A. LEGISLATION AND RULES
A.1 Legislation
International arbitration continues to be governed by Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration Law“). Save for a judicial review of article 1(9) of the Arbitration Law as described in Section B below, there has been no change to the Arbitration Law. Indonesia ratified the New York Convention through Presidential Decree No. 34 of 1981.
A.2 Institutions, rules and infrastructure
A.2.1 Arbitration institutions in Indonesia
Subject to the nature of the dispute, parties that choose arbitration as a dispute settlement forum in Indonesia have several choices on where to arbitrate. Indonesia has a number of arbitral institutions, such as:
- Badan Arbitrase Nasional Indonesia (the Indonesian National Board of Arbitration – BANI)
- Badan Arbitrase Syariah Indoensia (the Indonesian Sharia Arbitration Board – BASYARNAS), specializing in commercial disputes governed by Sharia law
- Badan Arbitrase dan Penyelesaiann Sengketa Konstruksi Indonesia (the Indonesian Construction Arbitration and Dispute Resolution Board – BADAPSKI), specializing in construction-related disputes
- Lembaga Alternatif Penyelesaian Sengketa Sektor Jasa Keuangan (Alternative Dispute Settlement Institution for the Financial Services Sector – LAPS SJK), specializing in financial sector disputes (e.g., capital market, insurance, pension funds, banking, guarantees, financing and pledge, and fintech disputes)
A.2.2 Establishment of a dispute resolution forum in the energy sector
On 12 January 2024, a number of energy practitioners and energy industry associations established Badan Arbitrase Sengketa Energi Indonesia (the Indonesian Board of Arbitration for Energy Disputes (BASE)) with the aim of becoming the specific platform for the settlement of disputes in the energy sector. It is noteworthy that Law No. 4 of 2009 on Mineral and Coal Mining, as amended, seems to exclude international arbitration from the possible means of settlement of disputes on mineral and coal mining. Article 154 of the law requires that disputes arising from the implementation of mining licenses be settled through court and domestic arbitration, in accordance with the law. It appears that BASE attempts to address this requirement.
BASE currently has a list of close to 30 arbitrators comprising legal practitioners and academics as well as experts and practitioners in the energy and mineral resources sectors. Based on the information on its website, BASE provides arbitration, mediation, reconciliation, binding legal opinion and appointing authority services. However, as of the date of this chapter, there have not been any disputes administered by BASE. As such, it remains to be seen if this institution will gain traction in the energy sector.
B. CASES
B.1. Judicial review of article 1(9)
On 12 July 2024, the Constitutional Court received a petition for the court to conduct a judicial review of article 1(9) of the Arbitration Law, which defines an international arbitration award as an “award passed by an arbitration institution or individual arbitrator outside the legal territory of the Republic of Indonesia, or an award of an arbitration institution or individual arbitrator, which according to the laws of the Republic of Indonesia is deemed to be an international arbitration award”. The petition sought the court to declare the second half of the definition unconstitutional and remove it.
The petitioner argued that the definition leads to multiple interpretations of an international arbitration award, affecting the recognition and enforcement process. The petitioner cited several court precedents:
- PT Pertamina EP v. PT Lirik Petroleum (2010). In this case, the Supreme Court decided to hear an application to set aside an arbitration award commenced by Pertamina. The place of arbitration was Jakarta and the arbitration was conducted under the arbitration rules of the International Court of Arbitration of the International Chamber of Commerce (“ICC Rules“). The Supreme Court took the view that the award was an international arbitration award seemingly on the basis that there were international elements in the relationship between the parties, i.e., the use of foreign currency, the use of English in the underlying contract and parties’ correspondences and the fact that the arbitration was conducted under the ICC Rules. We should note here that Pertamina’s application was ultimately unsuccessful on its merits.
- FICO Corporation Co., Ltd. v. BANI and PT Prima Multi Mineral (2018). In this case, the Jakarta High Court ruled on an appeal by FICO to annul the registration of a BANI arbitration award. The dispute arose from a coal sale and purchase agreement between FICO and Prima, leading to an arbitration award by BANI on 11 January 2017, which was registered with the Central Jakarta district court on 8 February 2017.
FICO, a Thai company, argued that the registration violated the Arbitration Law, specifically articles 1(4), 1(6) and 59, which requires registration of a national arbitration award in the jurisdiction where the defendant resides. FICO, the defendant in the BANI arbitration, claimed the Central Jakarta district court lacked jurisdiction over it.
The Central Jakarta district court dismissed FICO’s claim, viewing the BANI awards as an arbitration award apparently due to the fact that one of the parties to the dispute is a foreign entity. The court found the registration aligned with article 65 of the Arbitration Law, which grants the Central Jakarta district court jurisdiction over the recognition and enforcement of international arbitration awards.
The Jakarta High Court upheld this decision, agreeing with the lower court’s reasoning without providing additional justification.
- PT Indiratex Spindo v. Everseason Enterprises Ltd (2016). This case concerns Indiratex’s application to set aside an arbitration award rendered by the London Cotton Association. The Supreme Court ruled that Indonesian courts do not have jurisdiction to hear any application to set aside international arbitration awards – this is the jurisdiction of the courts in the country where the arbitration award was rendered. This shows that the Supreme Court recognizes that an arbitration award is international because it is rendered in countries outside of Indonesia.
- PT Daya Mandiri Resources Internasional Tbk v. Suek AG (2014). Similar to the Indiratex case, the case also concerns an application to set aside an arbitration award rendered by the London Court of International Arbitration. The Supreme Court took the same view as it did in the Indiratex case, i.e., that an arbitration award is international because it is rendered outside of Indonesia and that Indonesian courts do not have jurisdiction to hear an application to set aside such award.
Although court rulings in cases like the Lirik and FICO arbitrations demonstrate that courts can interpret international arbitration awards based on factors other than the location of where the award is rendered, these rulings are not typical. Most precedents consistently apply the territorial concept when defining international arbitration awards.
The Constitutional Court noted that the New York Convention allows for a broader definition of international arbitration awards, not limited to a strict territorial concept. It permits each contracting state to define the scope of an international arbitration award, recognizing the state’s sovereignty in this matter.
The Constitutional Court also considered the absence of rules or provisions clarifying the phrase “deemed to be an international arbitration award” within article 1(9) of the Arbitration Law.
On 3 January 2025, the Constitutional Court declared that the term “deemed to be” creates uncertainty in defining the scope of an international arbitration award. Consequently, the court ruled to remove this term from article 1(9) of the Arbitration Law. With this ruling, article 1(9) of the Arbitration Law now reads as follows “An international arbitration award is an award passed by an arbitration institution or individual arbitrator outside the legal territory of the Republic of Indonesia, or an award of an arbitration institution or individual arbitrator, which according to the laws of the Republic of Indonesia is an international arbitration award”.
The court viewed that by removing the term “deemed to be”, the article maintains the territorial concept while also keeping the definition open to capture other qualifications of an international arbitration award that may be governed in any future legislation. While the Constitutional Court acknowledged that article 1(9) of the Arbitration Law may lead to multiple interpretations, it did not agree that the solution to this issue is to completely omit the second part of the definition, as requested by the petitioner of the judicial review. In our view, the Constitutional Court’s ruling reinforces the majority of the court precedents that define international arbitration awards based on the territorial concept. It also establishes that, until specific legal provisions are enacted, an award shall be considered international if it is issued by an institution or arbitrator outside Indonesia.
