In general, the methods used to resolve commercial disputes in Indonesia are:
- litigation;
- arbitration; and
- alternative dispute resolution (ADR).
The resolution of commercial disputes through arbitration or ADR (eg, mediation) is generally governed by the Law Concerning Arbitration and ADR (30/1999) (Arbitration Law). The Arbitration Law recognises the principle of competence under which the district courts have no jurisdiction to try disputes between parties bound by an arbitration agreement. Further, the principle of separability applies, under which an arbitration agreement does not become null and void if the main contract expires or becomes void. In principle, parties must agree to resort to arbitration or ADR.
In Indonesia, international arbitration is governed by the Arbitration Law, which is not based on the United Nations Commission on International Trade Law Model Law. Under the Arbitration Law, any award handed down outside Indonesia (eg, in Singapore or London) is classified as an international arbitration award. International arbitral awards include all awards issued by arbitration institutions or in ad hoc arbitration which are deemed to be international arbitration awards under Indonesian law. All other types of award are classified as domestic arbitration awards.
The Arbitration Law provides the procedure and requirements for enforcing international arbitration awards. The New York Convention was ratified by Indonesia on 5 August 1981 under Presidential Decree 34/1981 and has been in force since 5 January 1982. Therefore, foreign arbitration awards can be enforced in Indonesia. Aside from the New York Convention, Indonesia has signed no other treaties on the recognition and enforcement of arbitration awards.
The Central Jakarta District Court (CJDC) is the only court authorised to enforce international arbitration awards. An international arbitration award can be enforced in Indonesia provided that:
- it was rendered by arbitrators in a country which is bound to Indonesia by a bilateral or multilateral treaty on the recognition and enforcement of international arbitration awards;
- it is within the scope of commercial law under Indonesian law;
- the award does not conflict with public order; and
- a writ of execution of the award has been obtained from the chair of the CJDC.
For an international arbitration award to be enforced in Indonesia, it must first be registered with the CJDC by the arbitrators or their proxies. For registration, the following documents must be submitted to the court:
- the original or an authentic copy of the award and its official Indonesian translation;
- the original or an authentic copy of the arbitration agreement or the underlying agreement on which the award is based, as well as its official Indonesian translation; and
- a statement from the diplomatic representative of Indonesia in the country where the award was handed down that the country is bound to Indonesia under a bilateral or multilateral treaty on the recognition and execution of international arbitration awards.
If the above requirements are satisfied, the CJDC registrar will issue a deed on the registration of the international arbitration award. Following registration, if the respondent does not voluntarily comply with the international arbitration award, the procedure for enforcing the international arbitration award in Indonesia is as follows:
- file a petition for a writ of execution (exequatur);
- file a petition with the CJDC asking it to summon the respondent to comply with the international arbitration award; and
- file an attachment petition with the CJDC to seize or attach the respondent's assets in Indonesia, followed by their sale at public auction.
The above procedure is subject to the Civil Procedural Law. Further, the Arbitration Law imposes no specific time limit for enforcing an international arbitration award in Indonesia. Therefore, the whole process often takes a long time, especially if the respondent's assets are difficult to identify or located in various places throughout Indonesia.
The Arbitration Law is silent on the enforcement of an international arbitration award which has been set aside by a court in the seat of arbitration. Since Indonesia has ratified the New York Convention, under Article V(1) thereof, the chair of the CJDC cannot issue a writ of execution if an international arbitration award has been set aside; therefore, such awards cannot be enforced in Indonesia.
However, claimants can file an appeal with the Supreme Court.
A few international arbitration bodies have a presence in Indonesia, such as the International Chamber of Commerce and a chapter of the Chartered Institute of Arbitrators.
The Arbitration Law recognises mediation, consultation, negotiation, mediation and conciliation as forms of ADR. If settlement cannot be reached through negotiation, the most common forms of ADR are mediation and conciliation, in which the parties request the involvement of an impartial third party to hear both sides.
In certain areas, ADR is mandatory and overseen by specific government agencies. For example, in:
- civil court proceedings (under the Civil Procedural Law and Supreme Court regulation regarding mediation, if both parties appear in the first hearing, the judges must urge them to try to settle the dispute amicably in mediation and adjourn the hearing until such mediation is finalised);
- employment disputes (following the failure of bipartite negotiations, a dispute can be referred to arbitration or ADR under the auspices of the relevant local office of the Ministry of Manpower and Transmigration); and
- consumer disputes (which must be settled by the Consumer Dispute Settlement Agency (BPSK).
The enforcement of an ADR or mediation settlement generally requires prior registration of the award or settlement agreement with the district court with jurisdiction. Indonesian law acknowledges that a registered mediation settlement has the same weight as a final and binding court decision.
Indonesia also has an independent mediation centre (the Indonesian Mediation Centre), which permits professional or licensed mediators to handle out-of-court mediation or mediation under court supervision.
The government has established several bodies to handle disputes relating to consumer and business affairs, such as the BPSK and the Supervisory Commission on Business Competition (KPPU). However, there have been no significant changes to any related Indonesian laws in this regard.
The BPSK must issue its decision on a dispute between a consumer and a business within 21 days of the claim being submitted. Within seven days of the issuance of the BPSK's decision, the business must comply with the decision. Failure to do so may lead to a full investigation because BPSK's decisions constitute sufficient preliminary evidence for such an investigation. However, the consumer or business can object to the BPSK's decision in the Indonesian courts. If the business does not object to the BPSK's decision, the consumer can request its enforcement by the Indonesian courts.
The KPPU's functions include:
- evaluating agreements, business activities and the presence or abuse of a dominant position which may lead to a monopoly or unfair business competition; and
- providing suggestions on government policies.
The KPPU is also entitled to handle and rule on complaints relating to the above issues and issue a decision. KPPU decisions may be challenged by a business through the Indonesian courts. In such cases, the panel of judges must issue its ruling on the objection within 30 days of the commencement of the trial. If a business is found to be in violation of the law, the penalties imposed may be:
- administrative (eg, the cancellation of the contract or an order to pay compensation);
- financial;
- custodial; or
- any other form of penalty (eg, the revocation of a business licence, a prohibition against holding directorships for a certain period or the termination of certain activities or actions causing a third party to suffer a loss).
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
An earlier version of this article was published in Global Legal Insights.
