By Tony Budidjaja (Budidjaja International Lawyers)

 

Overly Complicated Procedure

Indonesia’s present legal framework still presents challenges to anyone attempting to enforce arbitral awards in Indonesia. There are many procedural and bureaucratic issues confronting the enforcing party that are not properly addressed by Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Indonesian Arbitration Law”) or the prevailing civil procedure law.

The process of enforcing arbitral awards in Indonesia, especially international arbitral awards, can be very time and costs consuming. Parties seeking to enforce arbitral awards in Indonesia can expect to face significant delays and other obstacles, due to the overly complicated enforcement procedure.

Under the present legal framework, there are at least four separate applications that must be submitted to the competent court in order to enforce arbitral awards in Indonesia. They are the (i) application for registering the award, (ii) application for court reprimand (aanmaning) on the award debtor, (iii) application for writ of executorial attachment (sita eksekusil) over specific assets of the award debtor, and (iv) application for auction order (lelang). For international arbitral awards, an application for a court enforcement order (exequatur) must also be submitted. The process is therefore likely to be lengthy and costs intensive.

 

Undue Delay

Under Article 67 of the Indonesian Arbitration Law, the registration of an international award must be conducted by submitting the award to the Registrar of the Central Jakarta District Court (which must be carried out by the arbitrator or his/her proxy), together with the following documents: (i) the original or an authenticated copy of the award and its official Indonesian translation, (ii) the original or an authenticated copy of the agreement which is the basis/underlying document of the dispute being settled in the award and its official Indonesian translation, and (iii) a statement from the Indonesian Embassy in the country whereby the award was rendered stating that the concerned country has a bilateral or multilateral treaty with Indonesia regarding the recognition and enforcement of foreign arbitral awards.

Regrettably, the Indonesian Arbitration Law does not stipulate a time limit for the court to process the registration of the award and decide on exequatur applications. In recent years, even without any opposition from award debtors, applications for the registration of international arbitral awards are rarely disposed of in less than one month because the courts are congested. If the court receives opposition or challenge from the award debtor, the court will usually take a conservative view and stay the enforcement process until the opposition or challenge has been settled, meaning it can take several months or more for the court to finally issue its decision on an exequatur application.

Although the Indonesian Arbitration Law clearly provides that a court decision granting exequatur is final and may not be appealed against, in practice it is not unusual for the award debtor to appeal against the exequatur. Although the court of appeal rarely convenes a court hearing in order to render its decision (usually decided on a documents-only basis), the court may still take a year to reach a decision. Pending a resolution of the appeal decision, the relevant arbitral award normally cannot be enforced against the award debtor (hence delaying enforcement even further).

 

Annulment Action

Pursuant to the 2006 Supreme Court’s Guidelines on Implementation of Court’s Duty and Administration, only national arbitral awards (instead of “international” arbitral awards) could be the subject of an annulment application because Indonesia is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).

Despite the foregoing, the commencement of an award annulment action is also becoming a common dilatory tactic for the Indonesian debtor of an adverse arbitral award.

Just like appealing against the court exequatur, although there is no written law on such matter, the filing of an application for the annulment of an arbitral award would automatically stay the enforcement of the award. The enforcement courts usually stay the enforcement process until the annulment proceeding is totally completed and resolved.

If the annulment action is not successful, it is not uncommon to see the award debtor then commence another court proceeding (although it is frivolous) in an attempt to set aside the award or at least to terminate or suspend the enforcement process.

The problem can be worse if further related or overlapping proceedings are commenced (e.g., where a fresh action stemming from the underlying contract is brought), as the court would then stay the enforcement process until it is certain that there would not be a conflict between decisions made in the fresh proceedings and the arbitral award. The award debtors can also prolong the proceedings as long as they want simply by filing an appeal to the higher court.

That means that an award debtor can successfully put off payment of his debt to the award creditor for at least another two to three years simply by commencing a civil action against the arbitral tribunal and/or the award creditor.

As a result, a party who was successful in obtaining a favorable arbitral award and even exequatur from the court may be frustrated when seeking to have the award effectively enforced in Indonesia. It may be a tragedy to see that an arbitral award that has been recognized and declared to have executorial force in Indonesia can be stayed or frustrated for several years. In light of this, one will not be so surprised to see an award creditor who failed to recover sums awarded in the arbitration fall into financial distress.

The development of this disturbing practice prompted Indonesia’s Supreme Court (being the highest court of appeal, which has long been struggling to reduce the courts’ workload) to issue Circular Letter Number 4 of 2016 on 9 December 2016 (“Letter”), in order to eliminate such bad practice. According to the Letter, which serves as a guideline that should bind all lower courts, there shall be no legal recourse (appeal or civil review to the Supreme Court) against court decisions that rejected petitions of arbitral award annulment: only decisions that annulled arbitral awards can be appealed.

 

Lack of Arbitration Specialized Judges and Unnecessary Court Interference

The efficiency of enforcing arbitral awards in Indonesia is further hampered by the fact that Indonesia currently has no specially trained judges who can be assigned to handle arbitration related cases. Besides, the court staff assigned to assist in handling arbitral award registration and enforcement matters generally show no strong understanding of arbitration.

Indonesia is also well known for its unnecessary court interference in matters related to arbitral awards, although the situation is now gradually improving.

Although the Indonesian Arbitration Law does not contain any express provision regarding the procedure and grounds for refusal of enforcement of arbitral awards, in reality there have been a number of precedents which show courts refusing to quickly and effectively enforce an arbitral award, and even refusing to honour the parties’ validly made arbitration agreement.

As a matter of legal principle, the Indonesian Arbitration Law provides that the existence of a valid arbitration agreement precludes parties from submitting their disputes to the court. In addition, the court before which an action is brought in a matter which is the subject of a valid arbitration agreement is obliged to reject the action as inadmissible (except for certain matters as specifically stipulated in the Indonesian Arbitration Law, such as the appointment of an arbitrator in the event that the parties fail to agree, or where there is no previously agreed procedure on the appointment of an arbitrator).

 

Conclusions and Recommendation

Although there are many challenges that Indonesia has to overcome with respect to the enforcement of arbitral awards, I am confident that this will change in the coming years if Indonesia’s Supreme Court, being the highest court in the country, is committed to creating such a change.

As arbitration will continue to become increasingly important as a result of the growth of cross-border disputes, the courts should be committed to supporting arbitration, by ensuring a cost-effective and efficient mechanism for the judicial enforcement of arbitral awards.

Given that the Indonesian legal regime for the enforcement of arbitral awards is still less developed thereby causing Indonesia to become less attractive as a venue for arbitration, I recommend the adoption of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) as an amendment to the present Indonesian Arbitration Law, taking into consideration Indonesia’s national interests and needs. The adoption of the Model Law should be able to resolve many of the problems being faced in practice.

As a Contracting State to the New York Convention, Indonesia should join the others in developing and modernizing its national arbitration law.

Arbitral Awards: Enforcement Challenges in Indonesia

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