An Overview of Indonesia Dispute Settlement
The legal system in Indonesia is based on a combination of civil law, customary law, and Islamic law. It is mostly influenced by the Dutch legal system due to the principle of concordance. However, the fundamental principles stipulating the Indonesian law, including the separation of powers between the executive, judicative, and legislative bodies are enshrined under the Indonesian Constitution of 1945 ("UUD 1945”).
This article addresses the judicial bodies of Indonesia and their authorities in regulating dispute settlements. It comprises the mechanism of dispute resolution in Indonesia, namely the General Court, Arbitration, and Alternative Dispute Resolution ("ADR”). In conclusion, the Indonesian legal system with regard to dispute resolution is generally categorized into Court litigation, Arbitration, and ADR.
It is important to note that the procedural legal system for General Court in Indonesia is regulated by the Code of Civil Procedure (Herzien Inlandsch Reglement or “HIR”) and the Code of Criminal Procedure (Kitab Undang-Undang Hukum Acara Pidana “KUHAP”). The applicability of both codes depends on the case at hand. For example, HIR is suited for civil and/or commercial disputes while, KUHAP complements the judicial procedures for criminal litigation.
The General Judiciary in Indonesia is regulated under the Law of the Republic of Indonesia No. 48 of 2009 on Judicial Authority ("Law 48/2009”). Law 48/2009 differentiates the General Courts into two judicial authorities, namely:
a. Civil Court is situated in the capital of a Regency/City, with its legal region covering the Regency/City. The Civil court is considered as the first instance of proceedings; and
b. High Court is situated in the capital of a Province with its legal region covering the Province. The High Court is considered as the appeal instance of proceedings.
(Article 3 (1) of Law 48/2009)
The highest hierarchy of the General Court is the Supreme Court of Indonesia (Mahkamah Agung or “MA”) and there are four judicial environments under the authority of the Supreme Court; (a) Courts of General Jurisdiction/Peradilan Umum, (b) State Administrative Courts, (c) Religious Courts/Peradilan Agama, and (d) Military Courts/Peradilan Militer.
Generally, these are the litigation phases of the General Court in Indonesia:
1) Civil Court (the Court of First Instance);
2) High Court (the Court if Appeal);
3) Supreme Court of Indonesia (Cassation or the Final Instance)
The Indonesian legal system also provides other judicial bodies which govern other specific forms of cases. This is regarded as the formation of a special tribunal within the General Court:
- Religious Court (e.g., marriage, inheritance);
- Tax Court;
- Commercial Court (e.g., bankruptcy and intellectual properties);
- Constitutional Court (i.e., interpretation and review of laws and regulations in Indonesia);
- Industrial Relations Court (i.e., employment disputes);
- Corruption Court (i.e., special court for allegations of corruption); and
- Administrative Court (i.e., disputes in relation to actions taken by government officials and/or agencies)
In Indonesia, Arbitration is generally governed under Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution, partially amended in 2014 under Constitutional Court (Mahkamah Konstitusi or “MK”) Decision No. 15/PUU-XII/2014 on the judicial review over elucidation of Article 70 of the Arbitration Law on the application for annulment that can only be filed against an arbitration award that has been registered in court (together, “Arbitration Law”). Furthermore, the government of Indonesia has expressed its openness with the ratification of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Arbitration Law governs all domestic and foreign arbitrations recognized under Indonesian Law. In Indonesia, the process of international arbitration can be governed by the Indonesian National Arbitration Board (Badan Arbitrase Nasional Indonesia or “BANI”), an independent arbitration board that provides arbitration, mediation, and other alternative dispute resolutions.
Generally, BANI has its own arbitration rules ("BANI Arbitration Rules”). BANI Arbitration Rules comprise of the arbitration procedures in BANI, namely Arbitration Application, BANI Assembly, Arbitration Investigation, and Award Procedure.
The appointment of BANI’s arbitrator is determined by the Head of BANI or by the disputing parties in no later than 14 days. It is important to note that BANI shall inherently appoint an arbitrator who is registered in BANI. However, the disputing parties shall appoint other arbitrators not registered in BANI if they fulfill the minimum qualifications under BANI Arbitration Rules. The disputing parties shall, at their own expense, determine to utilize one or more arbitrators at BANI.
Arbitration Law provides distinctions between arbitral awards rendered by domestic arbitration bodies and those rendered by foreign arbitration ones. Under the law, an arbitral award rendered outside Indonesia is regarded enforceable if the relevant award is registered in Central Jakarta District Court. After the registration, an exequatur warrant must be obtained from the appointed Judge of Central Jakarta District Court. If the International Arbitral Award involves the Republic of Indonesia as one of the disputing parties, it may only be executed after the award is obtained from the Supreme Court of the Republic of Indonesia through the appointed Judge of Central Jakarta District Court.
Additionally, an international arbitral award recognized and executed in Indonesia must fulfill the following prerequisites:
- The international arbitral award was rendered by an arbitrator or arbitral tribunal in a country that is bounded with Indonesia through a bilateral agreement, concerning the recognition and execution of the award. In this regard, Indonesia has ratified the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) enacted into Presidential Decree No. 34 of 1981 on Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“PD 34/1981”);
- The award as referred to point a is an award, which, according to the provisions under Indonesian law, is in the scope of trade law; and
- The award as referred to point a can only be executed in Indonesia if it is consistent with the public order.
Alternative Dispute Resolution
Alternative Dispute Resolution (“ADR”) is a way to resolve disputes without going to court. In Indonesia, ADR is mainly regulated under Arbitration Law. The law defines ADR as an institution for the resolution of disputes or differences of opinion through procedures agreed upon by the parties, namely resolutions outside the courts by; (a) consultation, (b) negotiation, (c) mediation, (d) conciliation; or expert assessment.
Arbitration Law does not provide detailed rules and procedures for conducting ADR. The disputing parties are at liberty to choose the ADR rules and procedures.
To utilize ADR in resolving a dispute in Indonesia, the parties must first agree to use ADR to resolve their dispute. This can be done through the inclusion of an ADR clause in a contract or by the parties agreeing to use ADR after a dispute has arisen. When the dispute arises, the parties must then select an ADR provider, such as a mediator or conciliator (“ADR Provider”), to facilitate the ADR process. The ADR provider must be neutral and have the necessary expertise in the subject matter of the dispute. The ADR process is typically less formal than litigation and allows the parties to present their arguments and evidence in a more flexible manner. The ADR provider will work with the parties to try to facilitate a mutually satisfactory resolution to the dispute.
In addition to the above, ADR can be used for a wide range of disputes such as commercial, employment, and contract disputes. ADR is usually less formal, less costly, and can often be resolved more quickly than going to court. Some of the benefits of ADR include:
- Flexibility: ADR can be tailored to the specific needs and circumstances of the parties, allowing for a more customized resolution to the dispute.
- Cost and time: ADR can be less costly and faster than litigation, as the process is typically less formal and does not involve the same level of legal procedures and fees.
- Confidentiality: ADR proceedings are typically private and confidential, which can be beneficial for parties who wish to keep the details of their dispute out of the public eye.
- Cooperation: ADR processes, such as mediation and conciliation, can help to encourage cooperation and communication between the parties, which can be beneficial for preserving relationships and avoiding ongoing conflicts.
In Indonesia, court litigation is a well-established method for resolving disputes through the formal court system. But in recent years, alternative methods of resolving disputes such as arbitration and Alternative Dispute Resolution (ADR) have also gained popularity. The choice between court litigation, arbitration, and ADR will depend on the specific circumstances of the dispute and the parties involved. Each method has its own advantages and disadvantages. It is important for the parties to weigh the pros and cons of each method before deciding on the best way to resolve their dispute.
The article above was prepared by Marshall S. Situmorang (Partner) and Audria Putri (Senior Associate).