INDONESIA

Andi Yusuf Kadir and Zarina Marta Dahlia

A. LEGISLATION AND RULES

A.1      Legislation

International arbitration in Indonesia continues to be governed by Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration Law”), to which no legislative amendment was made in 2019. Indonesia ratified the New York Convention through Presidential Decree No. 34 of 1981.

A.2      Institutions, Rules and Infrastructure

Subject to the nature of the dispute, parties that choose arbitration as a dispute settlement forum in Indonesia have a number of choices on where to arbitrate. Indonesia has a number of arbitral institutions, among others: (i) Badan Arbitrase Nasional Indonesia (the Indonesian National Board of Arbitration – BANI); (ii) Badan Arbitrase Syariah Indonesia (the Indonesian Sharia Arbitration Board – BASYARNAS), which specializes in commercial disputes governed by Sharia law; (iii) Lembaga Alternatif Penyelesaian Sengketa Perbankan Indonesia (the Indonesian Banking Alternative Dispute Resolution Agency – LAPSPI), which specializes in banking disputes; and (iv) Badan Arbitrase dan Penyelesaian Sengketa Konstruksi Indonesia (the Indonesian Construction Arbitration and Dispute Resolution Board – BADAPSKI), specializing in construction-related disputes.

In 2016, another arbitration institution with the name Badan Arbitrase Nasional Indonesia (BANI) was established. In order to distinguish the two institutions named BANI, they are now referred to by the public in accordance with their locations (i.e., the original BANI is referred to as BANI Mampang and the newly established BANI as BANI Sovereign). Following the establishment of BANI Sovereign, there has been an existential struggle and competing jurisdictions between the two arbitration institutions, particularly regarding which BANI is the “real” BANI. This duality issue has significant implications for parties who have chosen BANI as their dispute settlement forum. Further, the duality issue between the two BANIs has led to the two institutions into taking legal measures against each other. There are three court cases in relation to the dispute between BANI Mampang and BANI Sovereign, i.e., a state administrative dispute[1], a civil dispute[2] and an intellectual property dispute[3], as further elaborated below.

State Administrative Dispute

In the state administrative dispute, the arbitrators of BANI Mampang filed a claim against the Minister of Law and Human Rights of the Republic of Indonesia (MOLHR) to nullify the MOLHR’s decree approving the establishment of BANI Sovereign’s legal entity.

In 2018, the state administrative dispute was ultimately decided by the Supreme Court in favor of BANI Mampang. In the Supreme Court decision, the MOLHR was ordered to nullify the MOLHR decree. Consequentially, the MOLHR decree will no longer have legal effect and BANI Sovereign will lose its legal entity status. Even though the Supreme Court decision caused the MOLHR decree to be revoked, BANI Sovereign still exists, as the validity of its deed of establishment itself was not questioned.

Intellectual Property Dispute

In the intellectual property dispute, BANI Sovereign submitted an intellectual property (IP) claim against BANI Mampang and the Directorate General of Intellectual Property Rights, specifically the Directorate of Trademarks. BANI Sovereign claimed that the registration of the “BANI” trademark by BANI in 2002 should be deemed invalid by the court as BANI did not possess the legal capacity to submit the registration of the trademark. BANI Sovereign further claimed that its registration of the “BANI” trademark in 2017 should be deemed valid.

The commercial court rejected BANI Sovereign’s IP claim and stated that BANI Mampang was proven to possess the legal capacity when it submitted the registration of the “BANI” trademark in 2002, and therefore is the valid holder of the “BANI” trademark.

Civil Dispute

In the civil dispute, the heirs of BANI founders filed an unlawful act claim at the South Jakarta district court against BANI Mampang’s governing board. They argued that the appointment and designation of the governing board were not in accordance with BANI’s statute and therefore they are not the valid administrators of BANI.

The plaintiffs also argued that as the legitimate heirs of BANI founders, they are entitled to the ownership of BANI as well as any other rights and obligations arising from the establishment of BANI in 1977. Additionally, the plaintiffs requested the court to legalize the deed of establishment of BANI Sovereign dated 14 June 2016, which was drawn up to provide legal certainty to BANI as a legal entity.

The South Jakarta District Court viewed that the defendants are proven to be the valid heirs of BANI founders, and therefore they are entitled to the ownership of BANI as well as to obtain and manage all rights and obligations arising from the establishment of BANI. The court also agreed with the plaintiffs that the current administrators of BANI should be deemed illegal and should step down.

We note from various media reports that in October 2019, the Indonesian Supreme Court issued a decision on the civil dispute affirming the decision of the South Jakarta District Court in favor of BANI Sovereign. However, the effect of this decision on BANI Mampang remains to be seen.

With the issuance of the Supreme Court decision on the civil dispute in 2019, all three court cases in relation to the dispute between BANI Mampang and BANI Sovereign are final and binding. However, the conclusion of the court proceedings on the disputes between the two BANIs does not necessarily mean that the duality issue has been resolved. We have yet to see how the above court decisions will affect the existence and practice of the two BANIs. In any case, the duality issue has caused a shift in public opinion of BANI, which was previously regarded as the most prominent arbitration institution in Indonesia.

B. CASES

Setting Aside of Arbitration Award due to Language Law Requirement

On 9 July 2009, the Government of Indonesia enacted Law No. 24 of 2009 on National Flag, Language, Coat of Arms and National Anthem (“Language Law”). Under the Language Law, the Indonesian language must be used in agreements that involve institutions, government institutions of the Republic of Indonesia, Indonesian private institutions or Indonesian citizens. The failure to comply with this requirement has been used by parties to argue that agreements are null and void. The failure to comply with the Language Law is also used as grounds for arguments to set aside arbitration awards, particularly those that were made based on arbitration clauses in agreements that were not made in the Indonesian language.

We have seen cases where the Language Law provisions were used by parties to challenge the enforcement of arbitration awards. In doing so, the parties generally challenge the validity of the agreements (including the arbitration clauses contained in them) and subsequently, the validity of the arbitration awards rendered. We set out below some examples of relevant cases.

B.1 PT Grage Trimita Usaha v. Shimizu Corporation and PT Hutama Karya (Persero) Joint Operation [2019]

In January 2019, the Indonesian Supreme Court upheld a South Jakarta District Court decision setting aside an arbitration award issued by BANI[4], rendering the setting aside of the award final and binding. The arbitration award issued by BANI was in relation to the dispute between PT Grage Trimitra Usaha (“PT GTU”) and Shimizu Corporation and PT Hutama Karya (Persero) Joint Operation (the “Joint Operation”)[5] arising out of a contract regarding the design and construction of an office tower.

PT GTU alleged that the Joint Operation committed fraudulent actions throughout the arbitration process, thus giving grounds to set aside the arbitration award rendered by BANI in accordance with article 70 of the Arbitration Law. The panel of judges in the South Jakarta District Court decision decided in favor of PT GTU and stated that the Joint Operation did commit fraudulent actions.

Additionally, another consideration of the panel of judges in the South Jakarta District Court decision was that the contract was in violation of public policy because it did not comply with the requirements as the contract was not in Indonesian.

The panel of judges in the South Jakarta District Court decision stated that since the contract was in violation of the Language Law, it should be null and void. Therefore, the arbitration award that was rendered based on the dispute resolution clause from the contract was also null and void.

In the 2019 Supreme Court decision, the panel of judges did not specifically refer to the consideration of the panel of judges of the South Jakarta District Court concerning the parties’ failure to fulfill the requirements under the Language Law ¾ and how it constitutes a violation of public policy. That said, the judges of the Supreme Court found that there was no misapplication of the law by the panel of judges adjudicating the case in the first instance at the South Jakarta District Court.

B.2 PT Global Mediacom Tbk v. Agus Mulyanto, et al. [2017]

The court decision in favor of PT GTU above is similar to a previous West Jakarta District Court decision in 2017[6] for a dispute between PT Global Mediacom Tbk as the plaintiff and Agus Mulyanto and Oerjanto Guyandi, as defendants, along with Hary Tanoesoedibjo, Nana Puspa Dewi and PT Media Nusantara Citra (“MNC”) as co-defendants.

The Plaintiff is the majority shareholder of MNC (Co-defendant III) and the defendants are directors of MNC. The dispute arose out of a put-and-call option agreement, which was signed by the defendants on behalf of MNC on 17 March 2010 (“Agreement”).

The dispute resolution forum provided in the Agreement was SIAC arbitration. In 2011, due to a dispute with the counter-party of the Agreement, the counter-party submitted a claim against MNC to SIAC arbitration, where an arbitration award was rendered by the tribunal in favor of the counter-party.

In the court case, the plaintiff claimed that the signing of the Agreement was an unlawful act, as it was done without the consent of the board of directors and caused losses to the plaintiff. The plaintiff also claimed that the Agreement itself was in violation of the Language Law, as it was only made in English.

The plaintiff argued that since the Agreement was in violation of the Language Law, the essential elements of a contract under the Indonesian Civil Code of having a lawful cause were not fulfilled. Therefore, the Agreement should be declared null and void.

Additionally, the plaintiff also requested the court to declare that the SIAC is unenforceable as it was a result of an invalid agreement and therefore contrary to public policy.

The panel of judges of the West Jakarta District Court accepted the plaintiff’s arguments and decided that the defendants had committed an unlawful act and declared the Agreement null and void. As the Agreement is null and void, the panel of judges decided that the SIAC award rendered is also unenforceable. To our knowledge, the decision of the West Jakarta District Court above is not yet final and binding and is still in the appeal process. It remains to be seen whether the decision will be upheld by the higher courts.

B.3. PT Media Nusantara Citra Tbk v. Mr. Ang Choon Beng@Ang Siong Kiat, et al. [2015]

The West Jakarta District Court Decision above, however, is not in line with a previous decision of the Central Jakarta District Court on a similar claim. The claim was between PT Media Nusantara Citra Tbk (“Plaintiff”) and Mr. Ang Choon Beng@Ang Siong Kiat (“Defendant I”), Linktone International Limited (“Defendant II”), Linktone Ltd (“Defendant III”), Gordon Smith LLB (Hons) BE (Civil) FCIArb FSIArb FIEAust (“Defendant IV”) SIAC (“Defendant V”).[7]

The Plaintiff’s claim was concerning a put and call option agreement between the Plaintiff and Defendants I-III signed by the parties in 2010, which was only made in English. The put and call option agreement provides arbitration through SIAC as the dispute resolution forum. After a dispute arose between the Plaintiff and Defendants I-III from the put and call option agreement, the dispute was brought by Defendants I-III to be resolved through SIAC arbitration, which was chaired by Defendant IV. Subsequently, the SIAC arbitration proceedings rendered an arbitration award in favor of Defendants I-III.

The Plaintiff in its claim alleged that the Defendants committed an unlawful act as the put and call option agreement was in violation of the Language Law and that it must be declared null and void. Additionally, the Plaintiff also requested the court to annul the SIAC award previously rendered.

The Central Jakarta District Court did not accept the Plaintiff’s requests. Instead, the court issued a provisional decision stating that it does not have the jurisdiction to adjudicate the case.

Given the fact that the Indonesian legal system does not require judges to follow precedent, it is not uncommon for courts to issue differing decisions ¾ even for similar cases. As such, it is still uncertain whether or not a failure to fulfill the Language Law requirements can be grounds to annul an agreement or set aside an arbitration award.

 

[1] Jakarta State Administrative Court Decision No. 290/G/2016/PTUN.JKT dated 6 July 2017 as affirmed by Supreme Court Decision No. 232K/TUN/2018.

[2] South Jakarta District Court Decision No. 674/Pdt.G/2016/PN. JKT.Sel as affirmed by Jakarta High Court Decision No. 315/PDT/2018/ PT DKI and Supreme Court Decision No 1227 K/PDT/2019.

[3] Commercial Court at the Central Jakarta District Court Decision No. 34/Pdt-Sus-Merek/2017/PN.Niaga.Jkt.Pst.

[4] Supreme Court Decision No. 104 B/Pdt.Sus-Arbt/2019 affirming South Jakarta District Court Decision No. 513/Pdt. G.ARB/2018/PN.Jkt.Sel.

[5] BANI Arbitration Decision No. 854/V/ARB-BANI-2016 dated 24 May 2018.

[6] West Jakarta District Court Decision No. 766/Pdt.G/2016/PN.Jkt.Brt.

[7] Civil Case No. 112/Pdt.G/2015/PN.Jkt.Pst registered at the Central Jakarta District Court.