to grant or issue interim relief for the sake of the orderliness of the proceeding. Under Article 32 of the Indonesian Arbitration Law, interim relief may include, among others:
- Confiscation of goods;
- Safekeeping of goods by a third party; and
- The sale of perishable goods.
An arbitral tribunal in Indonesia can impose sanctions against the parties for failing to comply with an interim relief. The above powers are exercisable to the extent that the Indonesian Arbitration Law applies.
However, the above powers apply only to domestic arbitrations. There is no equivalent provision that empowers a tribunal to issue interim relief for foreign-seated arbitrations.
Despite granting wide powers to grant interim relief, the Indonesian Arbitration Law does not provide a specific court/judicial-assistance mechanism to ensure parties’ compliance with the interim relief. Nor is there a specific procedure to enforce interim relief, as enforcement is typically for final awards. This makes it difficult for interim relief to be enforced.
Due to this absence of procedure, the judges may have wide discretion to decide on the application of the interim relief’s enforcement. An example is Supreme Court Decision No. 26 PK/Pdt.Sus-Arb/2016 between PT Astro Nusantara International B.V et al. and PT Ayunda Prima Mitra. In that case, both the Central Jakarta District Court and the Supreme Court declined to enforce an anti-suit injunction issued by a Singapore International Arbitration Centre (“SIAC“) tribunal against ongoing Indonesian court proceedings, respectively finding that it interfered with Indonesian court proceedings and violated the sovereignty principle.
Court intervention in ongoing arbitral proceedings is strictly limited under the Indonesian Arbitration Law to specific circumstances, namely:
- The appointment of an arbitrator;
- A decision on the challenge of an arbitrator;
- Annulment of an arbitral award on specific and limited grounds.
Despite not being expressly set out, the kompetenz–kompetenz principle is embodied in Articles 3 and 11 of the Indonesian Arbitration Law. Essentially, the articles provide that the courts should not have jurisdiction over a dispute which falls within the scope of an arbitration agreement. From this, it can be inferred that the courts would not deprive an arbitral tribunal of the authority to determine its own jurisdiction.
8. Appointment of Arbitrators, Challenge, and Liability
The Indonesian Arbitration Law provides a default rule regarding the appointment of arbitrator(s). For the appointment of a sole arbitrator, the parties are obliged to agree on the sole arbitrator within 14 days after the receipt of the claimant’s proposal on the arbitrator by the respondent.
For the constitution of a three-member tribunal, parties are given 30 days to appoint one arbitrator. In cases where one party fails to appoint a party-appointed arbitrator, the dispute then shall be adjudicated and decided by a sole arbitrator. If the parties appoint their respective party-appointed arbitrators within the time limitation, the third arbitrator will be appointed as the presiding arbitrator, typically by the two arbitrators or an appointing authority such as the Chairman of the District Court.
Article 22 of the Indonesian Arbitration Law provides that an arbitrator’s appointment may be challenged where there is justifiable doubt regarding the arbitrator’s independence and impartiality. This indicates that arbitrators should always be independent and impartial. Once appointed, an arbitrator should also disclose any relevant information that may affect the arbitrator’s independence and impartiality. Any failure to do so may result in the award being unenforceable.
Article 12 of the Indonesian Arbitration Law also prescribes mandatory requirements for arbitrators, who must:
- be authorised or competent to perform legal acts;
- be at least 35 years of age;
- not have any familial relationship by blood or marriage, to the third degree, with either of the disputing parties or their respective representatives;
- have no financial interests with either the parties or their legal representatives;
- have no interest in the outcome of the arbitration; and
- have at least 15 years’ active experience and expertise in the disputed field.
Further, judges, public attorneys, clerks, and other government or court officials cannot be appointed as an arbitrator.
Under the Indonesian Arbitration Law, parties are permitted to challenge or request the recusal of an arbitrator where:
i. There are justifiable doubts as to the arbitrator’s independence and impartiality; and
ii. The arbitrator has a familial, financial, or employment relationship with a party or its respective legal representative.
The rules and procedure applicable to the challenge of an arbitrator are substantially similar to most jurisdictions.
A challenge to an arbitrator can only be submitted within 14 days after the appointment of the arbitrator. Article 25 of the Indonesian Arbitration Law provides that where a challenge is disputed, the issue will be determined by the chairman of a District Court.
Generally, an arbitrator shall not be held liable for the performing of his/her duty as an arbitrator. However, such immunity is not without limitation. An exception is where it is proven in court that the arbitrator has acted in bad faith.A second exception is where the tribunal has failed to render an award within the relevant time limitation, noting that the Indonesian Arbitration Law imposes a 30-days limitation for a tribunal to render an award. In such case, the tribunal would be liable for any monetary damages experienced by the parties resulting from the delay in issuance of the award.
9. Party Representation
Article 23 (1) of Law No 18 of 2003 on Advocate (“Advocate Law“) imposes a prohibition on foreign lawyers providing legal services and practising in Indonesia. Accordingly, foreign lawyers may not represent a party in an arbitration seated and conducted in Indonesia unless they are employed by an Indonesia law firm.
The Advocate Law provides that foreign lawyers are bound to the Indonesian Advocate code of ethics and subsequent laws and regulations. Specifically, this means that foreign lawyers are bound by the Code of Ethics issued by the Indonesian Advocate Committee.
The IBA Guidelines on Party Representation (“IBA Guidelines“) are not generally applied in domestic arbitration. Subsequently, domestic practice does not reflect the IBA Guidelines. However, parties may agree to apply the IBA Guidelines as part of the rules and procedure of the arbitration.