Newsletter

05 February 2024

Arbitration Series : Supreme Court Regulation No. 3 of 2023 - A Welcomed Update on Indonesian Arbitration Regime

The Supreme Court of Indonesia has recently issued the Supreme Court Regulation No. 3 Year 2023, an implementing regulation of the Indonesian Arbitration Law.

| Rizki Karim & Kelvin Zhafran Egi

In the last quarter of 2023, the Supreme Court of Indonesia issued the Supreme Court Regulation No. 3 Year 2023 on Procedure of Appointment of Arbitrator by Court, Right to Challenge, Examination on Application of Enforcement and Annullment of Arbitral Award (hereafter “SC Reg 3/2023”). This is the first ever implementing regulation of the Law 30/1999 on Arbitration and Alternative Dispute Resolution, commonly known as the Indonesian Arbitration Law, which was enacted over two decades ago. SC Reg 3/2023 specifically provides updates (and clarifications) to a number provisions contained in the Indonesian Arbitration Law. Some of those notable provisions are discussed hereinbelow.

 

 

Expressed recognition of Sharia Arbitration

 

            Sharia Arbitration – arbitration involving subject matters that are based on sharia principles – has long been existing and developing in Indonesia. Particularly as it can be traced back to the establishment of Indonesia’s Sharia Arbitration Institution back in 1993 (previously known as BAMUI, now known as BASYARNAS). Its development now has been further strengthened by its expressed recognition under SC Reg 3/2023.

            Article 1(3) of SC Reg 3/2023 defines Sharia Arbitration as a method of out of court civil dispute settlement based upon a written sharia arbitration agreement. SC Reg 3/2023 also has the corresponding definitions of sharia arbitration agreement, sharia arbitration board, as well as sharia arbitral award.

            More relevant in practice would be the distinction of forums for enforcement and annulment of sharia arbitral awards. SC Reg 3/2023 stipulates that only the religious court has the competence to examine sharia arbitral awards, whereas other arbitral awards are still under the jurisdiction of the district courts. Application to an incorrect forum may lead to the application being rejected.

 

 

Defining Public Policy – Has it been sufficiently clarified?

 

One of the more contentious issues in the arbitration regime is the scope of public policy, which is of course one of the grounds for non-enforcement, as recognized both in Indonesian Arbitration Law as well as the New York Convention. However, Indonesian positive law does not have any clear definition of what constitutes public policy. This has led courts and practitioners alike to rely on a variety of legal bases to argue what may form a public policy, often referring to existing legal scholars’ opinions. Many commentators thus have deemed the concept of ‘public policy’ in the Indonesian Arbitration Law as ‘catchall articles’ (or pasal karet).

SC Reg 3/2023 attempts to address this issue by introducing Article 1(9) of SC Reg 3/2023, which defines Public Policy as “anything that forms the basic principles necessary for the process of the legal system, economic system, and socio-culture system of the Indonesian society and nation.” While the broad nature of the new definition’s formulation might mean that the ‘catchall articles’ stigma will still remain, this is at least a nice starting reference to add (slightly) more legal certainty to what has rather been a contentious issue.

 

Reemphasizing rules on appointment and challenge of court-appointed arbitrators

 

Chapter III of the SC Reg 3/2023 clarifies and reemphasizes the procedures of appointment of an arbitrator by the court, which was previously regulated under Article 13-19 of the Indonesian Arbitration Law. In cases when the parties are unable to agree on how to select an arbitrator, either party – or both – can request the court to appoint an arbitrator (or the whole tribunal if necessary). The appointment must be done within 14 days after such application.

The appointed arbitrator can be challenged if there is a doubt to his or her impartiality or independence, i.e., if it can be proven that the arbitrator has a familiar, economic, or professional relationship with either one of the parties or their respective counsels. Such challenge must be filed within 14 days, and the court will make a decision on the challenge within another 14 days as well. The court’s decision is final and there is no further legal recourse.

 

 

New time limit on registration and enforcement of arbitral award adds certainty

 

Under the Indonesian Arbitration Law, a 30-day timeline has always been imposed on registration of domestically rendered arbitral awards following the issuance of that award. This is reemphasized again in Article 6 of the SC Reg 3/2023, which goes even stricter by stipulating that a delay in such registration may lead to that award being unenforceable.

The SC Reg 3/2023 also once again clarifies that this 30-day timeline is exclusive for domestic awards, or in other words, does not apply to international arbitral awards, those rendered outside of the archipelago. Indeed, while this had been the original position set out in the Indonesian Arbitration Law, an ambiguity arose when the Supreme Court, in 2019, issued a District Court’s Execution Handbook mentioning that the 30-day time limit also applies to international arbitral awards (admittedly, reports from the field showed that this time limit was not strictly observed).[i] In any case, this issue should now be resolved by SC Reg 3/2023.

More importantly, though, SC Reg 3/2023 introduces a time limit on courts handling the registration process, which is 3 days for domestic arbitral awards,[ii] and 14 days for international arbitral awards.[iii] This introduction certainly adds legal certainty in regard to the timing schedule of the process.

Another welcomed addition is the time limit set out for the enforcement order for international award in cases of non-voluntary compliance. Article 16 of the SC Reg 3/2023 stipulates that the Chief of Jakarta District Court must determine whether it accepts or rejects an enforcement application within 14 days. For information, whereas the Indonesian Arbitration Law sets out a 30-day time limit for courts to issue an enforcement order for domestic awards, there was no such similar time limit applicable for international arbitral awards (except if the case was elevated to the Supreme Court, in such case a 90-day time limit is imposed).[iv]

Finally, specific to domestic arbitral awards, Article 15 of SC Reg 3/2023 clarifies that in cases where an application for enforcement for an award is made simultaneously with an application to annul that same award, the district court must stay the enforcement process until at least the annulment decision is issued in the first instance.

 

 

            Clarifying the grounds and procedures for annulment of arbitral award

 

            SC Reg 3/2023 clarifies a number of contentious issues revolving around annulment of arbitral awards. First and foremost, concerning the grounds for annulment. While Article 70 of the Indonesian Arbitration Law strictly limits the grounds for annulment to 3 reasons (false documents, concealed documents, and forgery or fraud), the general elucidation of the same

 

law adds ambiguity by including the phrase ‘among others’, thus indicating there might be other grounds in which an arbitral award can be annulled. Article 24(4) of the SC Reg 3/2023 thus clarifies this, reemphasizing that the only grounds for annulment are exclusively those 3 reasons set out in Article 70 of the Indonesian Arbitration Law.

            Further, the hearing agenda for annulment proceeding has also been clearly set out. Article 26 of the SC Reg 3/2023 lays out the hearings steps of annulment proceedings as follows:

 

  1. First hearing for reading of application;
  2. Second hearing for response;
  3. Interim measure (if any);
  4. Evidentiary hearing; and
  5. Decision hearing.

 

The whole proceeding must be carried out within 30 days after the first hearing, and it can be done either physically or virtually. If the district court (or religious court, for Sharia arbitral awards) decides to reject the annulment application, there is no more legal recourse. Meanwhile, If the court decides to annul the arbitral award, the party then can file an appeal to the Supreme Court. The appeal process for an annulment application is also 30 days after registration of appeal.

Finally, much appreciated, the SC Reg 3/2023 also makes it clear that in cases of annulment, the arbitral institution as well as the arbitrators should not be named as parties. Hopefully this would eliminate the cases in which arbitrators and/or arbitral bodies have been reluctantly joined into annulment proceedings.

 

 

Restrengthening arbitral tribunals’ power to issue provisional measures

 

Another existing issue in the Indonesia arbitration regime relates to the enforcement of provisional measures, such as imposition of seizure order as security. While normatively the tribunal’s power to impose provisional measure has been acknowledged by Article 32 of the Indonesian Arbitration Law (as well as most of the corresponding arbitral rules in Indonesia), in practice such power is rarely exercised. There are at least two reasons for this: the first is that arbitral institutions are not equipped with bailiffs to execute such orders, and the second is that court intervention in an arbitration process is limited to enforcement of final awards only (aside from annulment and appointment of arbitrators). SC Reg 3/2023 attempts to address this issue.

Article 29 of SC Reg 3/2023 explains that an arbitral tribunal can register a seizure order as security to the court. The party applying for that order thus can request the court to execute such order. This procedure is similar to the arrangement set out in the UNCITRAL Model Law where courts may act as a judicial assistance for the arbitral tribunal in certain applications of provisional measures.[v] This update expressly allowing courts to assist arbitral tribunals in respect of interim measure will certainly add more teeth to arbitral tribunal’s power and it will be interesting to see how this provision will play out in practice.

 

Conclusion

 

Certainly, SC Reg 3/2023 is a welcomed addition to the Indonesian arbitration regime, which understandably has been overdue for some time now. The Indonesian Arbitration Law has been enacted since 1999, over two decades ago. Calls for a revision of the law have been regularly voiced by practitioners and stakeholders alike. While the Indonesian Arbitration Law is a good law, it cannot be denied that it is already a bit old and it could use some tweaks here and there to keep up with the ever-developing arbitration climate.

 

The SC Reg 3/2023 has addressed some of the old law’s issues, particularly on the enforcement and annulment process, as well as on interim measures’ implementation. Admittedly, there are still some aspects in the Indonesian Arbitration Law that could use further updates, as certain requirements are still outdated and impractical.

For example, in regard to the enforcement process of an international award, the requirement to obtain a certification from Indonesia’s diplomatic representative confirming the reciprocity of enforcement of foreign arbitral award (in other words, a certification that a foreign country is a member to the New York Convention) seems to be a bit outdated considering one can easily check New York Convention’s list of signatories through other means, such as simply going to New York Convention’s official website.

Nevertheless, the introduction of SC Reg 3/2023 is clearly a step forward in the right direction when it comes to the development of the arbitration regime in Indonesia.

 

 

 

 

Disclaimer: The content above is intended to provide a general guide to the subject matter, and should not be treated as legal advice.

 

This newsletter is the first of our arbitration series, in which we will regularly post about developments of the arbitration climate, both domestically as well as internationally. For more information on the subject matter, or assistance in relation to arbitration, please feel free to contact the firm at rizki.karim@karimsyah.com

 

 

 

References :

 


[i] See Article Point 11(4) of Chapter III of 2019 District Court Execution Hand Book, as issued by Supreme Court’s Directorate General on Public Court System, whereas it was stated in page 41: “What must be considered in issuing exequatur are as follows: …(b) Is the domestic arbitral award registered within 30 days since the date of the award? This provision now applies to international arbitral award.” 

[ii] SC Reg 3/2023, Article 6.

[iii] SC Reg 3/2023, Article 13.

[iv] See and compare Indonesian Arbitration Law, Article 62, with Article 67 and 68.

[v]  See UNCITRAL Model Law, Article 17 H

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