Year in review

Developments affecting international arbitrationLegislationLaw No. 30 of 1999 on Arbitration and Alternative Dispute ResolutionDetermination of arbitration tribunals

The parties may determine the selection and appointment of arbitrators or arbitral tribunals. If the parties do not reach an agreement regarding the appointment of the arbitrator, the parties or either party may apply to the head of the district court to appoint an arbitrator or arbitral tribunal.⁵ Against such application, the head of the district court hears the parties accompanied by reasons of disagreement and the proposal of the arbitrator or arbitral tribunal.⁶ The head of the district court shall appoint the arbitrator or arbitral tribunal no later than 14 days from the date of the application submission in the form of a determination.⁷ Against such determination, the right of recusal may be submitted no later than 14 days from the determination if there are sufficient reasons and sufficient authentic evidence to raise doubts that the arbitrator will not perform their duties freely and will be partial in making the award.⁸

The arbitrator who is appointed can be recused when there are sufficient reasons and authentic evidence to cast doubt that the arbitrator will be unable to carry out their duties freely and take sides in making an award.⁹ The claim is proven by the existence of a family, financial or work relationship with one of the parties to the dispute or their attorney.¹⁰

Arbitration procedures

Examination of disputes in arbitration is carried out in writing and verbal hearings can be carried out if agreed by the parties or deemed necessary by the arbitrator or arbitral tribunal.¹¹ Dispute examinations of this type are carried out behind closed doors in camera and are not open for public.¹² The dispute must be examined within 180 days after the arbitrator or arbitral tribunal is formed. This period of time to examine these disputes may be extended by agreement of the parties and, if necessary, be extended by the arbitrator or arbitral tribunal following a request submitted by one of the parties regarding certain particular matters as a result of a provisional award or other interlocutory awards, or if deemed necessary by the arbitrator or arbitral tribunal for examination purposes.¹³ During the examination for dispute settlement through arbitration, the district court will not interfere and will even refuse to examine a dispute that has previously been determined to be resolved by arbitration.¹⁴

Arbitral awards

Article 54 of the AADR Law regulates the structure of arbitral awards. Arbitral awards must contain information such as:

1. a heading to the award that reads ‘For the sake of Justice based on belief in the Almighty God’;
2. full names and addresses of the parties;
3. a brief description of the dispute;
4. the establishment of the parties;
5. the full name and address of the arbitrator;
6. the considerations and conclusions of the arbitrator or arbitral tribunal regarding the entire dispute;
7. the opinion of each arbitrator if there is a difference of opinion in the arbitral tribunal;
8. the order of judgment;
9. the place and date of the award; and
10. a signature of the arbitrator or arbitral tribunal.

According to Article 54, Paragraph (2) of the AADR Law, an arbitrator’s inability to sign the award because of illness or death does not invalidate the award’s effectiveness. Additionally, it is generally accepted in civil procedure that a decision must contain the heading above. Otherwise, such decision will become null and void.¹⁵ This also unexceptionally applies to arbitral awards. Thus, the usage of such heading constitutes as a part of procedural formality. Its absence may cause the award to be regarded as defective, and subsequently, at risk of becoming unenforceable.

Annulment of arbitral award

The arbitral award is final in nature, has permanent legal force and is binding on the parties based on the provisions of Article 60 of the AADR Law. However, an arbitral award can be subject to annulment if it is suspected of containing either of the following elements:¹⁶ a letter or document submitted for examination after the verdict has been rendered that is recognised as fabricated or declared to be fabricated; after the award is rendered, decisive documents that were hidden by the opposing party are discovered; or the award was rendered as the result of a deceit by one of the parties during the examination of the dispute. The legal basis for the request for arbitral award annulment must be submitted by attaching related documents or evidence.¹⁷ Furthermore, the arbitration institution is not a party in submitting a request for an annulment of an arbitral award.¹⁸ Annulment is exclusively pertinent to domestic arbitral awards.

Annulment requests for arbitral awards are to be submitted directly or electronically¹⁹ within 30 days following the award’s registration. This is in accordance with Articles 70 and 71 of the AADR Law and further detailed in SCR 3/2023. Upon receipt, the court’s chairman appoints a panel of judges to examine the annulment request.²⁰ The trial process for annulment requests of arbitral awards is simple, quick, and cost-effective.²¹ The decision on the annulment request is pronounced 30 days after the request is read in court.²² In summary, the stages of the trial examination of the annulment request of arbitral awards are as follows:²³ reading of the request annulment, response from the Respondent, interlocutory decision (if applicable), and finally, the reading of the decision. For the evidence session, an opportunity is given once to both the Applicant and the Respondent,²⁴ and the decision reading session can only be postponed once considering the time frame for the decision reading, which is a maximum of 30 days from the request annulment is read.²⁵

Legal measures to file an appeal to the Supreme Court is limited to the decision that grants the annulment of the arbitral award.²⁶ The appeal is submitted in writing at the latest 14 days after the decision is pronounced or notified to the parties.²⁷ The court will notify the appellee at the latest three days after the appeal is registered²⁸ and the appellee has the rights to submit their counter at the latest seven days after receiving the notification.²⁹ The parties are given a maximum of 3 days for inspection from the notification date.³⁰ The appeal documents are sent to the Supreme Court at the latest 25 days since the registration of appeal³¹ and the Supreme Court decides on the appeal at the latest 30 days after the appeal is registered at the Supreme Court.³² The decision of the Supreme Court is final, and no further legal measures are available.³³ Unlike the decision on the annulment request that is granted, no legal measures can be filed for the annulment request of arbitral awards that are rejected by the panel of judges.³⁴

It is found that within 2019–2022, the annual breakdown of annulment of arbitral award requests and their outcomes are as below.³⁵

2019–2022 annual breakdown of annulment of arbitral award requests

Year	Total cases	Total appeals	Final result of annulment requests
Granted	Rejected	Dismissed (N/O)
2019	15	10	2	9	4
2020	23	14*	2	14	7
2021	19	3	5	10	4
2022	13	4	5	1	7
Total	70	31*	14	34	22
* Including two civil reviews.

In 2019, out of 15 cases, 10 were appealed, resulting in two annulments, nine rejections and four dismissals. The following year, 2020, saw a rise in cases to 23, with 14 appeals, including two civil reviews. This year also observed two grants of annulment, but an increase in rejections to 14 and 7 dismissals. The year 2021 experienced a slight decrease in total cases to 19, with only three appeals. Interestingly, this year had the highest number of granted annulments at five, alongside 10 rejections and four dismissals. The data from 2022 shows a further decrease in cases to 13, with four appeals with outcomes of five annulments, one rejection and seven dismissals.

Application to enforce international arbitral award

As for international arbitral awards, their recognition and enforcement must be submitted and registered by the arbitrator or their proxy to the registrar of the Central Jakarta District Court³⁶ with the following conditions set out in Article 66 of the AADR Law for recognition and enforcement: (1) the award was rendered in a country with bilateral or multilateral agreements with Indonesia regarding recognising and enforcing international arbitral awards; (2) the award was limited to awards that, according to the provisions of Indonesian law, are included in the scope of commercial law; (3) the award is not contrary to public order; (4) the award has obtained an executive order from the chair of the Central Jakarta District Court; and (5) awards involving the Republic of Indonesia as one of the parties to the dispute are carried out after obtaining an executive order from the Supreme Court of the Republic of Indonesia, which is then delegated to the Central Jakarta District Court. Registration of international arbitral awards shall be carried out by the registrar no later than 14 days after the registration documents are complete.³⁷ The registration can be done electronically through the Court Information System (SIP).³⁸ In the event that the arbitrator is appointed by an arbitral institution, the registration of the international arbitral award shall be carried out by the board of the arbitral institution or its proxy.³⁹ The provisions regarding the period of registration of national arbitral awards as stipulated in Article 6, Paragraph (1) of SCR 3/2023, namely, no more than 30 days from the pronouncement of the award, do not apply to the registration of international arbitral awards in courts.⁴⁰

Court rules and practicesSupreme Court Regulation Number 3 of 2023 on Procedures for the Appointment of Arbitrators by the Court, the Rights of Recusal, Examinations of Request for Enforcement, and the Annulment of Arbitral Awards

SCR 3/2023 introduces comprehensive guidelines on appointing arbitrators, rights of recusal, examination of enforcement requests, and annulment of arbitral awards, marking a step in the attempt to complete the Indonesia’s Arbitration and Alternative Dispute Resolution (AADR) Law. This regulation aims to streamline arbitration processes and reinforce legal certainty within the jurisdiction.

The key features of SCR 3/2023 are as follows:

1. Dual court system for arbitration-related applications: SCR 3/2023 designates District Courts and Religious Courts as the first-level courts for managing arbitration applications, differentiating between conventional and sharia-based arbitration.
2. Arbitrator appointment and recusal rights: The regulation provides a more comprehensive mechanism for the appointment of arbitrators by the court when parties fail to agree on a choice. It also outlines the process for arbitrators’ recusal, ensuring impartiality and fairness in arbitration proceedings.
3. Registration and enforcement of arbitral awards: A novel requirement under SCR 3/2023 is registering national and international arbitral awards with the relevant court’s Registrar. This step is crucial for the subsequent enforcement of awards, which follows distinct procedures for domestic and international cases.
4. Annulment procedures: SCR 3/2023 offers guidelines for annulling arbitral awards. It clarifies and aligns the process with Article 70 of the AADR Law.

Supreme Court Circular Letter Number 3 of 2023 on the Enforcement of 2023 Supreme Court Chamber Plenary Meeting Result Formulations as Guidelines for the Implementation of the Duties of the Court

Another development comes from the initiative of the Supreme Court. The Indonesian Supreme Court has recently issued Circular Letter Number 3 of 2023 on the Enforcement of 2023 Supreme Court Chamber Plenary Meeting Result Formulations as Guidelines for the Implementation of the Duties of the Court (SCCL 3/2023), which acts as a guideline for judges on interpreting various legal issues, including those relevant to arbitration. SCCL 3/2023 contains 29 legal formulations, 24 of which are entirely new legal norms. This circular letter provides crucial guidance on the language requirements for cross-border agreements, a matter of significant relevance to international arbitration proceedings.

SCCL 3/2023 and international arbitration

SCCL 3/2023 directly addresses the challenge presented by the mandatory Bahasa Indonesia requirement for contracts involving Indonesian parties, as stipulated in Law 24/2009 and Presidential Regulation 63/2019. This guidance is particularly pertinent to international arbitration, as it clarifies that the absence of an Indonesian translation in cross-border agreements only inherently voids such contracts if there is clear evidence of bad faith. This clarification is crucial for arbitration clauses within such agreements, ensuring their validity and enforceability in the face of linguistic discrepancies.

Implications for arbitration agreements

By integrating this guidance, SCCL 3/2023 mitigates prior apprehensions concerning the enforceability of arbitration agreements and subsequent arbitral awards, which the absence of contract translations may have compromised. The clarification that the lack of an Indonesian version does not inherently invalidate the contract — or the arbitration agreement contained within it — fortifies the legitimacy and application of international arbitration agreements involving Indonesian parties, although it is only set out in one language, leaving parties to provide the Indonesian translation. This development underscores the Supreme Court’s commitment to providing clarity and support for international arbitration, recognising the importance of such provisions in the global business environment.

Arbitration institution rules or practices

Arbitration institutions in Indonesia have a role in administering the dispute settlement by the tribunal. Each of those arbitration institutions has different sets of rules that are continuously updated to adjust to the circumstances in practice. The general matters governed in those Arbitration Rules set out below.

Constitution of an arbitral tribunal

Parties frequently specify the number of arbitrators and mechanism of appointment in their arbitration clauses. If parties agree to appoint a sole arbitrator, they have to agree on the appointment. Failure to do so will authorise the Chairman of District Court to appoint them based on the nomination by the party or arbitral institution. In case a tribunal consisting of three arbitrators will arbitrate the dispute, each party will choose an arbitrator and the two party-appointed arbitrators will determine the third (and presiding) arbitrator.⁴¹ In most arbitration institutional rules in Indonesia, the parties are free to choose to have one or three arbitrators or follow the default of the chosen rules. It means that in the absence of an agreement between the parties, the number of arbitrators will follow the procedure referred to in the arbitration clause.

Some Indonesian arbitration institutions maintain their own list of arbitrators from which the disputing parties may choose. However, in some cases they may also appoint an arbitrator outside of the list of arbitrators in an arbitration institution. This option may arise if the nature of the dispute requires an arbitrator with specialised knowledge that is not available in the existing list of arbitrators.⁴² A party may nominate an arbitrator to the chair of the relevant arbitral institution, outlining the justifications and information about the proposed arbitrator. If the chair of the arbitral institution believes that there is no arbitrator with the necessary expertise, they may decide to approve such an appointment in order for the dispute to be properly adjudicated.⁴³ If the chair of the arbitration institution does not approve the designation of the unlisted arbitrator, they may recommend or designate an alternative arbitrator from the list of arbitrators in the relevant institution.⁴⁴

After the parties have appointed their respective arbitrators and the tribunal consists of three arbitrators, there are two mechanisms to appoint the presiding arbitrator. First, the presiding arbitrator may be appointed through deliberation between the parties’ appointed arbitrators. If the parties’ appointed arbitrators do not reach any agreement, then the chair of the arbitration institution will appoint the presiding arbitrator.⁴⁵ Second, the chair of the institution may directly appoint the presiding arbitrator without consulting the parties’ appointed arbitrators.⁴⁶ The application of the above approach may depend on parties’ arbitration clause, the relevant arbitration institution rules and a conflict-of-interest assessment.

Hearing procedure and language

In the 2022 BANI Rules, for example, the arbitration proceeding shall be completed within a period of no longer than 180 days from the date of constitution of the tribunal. In special conditions where the dispute is of a highly complex nature, the tribunal has the authority to extend the deadline upon notice to the parties.

During the hearing, the parties may be represented by foreign adviser(s) or foreign legal adviser(s). The 2022 BANI Rules govern that these foreign adviser(s) or foreign legal adviser(s) may attend the arbitration proceedings only if they are accompanied by Indonesian adviser(s) or legal adviser(s).

Furthermore, the examination hearing will often be conducted in Indonesian if the parties have not agreed otherwise. If the arbitration tribunal considers that using English or another language is appropriate in the circumstances (such as the attendance of foreign parties or foreign arbitrators who are unable to communicate in Indonesian, or when the transaction arising from the dispute is conducted in another language), the case examination hearing may also be conducted in the other language or bilingually. If the tribunal or any party requires the assistance of an interpreter during the proceeding, such an interpreter may be provided by the arbitration institution, and the fee of the interpreter shall be borne by the parties as deemed appropriate by the arbitration tribunal.⁴⁷

Separately, unless it is specifically regulated under parties’ arbitration clause, the tribunal is also entitled to determine whether the parties’ original pleadings, documentary evidence and arbitral award must be provided bilingually.

Electronic hearings

Most Indonesian arbitration institutions allow the hearing to be conducted electronically if the parties agree. For example, it is regulated in the BANI Electronic Arbitration Rules that an electronic hearing may be conducted based on:⁴⁸

1. an urgent situation (such as a pandemic);
2. exceptional circumstances, such as where one or both parties, or one or more arbitrators, are based outside the country or region and find it impossible to travel to the hearing;⁴⁹ or
3. the parties’ own choice.

Parties’ intention to conduct an electronic arbitration hearing must be set out in writing and must be agreed by the relevant arbitration institution (e.g., BANI) or the tribunal that is examining the case.⁵⁰

One other aspect that is important in conducting electronic arbitration hearings is confidentiality. Therefore, it is important that the parties agree on several matters, including:

1. that there is a guarantee between the parties that no unauthorised party is attending the hearing; and
2. the parties will consistently and compliantly implement the relevant arbitration institution rules, including applicable laws and regulations, and strive to maintain confidentiality.

Arbitration developments in local courtsInterpretation and enforcement of arbitration clauses

An agreement is a law to the parties that create it.⁵¹ Moreover, the arbitration clause interpretation procedure in Indonesia is often artificially shortened to determine whether it exists, as Indonesian legislation on arbitration stipulates that Indonesian courts may act in certain instances only if an arbitration clause exists.⁵² This delineates that, should an agreement incorporate an arbitration clause, the resolution of said disputes is exclusively relegated to the agreed-upon procedure. Furthermore, this exclusive competence to resolve the dispute underscores the authority of the arbitral tribunal, ensuring that parties are committed to the arbitration process as their chosen method for dispute resolution.

If one of the parties files a settlement agreement to the district court, the panel of judges reviewing the case will reject the plaintiff’s claim.⁵³ This is because the parties’ agreement does not authorise district court to hear the issue. In line with the requirements of the AADR Law, a new district court may review the case if the parties have referred to arbitration to resolve their disagreement. If the parties have agreed to arbitrate, the court will refer the parties to resolve their dispute in arbitration.

Qualifications of and challenges to arbitrators

The general requirements of arbitration as stipulated in Article 12, Paragraph (1) of the AADR Law must meet the following requirements: be capable of taking legal action; be aged at least 35 years; do not have a family relationship by blood or marriage up to the second degree with one of the parties to the dispute; has no financial interest or other interest in the arbitral award; and have experience and active control in their field for at least 15 years.

Further, it is essential for disputing parties to be vigilant of any potential conflict of interest that may compromise the arbitrator’s impartiality and independence when appointing arbitrators. This is particularly pertinent as arbitrators, often drawn from the private sector, may have pre-existing professional engagements with entities across various sectors, including roles as legal advisers or consultants to parties involved in the dispute. The nominated arbitrator must provide a declaration or a statement letter attesting to the absence of any conflict of interest upon accepting the appointment to mitigate the risk of bias and maintain the integrity of the arbitration process.⁵⁴ This proactive measure ensures transparency and fosters trust in the arbitration process, enabling a fair and unbiased resolution of disputes.

As arbitrators, they may encounter several obstacles, including the following:⁵⁵

1. a reason for contest: unbeknownst to one party, an arbitrator (or several arbitrators) may have a predisposition towards one party’s arguments based not on the underlying case but on past connections or information;
2. the mechanics: there are instances in which relevant regulations may be interpreted differently in practice. Arbitrators must be familiar with the local customs where the arbitration matter will be determined;
3. importance of transparency: arbitrators are obligated to disclose client information and must be able to evaluate what information may be made public in order to prevail in the arbitration;
4. the facts: typically, instances in dispute settlement via arbitration vary. In the context of the caseload figures we have examined, formal challenges against arbitrators are uncommon and have a low success rate; and
5. argument for change: every arbitrator must be able to think creatively and provide alternative arguments, which positively affects the expansion of the field of arbitration.

Judicial assistance in evidence-gathering for arbitration proceedings

The AADR Law provide the possibility for arbitral tribunals to summon a factual witness to give testimony at an arbitration hearing. However, it is silent on the procedures to summon or compel a witness if the witness is not willing to attend, making the nature of the summon by arbitral tribunal not imperative.

Further, the AADR Law does not regulate the district courts’ authority in assisting in the service of a summon letter to the witness in favour of arbitration. With the absence of supporting regulation, courts’ assistance in compelling a witness in favour of arbitration seems unlikely. The courts may declare no authority to aid although there is no restriction for them to do so. Moreover, it would also heavily depend on whether the arbitral tribunal is willing to attempt to request the court’s assistance for this purpose. As there is no precedent on this matter, it seems almost unlikely that the arbitral tribunal would go through this option. If it would, there also seems to be a small likelihood for the court to grant such an application considering that its common approach is to reject handling any case relating to arbitration except for those limited interference expressly provided in the AADR Law.

Enforcement of arbitral awards

For domestic awards, the journey commences with the obligatory registration of the award within 30 days from when the award was rendered. Should this initial step fail to secure compliance, the disputing party has the right to petition the Chairman of the District Court for an enforcement order⁵⁶ predicated on the award’s adherence to the AADR Law’s specifications and its compatibility with public ethics and order.⁵⁷ This request can be processed digitally through the Court Information System (CIS),⁵⁸ with the court obligated to issue its order within 30 days.⁵⁹ Notably, if requests for both annulment and enforcement are submitted concurrently, enforcement proceedings are paused until a definitive ruling on the annulment claim is reached.

In contrast, enforcing international awards necessitates obtaining an exequatur from the court, marking a departure from the mere registration required for domestic awards. This process, underscored by SCR 3/2023, demands a court review to affirm the award’s compliance with the AADR Law and public order principles, diverging from previous practices outlined in Article 66 of the AADR Law.⁶⁰ Should the court’s Chairman deny the exequatur, this decision can escalate to the Supreme Court,⁶¹ especially in cases where the Indonesian state is a disputing entity, necessitating additional verification steps.⁶² Notably, enforcing international or Sharia awards is deemed final upon a decision recognising and granting enforcement of arbitral awards is rendered, with any opposition to it being procedurally barred.⁶³ However, decisions against enforcement can be challenged via cassation, cementing the legal framework for arbitral award enforcement within Indonesia’s jurisdiction.⁶⁴

Adding to this framework, the execution of arbitral award (the actual enforcement) follows the general judicial execution procedures outlined in the Updated Indonesian Regulations (HIR, which serves as the Indonesian Civil Procedural Law)⁶⁵ incorporating steps such as notification, and, if necessary, confiscation and auction. Initially, an execution request is submitted after a legally binding court decision, expecting voluntary compliance from the losing party.⁶⁶ Should this not occur, notification is a formal warning issued by the District Court Chairman, granting the debtor eight days for voluntary compliance post-notification.⁶⁷

Following an unheeded notification, the court proceeds with an execution seizure upon the winning party’s request. This entails the court authorising asset seizure to satisfy the award, prioritising movable over immovable property, with specific assets exempt from seizure. Subsequently, an Execution Determination is issued, directing the court clerk and bailiff to execute the seizure.⁶⁸

The final stage involves auctioning the seized assets, managed through public bidding or a licensed auction house, to ensure fair market value realisation. The auction’s proceeds are then directed towards fulfilling the debtor’s obligations per the court’s judgment, marking the culmination of the arbitral award’s enforcement process.⁶⁹

Investor–state disputesCases, pending or decided, involving the local state as a party

A quick perusal of the International Centre for Settlement of Investment Disputes material reveals that no new cases have been filed by or against Indonesia in the past year. There is no pending arbitration involving investors and Indonesia at the moment.

Cases decided locally involving investors and other states

There have been no cases domestically on the issue of investor–state disputes.

 

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