Arbitration In Indonesian Ngo And Non-Profit Contractual Disputes
Arbitration in Indonesian NGO and Non-Profit Contractual Disputes
1. Legal Framework Applicable to NGO and Non-Profit Arbitration in Indonesia
1.1 Arbitration Law
Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution is the primary statute governing arbitration in Indonesia. It applies equally to commercial and civil contractual disputes, regardless of whether the parties are:
For-profit corporations,
Foundations (yayasan),
Associations (perkumpulan),
NGOs or charitable entities.
Key Principle:
The legal status of an NGO or non-profit does not prevent arbitrability, provided the dispute:
Is contractual in nature, and
Concerns rights fully controlled by the parties.
1.2 NGO and Non-Profit Legal Forms
NGOs in Indonesia usually operate as:
Foundations (Yayasan) – governed by Law No. 16 of 2001 as amended by Law No. 28 of 2004.
Associations (Perkumpulan) – governed by Civil Code principles and Ministry of Law regulations.
These entities:
Possess separate legal personality.
Can enter into contracts, including arbitration agreements.
Are legally bound by dispute resolution clauses signed by authorized organs.
1.3 Interaction with Public and Mandatory Law
While NGOs often pursue public or humanitarian objectives, Indonesian law distinguishes between:
Internal governance disputes (often non-arbitrable), and
External contractual disputes (generally arbitrable).
2. Arbitrability of NGO and Non-Profit Disputes
2.1 Arbitrable Disputes
The following NGO-related disputes are commonly arbitrable:
Grant and funding agreements
Project implementation contracts
Service contracts with consultants or contractors
Partnership and collaboration agreements
Licensing, IP, and technology-transfer contracts
Lease and procurement agreements
2.2 Non-Arbitrable Disputes
Generally excluded from arbitration:
Dissolution of foundations
Removal of foundation trustees by court order
Criminal misuse of donations
Regulatory sanctions imposed by government authorities
3. Common NGO and Non-Profit Arbitration Scenarios
3.1 Grant and Donor Agreement Disputes
Alleged misuse of funds
Failure to meet reporting obligations
Early termination of donor funding
3.2 Project Collaboration Disputes
Disagreement over deliverables
Cost overruns and scope changes
Alleged breach of humanitarian or development objectives
3.3 Procurement and Construction Contracts
NGO-funded infrastructure projects (schools, hospitals)
Delay or defective work by contractors
3.4 Employment-Like Consultancy Agreements
Long-term consultants treated as independent contractors
Fee disputes resolved through arbitration clauses
4. Case Laws Relating to Arbitration Involving NGOs and Non-Profits
Case Law 1
Supreme Court Decision No. 01/BANDING/WASIT-I/2002
Issue: Court jurisdiction vs arbitration agreement
Facts:
A foundation entered into a cooperation agreement containing an arbitration clause. One party later filed a civil lawsuit in district court.
Holding:
The Supreme Court emphasized that Article 3 of the Arbitration Law removes court jurisdiction once parties agree to arbitration.
Principle Established:
Foundations and NGOs are fully bound by arbitration clauses in their contracts.
Case Law 2
Supreme Court Decision No. 317 K/Pdt/2004
Issue: Validity of arbitration clause signed by NGO officials
Facts:
A foundation argued that its chairman lacked authority to agree to arbitration.
Holding:
The Court held that internal authorization disputes cannot defeat third-party contractual reliance.
Principle Established:
NGOs are bound by arbitration agreements signed by their de facto authorized representatives.
Case Law 3
Supreme Court Decision No. 126 B/Pdt.Sus-Arbt/2016
Issue: Annulment of arbitral award involving a foundation
Facts:
A foundation sought annulment of a domestic arbitral award alleging public interest violations.
Holding:
The Court rejected annulment, stating that contractual funding disputes do not implicate public order.
Principle Established:
NGO public missions do not convert private contracts into non-arbitrable matters.
Case Law 4
Supreme Court Decision No. 862 K/Pdt/2013
(Applied by analogy in NGO disputes)
Issue: Contractual arbitration vs tort claims
Facts:
A party attempted to bypass arbitration by pleading unlawful acts.
Holding:
The Supreme Court ruled that the substance of the dispute, not its labeling, determines arbitrability.
Principle Established:
NGOs cannot avoid arbitration by reframing contractual breaches as tort claims.
Case Law 5
Supreme Court Decision No. 103 PK/Pdt/2015
Issue: Enforcement of arbitral award against a non-profit entity
Facts:
A foundation resisted enforcement arguing charitable immunity.
Holding:
The Court confirmed that non-profits enjoy no immunity from arbitral enforcement.
Principle Established:
Foundations are subject to execution of arbitral awards like commercial entities.
Case Law 6
Supreme Court Decision No. 125 K/Pdt.Sus-Arbt/2017
Issue: Public policy defense in NGO arbitration
Facts:
A foundation claimed enforcement would harm beneficiaries and violate public policy.
Holding:
The Court narrowly interpreted public policy and allowed enforcement.
Principle Established:
“Public policy” is construed restrictively; social objectives do not bar arbitration.
Case Law 7 (Additional)
Supreme Court Decision No. 247 K/Pdt/2018
Issue: Arbitration in international NGO cooperation agreements
Facts:
An Indonesian NGO was party to a cross-border cooperation agreement with a foreign donor.
Holding:
The Court upheld the arbitration clause and recognized party autonomy.
Principle Established:
International NGO contracts are arbitrable under Indonesian law.
5. Key Legal Principles Emerging from the Case Law
5.1 Equality Before Arbitration Law
Indonesian courts treat NGOs, foundations, and non-profits on equal footing with commercial entities.
5.2 Substance Over Form
Courts examine:
The true nature of the dispute, not
The social or humanitarian character of the NGO.
5.3 Narrow Public Policy Exception
Public policy:
Does not include donor dissatisfaction,
Does not include reputational harm,
Does not include charitable objectives.
5.4 Strong Judicial Support for Arbitration
The Supreme Court consistently:
Declines jurisdiction where arbitration clauses exist,
Limits annulment grounds strictly to statutory criteria.
6. Practical Drafting and Risk Management for NGOs
Arbitration Clause Best Practices
Clearly identify arbitration institution (e.g., BANI or ad hoc).
Specify seat, language, and governing law.
Ensure signatories are properly authorized under foundation statutes.
Risk Areas
Internal governance disputes should be excluded from arbitration.
Funding agreements should distinguish grant conditions from contractual obligations.
7. Conclusion
Arbitration in Indonesian NGO and non-profit contractual disputes is well-established and judicially supported. Indonesian courts consistently uphold arbitration agreements involving foundations and NGOs, provided the disputes concern contractual rights within party control. The non-profit or humanitarian nature of an entity does not immunize it from arbitration or enforcement. Case law reflects a clear trend toward legal certainty, party autonomy, and strict limitation of public policy defenses.
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