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 2021. Indonesia ratified the New York Convention through Presidential Decree No. 34 of 1981.

A.2       Institutions, rules and infrastructure

A.2.1    Arbitration institutions in Indonesia

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, such as (i) Badan Arbitrase Nasional Indonesia (the Indonesian National Board of Arbitration – BANI); (ii) Badan Arbitrase Syariah Indonesia (the Indonesian Sharia Arbitration Board – BASYARNAS), specializing in commercial disputes governed by Sharia law; and (iii) Badan Arbitrase dan Penyelesaian Sengketa Konstruksi Indonesia (the Indonesian Construction Arbitration and Dispute Resolution Board – BADAPSKI), specializing in construction-related disputes.

In December 2020, the Financial Services Authority through its regulation No. 61/POJK.07/2020 established a new dispute resolution institution, namely the Lembaga Alternatif Penyelesaian Sengketa Sektor Jasa Keuangan (Alternative Dispute Settlement Institution for the Financial Services Sector – LAPS SJK). The LAPS SJK replaces the roles and functions of the six former dispute resolution institutions in the financial services sector, i.e., Badan Arbitrase Pasar Modal Indonesia (the Indonesian Capital Market Arbitration Board – BAPMI), specializing in capital market disputes; Badan Mediasi dan Arbitrase Asuransi Indonesia (the Indonesian Insurance Mediation and Arbitration Agency – BMAI), specializing in Insurance disputes; Badan Mediasi Dana Pensiun (the Pension Fund Mediation Agency – BMDP), specializing in pension fund disputes; Lembaga Alternatif Penyelesaian Sengketa Perbankan Indonesia (the Indonesian Banking Dispute Settlement Alternative Institution – LAPSPI), specializing in banking disputes; Badan Arbitrase dan Mediasi Perusahaan Penjaminan Indonesia (the Indonesian Guarantee Company Arbitration and Mediation Agency – BAMPPI), specializing in guarantees disputes; and Badan Mediasi Pembiayaan dan Pergadaian Indonesia (the Indonesian Guarantee and Financing Mediation Agency – BMPPI), specializing in financing and pledge disputes. At the same time, LAPS SJK has expanded its scope to include dispute resolution in the fintech sector.

It is worth emphasizing that LAPS SJK is not a result of a merger or acquisition of the six original forums and is not part of the Financial Services Authority, but LAPS SJK is considered an entirely new, different and separate legal entity. The Financial Services Authority regulation No. 61/POJK.07/2020 sets out a transition clause that any agreement with the arbitration clause referral to the previous institution before LAPS SJK will be automatically converted into the LAPS SJK. This view is also confirmed in the arbitration procedure of LAPS SJK without the need for the parties to change the arbitration clause itself. This could be problematic given that the underlying principle of an arbitration agreement is the consent of the parties, and a party to the agreement may have consented to one of the previous six forums but not necessarily the LAPS SJK (especially since it is considered an entirely different institution). The application of the Financial Services Authority regulation No. 61/POJK.07/2020 is untested before the court, and no cases have tackled this issue yet. It remains to be seen how effective the transition and implementation of the LAPS SJK will be.

A.2.2    Badan Arbitrase Nasional Indonesia (BANI) – Update on Rules

Among the arbitral institutions in Indonesia, BANI, which was established in 1977 and located in the Mampang area, is publicly considered one of the most prominent alternative dispute resolution forums. Effective 1 July 2021, BANI enacted the 2021 version of the BANI Arbitration Rules, which replaced the previous 2018 version of the Rules. Notwithstanding any drafting updates or changes in terminology of the Rules, the material changes include, among others:

  1. If the respondent is domiciled in a foreign country and their address could not be found, the notice may be delivered to the representative office of the Republic of Indonesia in the country where the respondent was last known to have been (article 4 (3) of the BANI Rules 2021).
  2. The 2021 Rules include a clarification that the Rules are the translation of the Arbitration Rules written in the Indonesian language. In case of differences in meaning or interpretation between the Indonesian and the English versions, the Indonesian language version shall prevail.
  3. The standard BANI arbitration clause was deleted from the 2021 Rules. Having a standard or model clause is common practice in arbitral institutions, but this may require extra precautionary effort from BANI in tackling the implementation issues of the model clause where parties are challenging its validity if the BANI rules do not include the verbatim standard clause.

Even with the recent change in 2021, BANI has again updated its Rules in 2022. BANI enacted the 2022 version of the BANI Arbitration Rules, and the most notable change this time is the timeline for appointing an arbitrator. In a request for arbitration under the 2021 Rules, a claimant may designate an arbitrator within 30 days of filing the request with the BANI Secretariat or hand over the designation to the BANI’s chairperson. If within the 30-day period the claimant does not designate an arbitrator, the designation shall be handed over to the BANI’s Chairman. Under the 2022 Rules, the 30-day timeline has been shortened to 14 days.

B. CASES

We set out in this section a case that is significant and worth noting in relation to arbitration in Indonesia, which is in relation to an ongoing request for an annulment of an ICC arbitral award at the Central Jakarta District Court. The request is on the basis that the merits of the case were heavily related to an alleged corruption crime, which is currently being investigated.

On 22 April 2021, the ICC rendered Decision No. 20472/HTG where the Ministry of Defense of the Republic of Indonesia (“Respondent“) was declared to have breached a contract with Navayo International AG and Hungarian Export Credit Insurance PTE Ltd. (“Claimants”) for failing to pay for the lease of a satellite. In the award, the Respondent was ordered to pay around USD 20.9 million to the Claimants. The Central Jakarta District Court granted the Claimant’s request on 30 December 2021 to enforce the ICC arbitral award for it to be enforceable in Indonesia.[1]

By enforcing the award, the Central Jakarta District Court demonstrated that it believes the ICC arbitral award fulfills the following requirements for enforcement:

  • The award is issued in a country that is also a party to the New York Convention.
  • The award concerns arbitration on commercial disputes, i.e. disputes on commerce, banking, finance, capital investment, industry, or intellectual property rights.
  • The award does not violate public policy. There is no precise definition under the Arbitration Law of which matters are contrary to the public policy, and it is generally accepted that the Indonesian courts have wide discretion to determine whether the award is contrary to a public policy. Given the wide coverage of “public policy,” the concept is often misused to include almost any issue that is not aligned with Indonesian laws. Consequently, it allows the losing parties to introduce other reasons, some extensively trivial or irrelevant, under the pretext of public policy.

However, on 31 January 2022, the Respondent submitted a claim to the Central Jakarta District Court requesting the annulment of the arbitral award.[2] In particular, the Respondent requested the court to declare that the decision of the chairperson of the court to enforce the ICC award is not executable and is null and void, preventing the ICC decision from being recognized and executed. The basis of this request is an ongoing corruption case surrounding the procurement of the satellite lease in the Respondent, where the investigation started earlier this 2022 (after the enforcement award issued by the Central Jakarta District Court).

As a brief background, the satellite had to be leased because the Republic of Indonesia’s satellite ran out of course by 123 degrees on its east longitude orbit on 19 January 2015. Based on the regulation of the International Telecommunication Union (ITU), Indonesia had three years to fill the orbital slot again with a satellite or else its slot would expire and be given to another country. Noting that Indonesia as the Respondent, faced the risk of losing the orbital slot, the decision to lease a satellite from the claimants was made. In the interim, a new satellite is being constructed in parallel, though this may take a while.

Relevant to that, the Attorney General’s office is currently investigating an alleged corruption act relating to the procurement of the satellite from the Claimant from 2015 to 2021. The Attorney General’s office has interviewed several witnesses and even searched three locations to collect the evidence needed to progress to trial. The full list of suspects and details of the allegation would only be disclosed when there is an indictment, but at the moment, the Attorney General explains that there was some bad governance in handling the satellite lease procurement to the point that the lease was even declared unnecessary, to begin with. The alleged act is expected to have resulted in a loss for the state of around IDR 515.2 billion (approximately USD 35 million).

According to article 70 of the Arbitration Law, the request for setting aside an award (i.e., canceling
or annulling an award) can be made if there is an allegation of any of the following:

  • Letters or documents submitted in the arbitration proceeding, after the decision has been rendered, were admitted or declared as false.
  • After the decision has been rendered, a critical or important document that was hidden by the opposing party is found.
  • The decision was influenced by deceit by one of the parties in the arbitration proceeding.

It would be interesting how the Central Jakarta District Court will accommodate this request noting that it is widely accepted that Article 70 referred above only applies to domestic arbitral awards and that Indonesian courts have no jurisdiction to hear or to set aside international arbitral awards. This view was upheld by one of the landmark rulings on this matter, Perusahaan Pertambangan Minyak dan Gas Bumi Negara (Pertamina) v. Karaha Bodas Company LLC (2008) (“Karaha Bodas Case”), where the Supreme Court overturned the Central Jakarta District Court decision which set aside the arbitral award of the dispute on the basis that any Indonesian court has no jurisdiction to set aside as because the seat of arbitration, in that case, is not Indonesia. In a later decision of PT Bungo Raya Nusantara v. PT Jambi Resources Limited (2010), the Supreme Court upheld the reasoning in the Karaha Bodas Case. In that case, Bungo filed an application with the Central Jakarta District Court to set aside an arbitration award made in Singapore under Singapore Foreign Arbitration Centre (SIAC) Rules. Taking a similar view to the Karaha Bodas Case, the Supreme Court dismissed Bungo’s application.

On balance, the Arbitration Law does provide that an international arbitral award’s enforcement can be challenged if that award is contrary to among others, public policy/order. Noting that the enforcement award was already issued last year (meaning that the ICC arbitral award does not violate public policy as an enforcement requirement mentioned above), it remains to be seen how the Respondent would argue that an ongoing criminal case would eventually relate to any of the elements of article 70. It is even more concerning to note that, based on the current news surrounding this corruption case per early March 2022, the case is still in the investigation phase and a list of suspects has not even been made yet In any event, the first hearing of the case will be held in July 2022.

 

[1] Central Jakarta District Court Decision No. 14/ARB-INT/2021/PN.JKT.PST dated 30 December 2021

[2] The case is registered under Case No. 64/Pdt.G/2022/PN Jkt.Pst.