According to SIAC’s 2012 annual report, more than 10 per cent of the 235 new cases filed with the institution in that year involved Indonesian parties. When disputes involve Indonesian parties as respondents, the awards are most likely to be enforced in Indonesia as the assets would naturally be located there. It is only if an award can be satisfactorily enforced that the award would have economic value. This article will provide an overview of the regulatory framework of the enforcement of foreign arbitration awards, and the risks and pitfalls in Indonesia.
The Indonesian arbitration law: more favourable to enforcement?
The Indonesian arbitration framework is based on the Arbitration Law of 1999. Through Presidential Decree No. 34 of 1981, Indonesia has ratified the New York Convention.
Under the decree, Indonesia will apply the convention on the basis of reciprocity, meaning an award can only be enforced if the country in which the award is issued is also a party to the convention.
Besides the reciprocity reservation, the decree provides another reservation that Indonesia will only enforce a foreign arbitration award if the subject of the dispute arose out of a legal relationship, either contractual or otherwise, which is considered as commercial under Indonesian law. Under the Arbitration Law, the following six areas are considered to be within the commercial sector: commerce, banking, finance, capital investment, industry and intellectual property rights.
The reciprocity and commercial reservations are adopted in the Arbitration Law. Additionally, in parallel with article V(2b) of the convention, article 66 of the Arbitration Law also provides that foreign arbitration awards can be enforced only if enforcement would not be contrary to public policy. Article 66 appears to be mandatory and therefore any contractual arrangement that deviates from this mandatory provision may not be successful.
It seems that the Arbitration Law was designed to make it easier to enforce foreign arbitral awards than it would be if relying on the convention alone. The Arbitration Law only adopts the reciprocity and commercial reservations and the public policy exception in article V(2b) of the convention. The grounds for refusing recognition and enforcement in article V(1) of the convention are not among the reasons to refuse the enforcement of foreign arbitration awards in Indonesia under the Arbitration Law.
There are essentially two stages in enforcing an arbitration award in Indonesia. First, the award must be registered in Indonesia. Second, upon the registration, the successful claimant must file an application to obtain leave for enforcement (exequatur) from the Central Jakarta District Court.
Registration of award
Under the Arbitration Law, any arbitration awards sought to be enforced in Indonesia must be registered at the District Court having jurisdiction. The Arbitration Law specifically requires that the foreign arbitration award is registered by the arbitrators or their proxies.
Another key issue here is to determine the award nationality (domestic or foreign). This is important because if the award is considered as a domestic award, the registration must be completed within 30 days after the award is rendered. Failure to register a domestic award within this statutory time frame will render it unenforceable. The Arbitration Law does not provide a statutory time limit for the registration of foreign awards. This position was affirmed by the Supreme Court in Pertamina v Lirik Petroleum in 2010. The registration is normally a one-day process, once all required documents have been submitted to the court.
Unlike the New York Convention, the Arbitration Law uses the term “international arbitration awards”. Under article 1.9 of the law, an international arbitration award is “an award rendered by an arbitration institution or by individual arbitrator(s) outside the jurisdiction of the Republic of Indonesia”, or “an award rendered by an arbitration institution or individual arbitrator(s) which, under the Indonesian law is deemed to be an international arbitration award”. The first definition is essentially compatible with the first definition of foreign arbitration awards under article I(1) of the New York Convention. In respect of the second definition, to date, there is no legislation that could give the status of a domestic award to any award rendered outside Indonesia. In the absence of this legislation, it is safe to assume any awards rendered outside Indonesia should be considered foreign awards.
Nevertheless, in Pertamina v Lirik Petroleum, the Supreme Court decided to hear Pertamina’s application to set aside an arbitration award. The place of arbitration was Jakarta and the arbitration was administrated under the ICC rules. The Supreme Court took the view that the award was a foreign award, seemingly on the basis that the arbitration was administrated under the ICC rules.
A successful claimant should be cautious of judiciary activism in Indonesia. The prudent approach is probably to register the award as soon as possible to mitigate any risk that the foreign award would somehow be considered as a domestic award.
An exequatur from the chairman of the Central Jakarta District Court is required for enforcement of a foreign arbitration award. A specific application must be filed to the court to obtain the exequatur.
The Arbitration Law does not provide a time limit for the chairman to decide on the application for an exequatur.
If the court refuses to grant an exequatur, parties can appeal to the Supreme Court; however, the issuance of an exequatur is not subject to appeal. The Supreme Court must consider and decide all applications for appeal within 90 days. There is no appeal against a Supreme Court decision.
After obtaining an exequatur, the winning party may apply to the competent District Court for a writ of execution. The court may issue a writ of execution if the losing party, after being duly summoned and so requested by the court, does not comply with the award.
Recourse against arbitration awards
Under the Arbitration Law, there are two possible recourses against an arbitration award: annulment of the award; and refusal to enforce the award.
Annulment of an award
It is widely accepted that the Indonesian courts have no jurisdiction to hear any application to set aside foreign awards. One of the landmark rulings on this matter is the 2007 Supreme Court ruling in Pertamina v Karaha Bodas. In that case, Pertamina applied to the Central Jakarta District Court in 2002 to set aside an award rendered in Geneva under the UNCITRAL rules. Pertamina was successful at the District Court level, but that ruling was overturned by the Supreme Court in a cassation process in 2004. Subsequently, the cassation ruling was affirmed by the Supreme Court in a civil process in 2007.
In its reasoning, the Supreme Court relied on article V(1e) 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(1e) of the New York Convention refers to the law of the seat of arbitration. In addition, the Supreme Court stated that the law of the seat of arbitration should be distinguished from the substantive law applied by the arbitrators to resolve the dispute.
In a later decision in 2010, Bungo Raya Nusantara v Jambi Resources, the Supreme Court upheld the reasoning in Pertamina v Karaha Bodas. In that case, Bungo filed an application with the Central Jakarta District Court to set aside an arbitration award made in Singapore under SIAC rules. Relying on Pertamina v Karaha Bodas, the Supreme Court dismissed Bungo’s application.
Refusal to enforce an award
Under the Arbitration Law, there are two possible bases to challenge the enforcement of foreign arbitration awards, namely: the legal relationship on which an award was based cannot be considered as commercial under Indonesian law; or the recognition or enforcement of the award would be contrary to public policy. There is no precise definition under the Arbitration Law of matters that are contrary to public policy. It is generally accepted that the Indonesian courts have wide discretion to determine whether the award is contrary to public policy.
A recent case regarding the interpretation of public policy is Astro Nusantara v Ayunda Prima Mitra. This case concerned enforcement of a SIAC award that granted an anti-suit injunction. The award ordered Ayunda to halt its litigation against Astro at the South Jakarta District Court, in particular as the subject matter of the dispute fell under the arbitration clause agreed by both parties.
Ayunda, however, refused to comply with the award, arguing that the South Jakarta District Court had asserted jurisdiction over Ayunda’s case against Astro. Responding to this, Astro applied to the Central Jakarta District Court for an exequatur, but was unsuccessful. The Central Jakarta District Court held that the award had violated the sovereignty of the Republic of Indonesia because it intervened with the state’s judicial process, even though the award essentially only compelled Ayunda to adhere to the arbitration clause. The Central Jakarta District Court concluded that the award was contrary to public policy in Indonesia. The Supreme Court also accepted this reasoning. Additionally, the Supreme Court also opined that an anti-suit award cannot be enforced as this award is not considered as “commercial” under Indonesian law.
In Pertamina v Lirik Petroleum, Pertamina filed an application to annul an arbitration award issued by the tribunal in an ICC arbitration case decided in favour of Lirik. 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 as the holder of oil and gas mining authority in Indonesia, it had the authority to regulate and control the policy for determining the commercialisation of oil and gas fields. As such, Pertamina viewed the ICC award sanctioning Pertamina for its failure to commercialise Lirik’s oil and gas fields as violating public policy. The Central Jakarta District Court rejected this argument and declared that the ICC award did not violate public policy, considering that the ICC tribunal, as the dispute settlement forum mutually agreed by Pertamina and Lirik, had the exclusive jurisdiction to examine and adjudicate the dispute between Pertamina and Lirik. The Supreme Court affirmed this finding in 2010, after which Pertamina tried to annul the ICC award by applying for a civil review to the Supreme Court. The Supreme Court dismissed this application as well, on the grounds that its previously issued appeal decision was final and binding.
No clarity on public policy
In summary, the Arbitration Law provides more limited reasons to challenge foreign awards than those in the New York Convention. The Arbitration Law only adopts the reciprocity and commercial reservations and the public policy exception in article V (2) of the convention. It is also not legally possible to set aside foreign awards in Indonesia. Nevertheless, there is still unpredictability in enforcing foreign awards in Indonesia. The central issue is judicial interpretation of public policy. Although the Arbitration Law is almost 15 years old, there is no clarity on the definition of public policy. In the absence of clear judicial guidelines, it would not be surprising if parties can introduce new grounds under the pretext of public policy to challenge foreign awards in Indonesia.