Arbitration Law in Indonesia
Arbitration Law in Indonesia
Arbitration in Indonesia is governed primarily by Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (ADR), also known as the Arbitration Law. This law regulates both domestic and international arbitration and provides a legal framework for resolving disputes outside of the judicial system. It aims to create an efficient and effective mechanism for resolving disputes through arbitration.
Here’s a detailed overview of Arbitration Law in Indonesia:
1. Legal Framework
The primary legislation that governs arbitration in Indonesia is Law No. 30 of 1999 on Arbitration and ADR. This law is modeled after the UNCITRAL Model Law on International Commercial Arbitration (1985) and is designed to provide a legal framework for arbitration in Indonesia. The law has been amended to accommodate changes in domestic and international arbitration practices.
Additionally, Indonesia is a signatory to several international conventions related to arbitration, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).
2. Arbitration Agreement
An arbitration agreement is an essential element for initiating arbitration. It must meet the following criteria:
- Written Agreement: The arbitration agreement must be in writing, either in the form of a clause in a contract or as a separate agreement.
- Clear Intent: The agreement must clearly express the intention of the parties to submit to arbitration.
- Scope: The agreement must specify the dispute(s) to be resolved by arbitration.
The law provides that a court can refuse to hear a case if there is a valid arbitration agreement, under Article 6 of the Arbitration Law.
3. Types of Arbitration
Indonesia recognizes both domestic arbitration (for disputes arising within the country) and international arbitration (for disputes between parties from different countries).
Domestic Arbitration: When the dispute involves parties within Indonesia, the arbitration process must comply with Indonesian law and is usually governed by the local arbitration institution's rules, such as the Indonesian National Board of Arbitration (BANI).
International Arbitration: Arbitration between international parties can either be governed by the Arbitration Law or the rules of international arbitration institutions, such as the International Chamber of Commerce (ICC) or the Singapore International Arbitration Centre (SIAC).
4. Appointment of Arbitrators
Number of Arbitrators: The parties are free to agree on the number of arbitrators. Typically, there are one or three arbitrators. If the parties do not agree, the default is one arbitrator.
Selection of Arbitrators: The parties are free to select their arbitrators, but if they are unable to do so, the arbitration institution (if one is chosen) may appoint arbitrators. Alternatively, the Indonesian National Board of Arbitration (BANI) can appoint arbitrators.
Qualifications of Arbitrators: Arbitrators must be impartial and independent. There are no specific statutory qualifications for arbitrators, but the parties generally expect them to have expertise in the subject matter of the dispute.
5. Arbitration Procedure
Flexibility: The parties are free to agree on the rules and procedures for arbitration. If no agreement is reached, the arbitrators have the authority to decide the procedure, subject to compliance with the Arbitration Law.
Seat of Arbitration: The seat of arbitration is typically agreed upon by the parties. The location of the arbitration determines the applicable procedural law. In Indonesia, arbitration hearings can be conducted within the country or abroad, depending on the parties' agreement.
Language of Arbitration: The parties can agree on the language of the arbitration, and in the absence of agreement, the arbitrators will determine the language.
6. Role of Courts in Arbitration
Indonesian courts play a supportive role in the arbitration process but are generally expected to have limited intervention in matters that are under arbitration.
Interim Relief: Indonesian courts can grant interim measures of protection before or during arbitration. Courts may issue orders to preserve assets or prevent actions that may hinder the arbitration process.
Referral to Arbitration: Courts in Indonesia are required to refer parties to arbitration if there is a valid arbitration agreement. This is in line with Article 6 of the Arbitration Law, which mandates that courts should refuse to hear a case if it is subject to arbitration.
Setting Aside Awards: Arbitration awards may be challenged in the courts on limited grounds under Article 70 of the Arbitration Law. The grounds for challenging an arbitral award include:
- The award was rendered in a case that is not covered by the arbitration agreement.
- There is a violation of public policy in the award.
- The arbitrators exceeded their jurisdiction.
- There was a procedural irregularity or unfairness during the arbitration process.
7. Enforcement of Arbitral Awards
Domestic Awards: Arbitration awards rendered in Indonesia are enforceable by Indonesian courts. The enforcement process is straightforward and does not require judicial re-examination of the merits of the case.
Foreign Awards: Indonesia is a signatory to the New York Convention, and foreign arbitral awards can be recognized and enforced in Indonesia. However, enforcement may be denied on limited grounds, such as:
- The award violates the public policy of Indonesia.
- The award was rendered in a jurisdiction that does not recognize Indonesian awards.
8. Arbitration Institutions in Indonesia
There are several institutions in Indonesia that offer arbitration services. The most notable ones are:
Indonesian National Board of Arbitration (BANI): This is the leading arbitration institution in Indonesia, which administers domestic and international arbitrations.
Indonesian Arbitration Center (IAC): This institution offers arbitration services for various sectors, including construction and commercial disputes.
Other Institutions: There are several other smaller and specialized arbitration institutions, such as the Indonesian Mediation Center (IMC), which focuses on mediation and arbitration for certain industry sectors.
9. Amendments to the Arbitration Law
The Arbitration Law has been amended several times since its enactment in 1999. The most significant amendments were made in 2004 to bring the law in line with international practices. These amendments addressed the need for a more efficient system for enforcing awards, improving the arbitration process, and clarifying the role of courts.
While the Arbitration Law of 1999 is generally considered to be well-developed, further reforms and clarifications are periodically discussed to enhance Indonesia's arbitration framework and to attract foreign investment.
10. Challenges and Opportunities
Challenges:
- Court Intervention: Despite the law aiming for minimal court interference, courts can still sometimes delay the process or interfere with the enforcement of awards.
- Awareness and Familiarity: There is still a relatively low level of awareness of arbitration among businesses in Indonesia, which can hinder the growth of the arbitration culture.
Opportunities:
- Growing Popularity: With the global growth of arbitration as a preferred mode of dispute resolution, Indonesia has the opportunity to become a more prominent regional hub for arbitration.
- Strategic Location: Indonesia's position as a major trading hub in Southeast Asia makes it an attractive destination for international arbitration, especially for disputes involving parties from ASEAN countries and beyond.
- Government Support: Indonesia is actively promoting alternative dispute resolution mechanisms, including arbitration, to resolve disputes more efficiently and to reduce the burden on the court system.
Conclusion
Indonesia’s Arbitration Law is designed to provide an efficient and flexible framework for resolving disputes. With its adoption of the UNCITRAL Model Law and its membership in the New York Convention, Indonesia offers a favorable environment for both domestic and international arbitration. Although challenges remain, such as the need for greater court efficiency and awareness of arbitration practices, the country is on a positive path to enhancing its arbitration system and positioning itself as a regional arbitration hub.
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