Dispute Resolution in Indonesia

In most cases foreign companies doing business in Indonesia prefer resolving disputes in jurisdictions outside of Indonesia. This however may not be advantageous since the best dispute resolution option may actually be where the relevant assets are located, which is most likely in Indonesia.

Disputes between contracting parties are normally resolved by means of arbitration or litigation, either in Indonesia or a foreign jurisdiction.

Indonesian Litigation 

Litigation can be costly and time-consuming in most jurisdictions and Indonesia is no exception. Litigation in Indonesia normally will have numerous court hearings and disputing parties may delay a case by just simply failing to attend such hearings.

A civil clam is initiated by filing a civil claim with the relevant District Court. Normally the claim is to be submitted to the District Court where the defendant (or any of the defendants) is domiciled. In certain cases, it is possible that the disputing parties have chosen a specific District Court in the contract on which the claim is based. In a case where the claimant does not know who the defendant is or where the defendant is domiciled, a claim can be filed to the District Court where the claimant is domiciled or the object of the dispute is located. In this case, the object of the dispute will be immovable assets. For example, a claim relating to a land dispute, where the plaintiff does not know the domicile of the defendant, could be submitted at the district court where the land is located.

In Indonesia a claim in the local District Court, followed by an appeal to the High Court and then a final and binding decision by the Supreme Court may possibly take over 3 years.

Indonesian Arbitration

Arbitration in Indonesia is governed by Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (Indonesian Arbitration Law). Whereas the Indonesian National Board of Arbitration (BANI) is the principal domestic arbitration institution in Indonesia. BANI was established in 1977 and has its own rules and procedures. It is located in Jakarta with offices in some Indonesia major cities including Surabaya, Bandung, Pontianak, Denpasar, Medan, Palembang and Jambi.

If parties submit a dispute to BANI they are obliged to use BANI registered arbitrators, and BANI has over 100 listed arbitrators, consisting of both Indonesian and foreign nationals.

Enforcing a BANI award as a domestic arbitral award is easier and quicker than enforcing a foreign award. Firstly, the BANI award must be registered with a District Court and if one party does not comply with the award, then the other party may request the Chief of the relevant District Court to issue an order for compliance. Enforcement of BANI arbitral awards then follows the Indonesian Civil Procedural Law.

In recent years there is an increasing trend for disputing parties to submit their disputes to BANI, and BANI arbitral awards are normally effectively executed against assets within Indonesia.

Aside from BANI there are also other arbitration institutions in Indonesia such as the Capital Market Arbitration Board for capital market disputes and the Commodities Futures Trading Arbitration Board for futures trading disputes.

Foreign Arbitration 

Indonesian Arbitration Law recognizes and facilitates the enforcement of foreign arbitral awards in Indonesia, subject to certain requirements. Also Indonesia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

A foreign arbitral award must be registered at the Central Jakarta District Court. Thereafter for enforcement purpose, the same court shall issue a writ of execution. If a party does not comply with the writ, then the other party may apply for an order for compliance. Again, with such an order, enforcement follows the ordinary civil procedure.

It is possible for a party to challenge a foreign arbitral award on the basis that it does not meet the relevant criteria under the Arbitration Law, for example by alleging it is not a commercial law matter or is contrary to public policy or order. In the absence of a clear definition or guidelines on the interpretation of “public policy or order”, unsuccessful parties to a foreign award have often sought to avoid enforcement by relying on an alleged breach of this criterion. However, in recent years claims to annul foreign arbitral awards are mostly denied by Indonesian courts.

Foreign Litigation 

Indonesian law does not recognize foreign court judgments so consequently such judgments are not enforceable in Indonesia. A foreign court judgment must be re-litigated in Indonesia in order for it to be enforceable. Although the Indonesian courts are not bound by the foreign court decision, it may however be considered as evidence in the new proceedings. Therefore, foreign litigation would not be effective against assets in Indonesia.

Conclusion

Foreign companies doing business in Indonesia should choose carefully on how and where to carry out any dispute resolution. Such preferred dispute resolution mechanism must also be clearly stated in the governing contracts.

The contents of this article are intended to convey general information only and not to provide legal advice or opinions. If you require legal assistance, you may contact:

HADROMI & PARTNERS LAW FIRM
Setiabudi Atrium, 4th Floor, Suite 404 – 405
Jl. H.R. Rasuna Said Kav. 62, Jakarta 12920, Indonesia
Telephone : (62-21) 520 7040 (hunting)
Facsimile : (62-21) 520 7046

Email: info@hadromi.com or hadromi@centrin.net.id

Website : www.hadromi.com

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