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Arbitration: Advantages Outside The State Court System

The era of globalization that has swept across the world affects various aspects of life, one of the affected is the economic aspect. At the present time, the world is more integrated, as though without borders (the borderless world), while competition between business people is getting more competitive. In the event of a business dispute, the parties in the business are generally confront- ed with the choice of dispute resolution through the courts (litigation) or outside the courts (non litigation). The legal basis for the parties to choose a forum for resolving business disputes is also clearly regulated in Article 58 Law Number 48 of 2009 concerning Powers of Judiciary (“Law 48/2009”) which expressly states that “Settlement to resolve civil dispute can be done outside the State Court through arbitration or alternative dispute resolution”. Thus also in Article 6 paragraph (1) of Law Number 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (“Law 30/1999”) states that “Dis- putes or differences of opinion may be resolved by the parties by alternative dispute resolution based on good faith by waiving the resolution by litiga- tion in the District Court. Referring to the above mentioned laws, it can be seen that the parties are given the discretion to choose dispute resolution, either through court forums or alternative dispute resolution. One alternative dispute resolution that can be chosen by the parties is through an arbitra- tion mechanism.

Article 1 paragraph (1) of Law 30/1999 “Arbitration shall mean a mechanism of settling civil disputes outside the general courts based upon an arbi- tration agreement entered into in writing by the disputing Parties”. While discussing arbitration as a dispute resolution, it is important to remember that Indonesian Law requires an object of arbitration. The Object of arbitration is the matters discussed or which can be resolved through arbitration. Ar- bitration is an option to settle disputes outside the court, but not all disputes can be resolved through arbitration. Only specific dispute can be the object of arbitration. Article 5 of Law 30/1999 deals with an object of a dispute that can be resolved through arbitration and provides that “The only disputes which may be settled by arbitration are disputes in the commercial sector concerning rights which, according to the law and regulations, have the force of law and are fully controlled by the parties in dispute”. That article does not provide whether the object includes the trade sector. However, Ar- ticle 66 of Law 30/1999, explains that “the scope of trade law” are activities such as Commerce, Bank- ing, Finance, Investment, Industry, and Intellectual Property Rights. Article 5 of Law 30/1999 also states what cannot be an object of an arbitration dispute as “Disputes which may not be resolved by arbitra- tion are disputes that cannot be settled amicably under the regulations and the force of law”.

Arbitration provide several advantages compared through the court and some of these advantages are as follows:

1. Arbitrators chosen by the parties are arbitrators who do have specialised expertise and compe- tence in the concerned business fields. Article 12 paragraph (1) e of Law 30/1999 provides that to be appointed as arbitrators, persons must “Having at least 15 years experience and active mastery in the field” Thus it can be ensured that the arbitrator has a sufficient experience related to the business in which the case arises.

2. There is a guarantee of confidentiality. The confi- dentiality in the arbitration procedure makes the arbitration seen as an alternative dispute resolu- tion in accordance with the needs of the business world. This is because the process of resolving disputes through arbitration is closed and the de- cisions are not published. Referring to Article 27 Law 30/1999 state that “All hearings of arbitration disputes shall be closed to the public”. This is an added value for the parties because the parties may not want to make public their disputes. This is especially so for public listed companies and technology and pharmaceutical cases where trade secrets become matters in dispute. There is also the matter of public reputation.

3. There are opportunities for the parties to the dispute to keep their business cooperation after the case is decided. Because the main thrust of the parties is to find a win-win solution. Solution, it is hoped that Parties are able to continue some form of business relationship once the matter is resolved. This is contrasted with Court proceed- ing which are usually more adversarial where the general purpose of the parties is only to terminate or cancel the contract to claim compensa- tion for the damages. This can make arbitration the best choice for business parties who want to solve existing problems whilst keeping and main- taining good relationship with the other parties.

On the other hand, alternative dispute resolution through arbitration carries with it certain disadvan- tages. These include :

1. Arbitration is not widely known, both by the general public and the business community.

2. Public has not put sufficient trust so that they are unwilling to submit their cases to arbitration institutions. This can be seen from the few cases that have been submitted and resolved through the existing arbitration institutions.

3. Arbitration institution and ADR do not have the power or authority to execute an award.

4. Lack of compliance of the parties to the results of the settlement achieved in arbitration and denial of the fruits of litigation.

Arbitration is a form of dispute resolution outside the State court system. The parties who intend to settle disputes through arbitration must express this intention in writing. The selection of arbitration as a forum for resolving disputes outside the court is based on various considerations of the various benefits of arbitration. Arbitration is an important feature of international business in the 21st Century and Parties are well warned to understand the im- plications and consequences of including arbitration clauses in their Agreements. YIO/HES