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ARBITRATION AS ONE OF ALTERNATIVE DISPUTE RESOLUTIONS

ARBITRATION AS ONE OF ALTERNATIVE DISPUTE RESOLUTIONS

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1.Introduction

What is this ‘ADR’ that seems to circulate within the buzz of legal communities? What is its true role within and applicability to Indonesia? Why should we care? Hold tight—all will be revealed. Although the term “Alternative Dispute Resolutions” or ADR was officially adopted in the Indonesian Statutory regime with the enactment of Law Number 30 Year 1999 concerning Arbitration and Alternative Dispute Resolution (hereinafter referred to as “Law Number 30 Year 1999”),the notion and practice of arbitration has been known and implemented in Indonesian law since 1847 when the Dutch administration promulgated the law of civil procedure (Reglement de Rechtsvordering, Stb 1847; 52). Article 615 to 651 the Dutch law of civil procedure establishes the procedure of using arbitration for resolving civil disputes. When Indonesia proclaimed its Independence in 1945, it declared through its Constitution of 1945 that all laws enacted by the Dutch administration were in force until the Indonesian Government was able to enact new laws to replace the previous ones. Therefore, the Dutch civil law procedure in which arbitration was sanctioned continued to be in enforced until the enactment of Law Number 30 Year 1999 concerning Arbitration and Alternative Dispute Resolution. Yet due to the verbiage of this title, confusion surfaced. Was arbitration separate from ADR? In fact, conflicting literature appeared, furthering the misperceptions. Some reports mentioned that ADR embraced all types or forms of dispute resolution outside court or litigation such as arbitration, mediation/conciliation, fact-finding, expert opinion, and negotiation. However, other literature referred to ADR as a term that included all types of dispute resolution outside court AND arbitration. Obvious hesitancy to incorporate arbitration resulted. Thus, Indonesian lawmakers later clarified arbitration as a form of ADR, bringing the country in parallel to the international view.

Regardless of the academic debate concerning the scope of the term of ADR,
this paper will discuss the development of ADR only as it pertains to arbitration within the Indonesian legal system. It also describes the development of arbitration organizations or centers in Indonesia.


2.Arbitration

When can arbitration be used as a form of ADR? Under Law Number 30 Year 1999, the use of arbitration must be based upon a written agreement by parties. If the arbitration agreement is based upon letters, email, telegram, facsimile, these shall be accompanied with proof of acceptance by both parties. Disputes that can be submitted to arbitration are those that occur in the commercial and/or business sectors and those related to interests or rights that according to the law are fully under the control of both parties.

Can just anyone be an arbiter? No, anyone appointed as an arbiter must meet the following criteria: has a legal capacity to carry out legal acts, be a minimum age of 34 years old, has no family or marital relations with parties, has no financial interests or other interests relating to arbiter’s decision, and has experience in his/her field of expertise for at least 15 years.

Are there geographic constraints to arbitration? No, and that’s the beauty of it. Law Number 30 Year 1999 states that if parties have made an arbitration agreement, any court has jurisdiction to hear matters under the contract except on specific matters mentioned in the provisions of this Law. Parties may choose ad hoc arbiters or submit their disputes to national or international arbitration institutions regardless of the geographic origin of the dispute. Parties in disputes may appoint arbiters on ad hoc basis or apply for arbitration services through arbitration centers or bodies. In Indonesia, reputable arbitration bodies such as the Indonesian National Arbitration Body (BANI), the National Shariah Arbitration Body (Basyarnas), and the Indonesian Capital Market Arbitration Body (BAPMI) exist. These three arbitration bodies are based in Jakarta.

When a dispute occurs, a petitioner or claimant must send a letter, telegram, or facsimile to the other party or respondent in an arbitration agreement and inform the other party that conditions of the arbitration clause prevail. The letter shall clearly contain the following: names and addresses of the parties, a reference to the arbitration article or clause, matters in dispute, claims, and the number of arbiters. In cases where parties are willing to use arbitration after a dispute occurs, the arbitration agreement shall be made in a written form and signed by both parties. An arbitration agreement can also be made by a public notary. A written arbitration agreement shall contain the following things: disputed issues, complete names and addresses of parties, names and addresses of arbiter or arbiters, place where the arbiter panel will make their decisions, name of secretary, duration of arbitration process, arbiters’ statement of acceptance, and statement of parties to bear the cost of arbitration. A written arbitration agreement that does not contain such elements is null and void. A written arbitration agreement is not null and void due to a death of one of the parties, one of the parties being in a bankrupt status, insolvency of one of the parties/heirs, prevalence of conditions that don’t abolish the main agreement, implementation of a main contract transferred to the other party with the consent of all parties in a main contract, or the end or null of main contract.

In cases where parties disagree on the selection of the arbiters or they do not make a rule concerning selection, one party can request a chief judge from a ‘court of first instance’ where its jurisdiction includes the domicile of a respondent to appoint a single arbiter or a panel of arbiters. In cases where parties have agreed to the use of a single arbiter but after fourteen days they cannot agree on the selection of a single arbiter, one of the parties can request a chief judge from ‘a court of first instance’ to appoint a single arbiter. The chief judge appoints a single arbiter by taking into account the names proposed by an arbiter organization or arbitration center. An assignment of two arbiters by both parties provides the two appointed arbiters with the power to appoint the third arbiter, who will act as the chairperson of the panel of arbiters. In cases where the appointed arbiters cannot agree on the selection the third arbiter within 14 days, one of the parties may request a chief judge from ‘a court of first instance’ to appoint a third arbiter. Parties have no power to reject an appointed arbiter by a chief judge. If the second party fails to appoint an arbiter within 30 days of the first party’s arbiter appointment, the appointed arbiter will act as a single arbiter whose decisions bind all parties.

A major and noteworthy aspect of arbitration is the fact that both parties are committed to accept an arbiter’s decision as final and binding. Also, appointed arbiter or arbiters who have accepted the appointment cannot resign from their position as arbiters unless they obtain written approval from both parties. In performing his or her duties as an arbiter, one cannot be sued unless it can be proven that one has acted with bad faith.

Parties have the right to deny an arbiter if there is adequate reason based upon authentic evidence that could create doubt about an arbiter’s ability to perform his or her tasks fairly and justly in delivering decisions. Denial toward an arbiter can also be based upon evidence that he or she has family, financial, and/or working relations with one of the parties or with one of the legal counsels of one of the parties in the dispute. Denial toward an arbiter appointed by a chief judge has to be addressed with the chief judge. Denial toward a single arbiter has to be addressed to him or her personally, while denial toward a member of the panel of arbiters has to be submitted to the panel. An arbiter who is not appointed by a chief judge can only be denied on the basis of evidence or cause discovered after his or her appointment. An arbiter who is appointed by a chief judge can only be denied on the basis of evidence or cause discovered by one of the parties after the acceptance of the written appointment by the chief judge. A party who has an objection toward an arbiter appointed by the other party has to submit its objection to the other party within 14 days from the appointment. In cases where causes mentioned in article 22 paragraph 1 and 2 are discovered later, denial has to be submitted within 14 days of the denying party discovery of the basis for denying. Denying and reasons for it have to be supplied in written form to the other party and to the arbiter(s). In cases where the denying complaint is agreed to by the other party, the arbiter must resign, and a new arbiter must be appointed according to the procedures established by the Law Number 30 Year 1999. In cases where the denial is rejected by the other party and a denied arbiter is not willing to resign, one of the parties can submit the matter to a chief judge from ‘a court of first instance’ which can then deliver a binding and final decision on the matter. This decision cannot be challenged. In cases where a chief judge has decided that the denial has legal basis, a new arbiter must be appointed. In cases where the denial is rejected by a chief judge, the arbiter will continue his or her duties.

In cases where an arbiter has passed away, his or her authority cannot be nullified. The authority will be inherited by his or her successor who is appointed according to the procedures of the Law Number 30 Year 1999. An arbiter, however, can be discharged from his or her duties when he or she has not been impartial or has acted improperly. Such conduct must be proven through court. In cases where an arbiter has passed away or becomes seriously ill so that he or she cannot perform his or her duties, a new arbiter must be appointed. In cases where a single arbiter or a chair of a panel is replaced, the hearing of the case must be repeated.


2.1. The Procedures of Hearing

How are arbitration hearings conducted? Well, each case has the potential to be handled differently. However, all arbitration hearings are conducted in closed sessions. The language of the hearings should be the Indonesian language. Parties, however, with the approval of all arbiters, may use another language. The arbiters are able to ask parties to translate any documents into a particular language. The hearing of the arbitration must be in writing. An oral hearing can be held if both parties agree and it is considered to be necessary by the arbiter(s). Parties can be represented by their legal counsels with letters of authorization.

Another party which is not a party in the applicable contract may intervene in the process where its interests are also involved, and such intervention must be agreed to by both disputants and approved by the arbiter(s). Parties in the agreement are free to determine the rules of the hearing process in so far as the rules do not violate the Law Number 30 Year 1999. Where parties themselves do not make the rules of hearing, and while an arbiter or arbiters are appointed in accordance with article 12, 13 and 14 of Law Number 30 Year 1999, the process of the hearing will be conducted in accordance with the rules of Law Number 30 Year 1999. If parties appoint arbiters according to the provisions within those articles, they must agree on the duration and place of arbitration. In cases where parties submit their disputes to an institution of arbitration, the hearing process must follow the procedures established within that particular institution. When parties do not make an agreement on these matters, arbiters will make decisions on these matters.

Upon the request of one of the parties, arbiters may make an interlocutory decision including confiscation, an order to place goods into a third party’s possession, or to sell easily broken goods. Arbiters can extend the duration of arbitration process due to the following reasons: one of the parties requests a particular issue to be reviewed, as a result of an interlocutory decision, and/or it is considered to be necessary by arbiters. Arbiters are able to hear testimonies of witnesses in other places or venues. Yet, the examination of witnesses and experts by and before arbiters must be conducted according to the civil procedural law. Arbiters also have the power to hold sessions in a place of disputed objects but both parties must be present.

Within a period of time decided by the arbiters, an applicant must submit its claims to the arbiters. The claim document shall contain at least the followings: complete names and addresses or residences of parties, brief description of disputed matters, attached proof, and claims or usually referred to as petitum. After the claim document is received, the chair of the arbitration panel will.submit a copy of it to the respondent together with an order to respond within a maximum of 14 days from the date of receipt. After receiving a response from the respondent, the arbiters must submit the copy of the response to the petitioner and then order the parties to attend sessions that must be held within a maximum of 14 days from the date the order is issued. In cases where a respondent does not respond to the claim document within the 14-day allowance, the protocols in accordance with article 40 paragraph 2 of Law Number 30 Year 1999 apply. In its response or at least within the first session, a respondent can file a counterclaim. The decision on a counterclaim must be delivered together with the original claim.

If a petitioner is not present in a session designated by arbiters after the petitioner was properly notified, the arbiters may dismiss the petitioner’s claim, and the arbiters are considered to have properly accomplished their duties. If a respondent is not present in a session designated by arbiters after the respondent was properly notified, the arbiters should call upon the respondent once again in an order to be present in another designated session. If the respondent fails to be present at the second designated session within a maximum of 10 days upon receipt of the order and cannot produce any valid reason for the lack of response or attendance, the hearing will be continued without the respondent’s presence and the petitioner’s claims must be fully granted except such claims that are legally baseless.

If both parties are present in a designated session, the arbiters must make efforts to settle the dispute first. In cases where settlement efforts are successful, the arbiters make a settlement note, which has a final and binding status for both parties. If settlement efforts are unsuccessful, the hearing of the case is continued and the parties are given a last opportunity to explain in writing their positions and submit the necessary evidence in order to strengthen their claims. The arbiters can ask for additional explanations in writing and other evidence deemed necessary. Before a respondent gives its response, a petitioner may withdraw its claim through arbitration. If a respondent has given its response, any changes to a claim document can only be made with the consent of respondent and as far as the changes relate to the facts only and are not concerned with the legal basis of the claims. The hearing must be conducted within a maximum of 180 days from the establishment of arbiters. However, the duration can be extended. Upon an order from the arbiters or upon a request from the parties, witnesses and expert witnesses can be called upon and have their testimonies heard. The cost of witnesses and expert witnesses shall be borne by requesting party. The arbiters give both parties an opportunity to respond in writing to witnesses’ or experts’ testimonies. A secretary must prepare a process note of all arbitration sessions. In addition, the parties have the right to choose the laws that they want to apply to their case.

The arbiters’ decision is final and binding to both parties. It cannot be challenged with legal remedies. The arbiters’ decision must be based on laws, justice, and reasonableness.

The wording of arbiters’ decision must include “For Justice based upon a Single God Almighty” at the head of the written decision. Also, the decision must contain the following elements: complete names and residences of parties, description of the dispute, names and residences of the arbiters, judgment and conclusions by a panel of arbiters concerning the whole of a dispute, opinions of each arbiters if there was a dissenting opinion, content of the judgment, place and date of a decision, and signatures of the arbiters. If one of the arbiters does not sign a decision due to illness or death, this does not degrade the validity of the decision. A reason for a lack of an arbiter’s signature must be explained in the decision. A decision must provide a date when the decision must be executed. Within a maximum of 14 days, the parties may still have the power to ask for an administrative correction or an addition or reduction of a decision from the panel of arbiters.


2.2. The Execution.

How is an arbiter decision executed? Within a maximum of 30 days from the date the decision is delivered, the original copy or an authentic copy of the decision is submitted to and registered by the arbiters or their legal representatives to the registrar from the ‘court of first

As one can deduce, arbitration as one form of ADR provides a means to address and resolve cases originating from both Indonesia and abroad in a flexibile manner as long as there is compliance with the applicable Indonesian laws. No doubt, arbitration will continue to evolve.instance/ where the court’s jurisdiction includes the domicile of the respondent. Such registration is fulfilled when the registrar makes a note and/or provides a signature on the last part or in the margin of the decision. The arbiters and their legal representatives are obliged to submit the decision and the original copy of their appointment as well as an authentic copy of the decision to the registrar. If this procedure is not fulfilled, the decision cannot be executed. All costs of the registration must be borne by the parties. In cases where the arbiters’ decision is not executed voluntarily by the losing party, upon the winning party’s request, the execution can be carried out by the chief judge from the ‘court of first instance’ where the court’s jurisdiction includes the domicile of the respondent. The execution must be carried out within a maximum of 30 days from the date the request for execution was registered with the registrar from the court of first instance. Before the chief judge orders the execution, he or she must make sure that the decision of the arbiters meets the provisions of articles 4 and 5 of Law Number 30 Year 1999 and not in contravention of public order. A chief judge has the power to refuse or reject an execution of a decision that has not met the provisions of articles 4 and 5 of Law Number 30 Year 1999 and the chief judge’s decision cannot be challenged with any legal remedies.


2.3. The Execution of an International Arbitration.

What if the arbitration involved international parties? How can a decision be executed to be enforceable? The registration and execution of a decision from an international arbitration are under the power of the Court of First Instance of Central Jakarta. A decision from an international arbitration institute or body can only be executed in Indonesia if the decision meets the following conditions: it is delivered by arbiters in a state which has a bilateral or multilateral agreement with Indonesia concerning the recognition of arbitration; it is concerned in all matters to be in accordance with Indonesian laws that fall under the scope of commercial laws; it is not against public order; it can be executed after legalization by the chief judge from the Court of First Instance of Central Jakarta; in cases where the Indonesian state is a party of the arbitration, the decision can only be executed after receiving legalization by the Supreme Court of the Republic of Indonesia which then delegates to the court of first instance of Central Jakarta. The application for execution of an international arbitration’s decision is carried out after the decision is registered in the registrar’s office from the Court of First Instance of Central Jakarta by the arbiters or their legal representatives. The application for execution must be accompanied by the following documents: (1) the original copy of a decision or an authentic copy of it and the Indonesian version of it; (2) the original copy of the arbitration agreement and its official version in the Indonesian language and a letter from the Indonesian embassy that verifys that the state where the arbiters have delivered their decision does have a bilateral or multilateral agreements with Indonesia concerning the execution of an international arbiters’ decision. The decision of the chief judge from the Court of First Instance of Central Jakarta that recognizes and executes an international arbiter’s decision cannot be challenged through an appeal or cassation. However, the decision of the chief judge from the Court of First Instance of Central Jakarta that refuses to execute an international arbiter’s decision can be challenged through cassation through the Supreme Court of Indonesia. The Supreme Court must deliver its decision within a maximum of 90 days from the date of the receipt of a cassation from the party concerned. The Supreme Court’s decision is final and binding.


2.4. Repealing of Arbiters’ decision

Can an arbiter decision be repealed? Under the Law Number 30 Year 1999, one of the parties is provided the right to bring a lawsuit before the court in order to repeal or nullify an arbiters’ decisions with regard to forgery or false documents being used in the arbitration process. The application to repeal or revoke an arbiters’ decision must be filed in the ‘court of first instance’. If the court delivers a decision in favor of the plaintiff, the court must specify if all or only parts of the arbiters’ decision are repealed. The decision from the ‘court of first instance’ can be challenged through cassation. The Supreme Court, however, often rejects lawsuits for repealing any arbiters’ decisions where such lawsuits are not supported with hard evidence in the form of a final and binding court decision through which the court proves that the arbiters made their decision based upon forged or false documents.

As one can deduce, arbitration as one form of ADR provides a means to address and resolve cases originating from both Indonesia and abroad in a flexibile manner as long as there is compliance with the applicable Indonesian laws. No doubt, arbitration will continue to evolve.

by : Roy Michael AJ., SH., LL.M

Jakarta, 13 February 2018




ARBITRATION AS ONE OF ALTERNATIVE DISPUTE RESOLUTIONS