Indonesia

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.

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:
    1. forged evidence;
    2. the concealment of material evidence; or
    3. fraud

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:

  1. the Indonesian Insurance Arbitration and Mediation Agency (Badan Mediasi dan Arbitrase Asuransi Indonesia, or “BMAI“) for the insurance sector;
  2. the Indonesian Alternative Dispute Resolution Institution (Lembaga Alternatif Penyelesaian Sengeta Perbankan Indonesia, or “LAPSPI“) for the banking sector; and
  3. 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:

  1. the National Shariah Arbitration Board (Badan Arbitrase Syariah Nasional, or “BASYARNAS“) which specifically resolves the disputes arising out of shariah transactions;
  2. 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;
  3. the Indonesian Sport Arbitration Board (Badan Arbitrase Keolahragaan Indonesia, or “BAKI) for disputes regarding sports activities; and
  4. 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“).

3. Confidentiality

Indonesian Arbitration Law mandates that all arbitral proceedings must be closed to the public.

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.

Please contact the editorial team of Arbitration Asia at arbitrationasia@rajahtannasia.com.