Fifteen years after Indonesia’s arbitration legislation entered into force, Andi Kadir of Hadiputranto Hadinoto & Partners, member firm of Baker & McKenzie in Jakarta, says the country’s Supreme Court is still issuing inconsistent decisions in relation to applications to set aside arbitral awards, creating uncertainty over whether the jurisdiction is friendly to arbitration or not.

Arbitration in Indonesia is based on the Arbitration Law of 1999. This piece of legislation acknowledges two possible recourses that courts can take against arbitration awards: refusal to enforce them and setting them aside.

The Arbitration Law does not follow the UNCITRAL Model Law in respect of the grounds of setting aside arbitration awards. The law also differentiates the grounds for setting aside arbitration awards and refusing enforcement. The procedures for setting aside awards are limited to a half-page of the arbitration law, in articles 70 to 72. This article will consider the Indonesian courts’ approach to these articles.

Jurisdiction of Indonesian courts

It is widely accepted that the Indonesian courts have no jurisdiction to hear any application to set aside foreign arbitration awards.

In Pertamina v Karaha Bodas [2007], the Supreme Court relied on article V(1)(e) of the New York Convention to determine whether the Indonesian courts have jurisdiction to hear any action to set aside a foreign award. The Supreme Court took the view that the phrase “under the law of which … that award was made” in article V(1)(e) of the New York Convention refers to the law of the seat of arbitration. Consequently, the Supreme Court decided that it had no jurisdiction to set aside an award rendered in Geneva under the UNCITRAL rules.

This position has been consistently taken by the Supreme Court in subsequent cases. In Bungo Raya Nusantara v Jambi Resources [2010], it confirmed that Indonesian courts have no jurisdiction to set aside SIAC awards made in Singapore. In Harvey Nichols and Company Limited v PT Hamparan Nusantara, PT Mitra Adiperkasa Tbk [2012], it similarly ruled that Indonesian courts lacked jurisdiction to set aside an ad-hoc arbitration award where the seat of arbitration was London.

In a case last year, PT Global Mediacom Tbk v KT Corporation, the same decision was rendered in respect of a setting aside application against an ICC award made in London.

It is generally the case that any awards rendered outside Indonesia are considered to be foreign awards. While this may seem a straightforward rule of thumb, a successful claimant should be cautious of Indonesian judges finding other awards qualify as foreign.

In Pertamina v PT Lirik Petroleum (2010), for example, the Supreme Court declined to hear Pertamina’s application to set aside an arbitration award arising from a case seated in Jakarta under ICC rules. The Supreme Court took the view that the award was a foreign award, seemingly on the basis that the arbitration was conducted under the ICC rules.

Timeframe for court process

Under the Arbitration Law, the court is required to decide on an application to set aside an award within 30 days of registration of the application. Unlike in ordinary court proceedings, any appeal against a court decision is made directly to the Supreme Court, which then decides the matter as the court of final instance.

The same timeframe is imposed for the Supreme Court. The law does not suggest that the court has discretion to deviate from this statutory timeframe.

Long-term observers, however, will note Indonesian courts’ inconsistent approach to arbitration cases, including their treatment of the statutory timeframe.

In PT Niko Securities Indonesia v PT Bank Permata Tbk [2012], the court strictly followed the timeframe. A setting aside application was registered on 12 November 2012 and the decision was rendered on 11 December 2012. But in other cases, the courts have been more relaxed.

In Karaha Bodas v Pertamina [2002], the Central Jakarta District Court took more than five months to render its decision on Pertamina’s setting aside application. In PT Bumigas Energi v Indonesian National Board of Arbitration [2009], the South Jakarta District Court took about four months to render its decision. In Thio Inge Catherine v Niniek Soetrisno [2013], the South Jakarta District Court took more than two months to render its decision.

Reason for setting aside: Article 70 of the Arbitration Law?

Article 70 of the Arbitration Law provides that a party can file an application to the Indonesian courts to set aside of an award on the following grounds: after the award was rendered, letters or documents submitted in the examination proceedings were admitted to be forged or declared as forgeries; after the award was rendered, documents which are dispositive and had been concealed by the opposing party were discovered; the award was a result of fraud committed by one of the parties during the arbitration proceedings.

Article 70 is elucidated in the law as follows: “Reasons for setting aside mentioned in this article must be proven by […] court decision. If the court decides the reasons are proven or are not proven, this court decision can be used by the court as a basis to grant or reject an application.”

Some commentators have argued that article 70 is inoperative. Under article 71 of the Arbitration Law, setting aside applications must be submitted to the court within 30 days of the registration of the awards at the relevant court. Article 59 (1) further requires domestic awards to be registered within 30 days of the award being rendered. In other words, those wishing to apply to set aside an award have 60 days to obtain a court decision proving the reasons under article 70, which is practically impossible.

Notwithstanding the fact that this interpretation of article 70 is inoperative, the Supreme Court has consistently adopted it in PT Padjadjaran Indah Prima v PT Pembangunan Perumahan [2008], PT SMG Consultants v Indonesian National Board of Arbitration (BANI) [2012], PT Binasentra Muliatata v PT Bawana Margatama [2012], PT Nindya Karya v PT Tranfocus [2013] and PT Bank Permata v PT Nikko Securities Indonesia [2013].

Furthermore, there is no clarity in the law as to whether article 70 is limitative. Thus, there is a question as to whether it is legal to introduce other reasons for setting aside awards besides those set out in the article. This confusion is largely due to inconsistency between the text of the article and the general elucidation of the Arbitration Law. While the article appears to be exhaustive, the general elucidation of the law suggests otherwise. It stipulates “Chapter VII regulates the setting aside of an arbitration award. It is possible for several reasons, among others: [the reasons under article 70 are cited].”

The Indonesian Supreme Court has failed to provide consistent guidance here. In PT Padjadjaran Indah Prima v PT Pembangunan Rumah [2008], the court argued that article 70 is limitative. This position was further argued in PT Cipta Kridatama v Indonesian National Board of Arbitration (BANI) [2011] and PT Sumi Asih v Vinmar Overseas Ltd [2012].

But in Comarindo Express Tama Tour & Travel v Yemen Airways [2005], the court decided to set aside an arbitration award under the rules of Indonesia’s national arbitration institution, BANI, on the basis that there was no valid arbitration agreement between the disputing parties. The same approach was also taken by the court in PT Royal Industries Indonesia v PT Identrust Security International, et al [2013].

Public policy

In Pertamina v PT Lirik Petroleum [2010], which was already discussed in this article in relation to the jurisdiction of Indonesian courts, Pertamina filed an application to set aside an award in favour of PT Lirik Petroleum following an arbitration under ICC rules.

One of Pertamina’s arguments was that the award violated public policy because it disregarded Pertamina’s authority as the government’s only representative in the oil and gas sector.

Pertamina claimed that in that capacity, it had the power to regulate and control the policy for determining the commercialisation of oil and gas fields in Indonesia. As such, Pertamina viewed the ICC award sanctioning the company for its failure to commercialise PT Lirik Petroleum’s oil and gas fields as violating public policy.

The Central Jakarta District Court rejected this public policy argument and declared that the ICC tribunal, as the dispute settlement forum mutually agreed by Pertamina and PT Lirik Petroleum, had the exclusive jurisdiction to examine and adjudicate the dispute between them.

The Supreme Court affirmed this finding in a decision dated 9 June 2010. After the court issued its ruling, Pertamina tried to set aside the ICC award by applying to the court for a civil review. However, the Supreme Court dismissed this application as well on the grounds that the appeal decision previously issued by the court was final and binding.

Friendly or not?

In summary, it seems difficult to conclude whether Indonesia is a friendly jurisdiction for arbitration awards or not. While legislation and precedents suggest it is difficult to set aside domestic awards in the country for the various reasons mentioned above, there seems to be uncertainty as to the courts’ approach. Although the Arbitration Law has been enacted for almost 15 years, the Supreme Court has not provided uniform interpretation of article 70 of the law. Given this uncertainty, arbitration practitioners should not be surprised if the court deviates further from its past decisions.