Recent developments in Indonesian Arbitration Law
Arbitration plays a central role in resolving both domestic and international commercial disputes in Indonesia. However, Indonesia’s principal legislation governing the resolution of civil disputes through arbitration and alternative dispute resolution, Law No. 30 of 1999 on Arbitration and Alternative Dispute Settlements (“Arbitration Law”) has remained unchanged for over two decades. As global arbitration practices continue to evolve, there are interpretive ambiguities in the Arbitration Law that have prompted calls for reforms. In response, two significant measures have been recently introduced to enhance legal clarity and align Indonesia’s arbitration regime with international standards.
The first is the Supreme Court Regulation No. 3 of 2023 (“SCR 3/2023”), which redefines the concept of public policy and provides procedural guidance on arbitrator appointments, award registration, enforcement, and security measures. The second is the Constitutional Court Decision No. 100/PUU-XXII/2024 (“2024 Constitutional Court Decision” or “Decision”), which refines the definition of international arbitral awards. Together, these developments strengthen enforcement mechanisms and mark a step forward in modernising Indonesia’s arbitration framework.
Supreme Court Regulation No. 3 of 2023
Redefining ‘public policy’
Issued in October 2023, SCR 3/2023 introduces several key reforms to Indonesia’s arbitration framework, notably the redefinition and clarification of the concept of public policy.
Previously, public policy was defined in Article 4(2) of Supreme Court Regulation No. 1 of 1990 on the Execution Procedures for Foreign Arbitral Awards (“SCR 1/1990”) as “the fundamental principles of the entire legal system and society in Indonesia”. This occasionally led to unpredictable outcomes in the enforcement of arbitral awards in Indonesia, as the Indonesian courts would invoke a wide range of societal and governance considerations under the public policy exception.
Article 1(9) of SCR 3/2023 now narrows and refines this concept. Public policy is now defined as:
“Everything that constitutes the very foundation essential for the functioning of the legal system, economic system, and socio-cultural system of the Indonesian community and nation.”
By explicitly including reference to economic and socio-cultural systems, SCR 3/2023 provides clearer boundaries and reduces judicial discretion in its application.
Historical instances where the Indonesian courts have relied on the public policy exception to deny recognition and enforcement of foreign awards include:
- Astro Nusantara BV v. PT Ayunda Prima Mitra (Supreme Court Decision No. 01 K/Pdt.Sus/2010) – the courts refused to enforce an anti-suit injunction issued in an SIAC award on the grounds that such an order amounted to an intervention in the ongoing judicial process of Indonesia by a foreign arbitral tribunal. This “violates the sovereignty of the Republic of Indonesia”.
- Bankers Trust International v. PT Mayora Indah Tbk. (Supreme Court Decision No. 02 K/Ex’r/Arb.Int/Pdt/2000) – the courts refused to enforce an LCIA award because the underlying legal relationship which formed the basis of the arbitral award was still the subject of an ongoing dispute before the Indonesian courts.
- E.D. & F. Man (Sugar) Ltd v. Yani Haryanto (Supreme Court Decision No. 1205K/Pdt/1990) – the Supreme Court refused enforcement of a London seated arbitral award as there had been parallel proceedings in Indonesia which found the underlying contract to be void ab initio for violating Indonesian public policy.
These cases illustrate the challenges caused by the previous broad interpretation, underscoring the significance of the reforms introduced by SCR 3/2023.
Appointment of Arbitrators
SCR 3/2023 also introduces much-needed procedural clarity to the appointment of arbitrators – an area previously marked by ambiguity. While the Arbitration Law allows parties to seek assistance from the Head of the District Court when they are unable to agree on the appointment of arbitrators, it lacked a well-defined mechanism. Article 4 of SCR 3/2023 now establishes a clear and structured process:
- A party, or both parties jointly, may submit a request to the District Court for the appointment of an arbitrator or arbitral tribunal. The District Court must respond within 14 days.
- Following the appointment, either party may challenge the appointment within an additional 14-day period, provided there is credible evidence indicating the arbitrator’s lack of independence or impartiality.
By introducing fixed timelines, this reform significantly improves procedural certainty and reduces the risk of delays in the arbitral process.
Registration and Enforcement of Domestic and International Arbitral Awards
SCR 3/2023 introduces significant procedural reforms aimed at streamlining the registration and enforcement of arbitral awards in Indonesia. Under this new regulation, arbitral tribunals are now required to submit registration applications electronically through the Court Information System to the Court Registrar:
- Domestic arbitral awards must be registered within 3 days of submission.
- International arbitral awards must be registered within 14 days.
If the award is not voluntarily complied with, the prevailing party may apply online to the Head of the District Court for full or partial enforcement. The court must then:
- Decide on the enforcement of a domestic award within 30 days.
- Issue an exequatur for international awards within 14 days, and decide on recognition and enforcement within 30 days of registration.
These timelines enhance procedural efficiency and reduce uncertainty in the enforcement process.
Enforcement of Security Seizure
Another notable reform under SCR 3/2023 relates to the enforcement of security seizures. While Article 32(1) of the Arbitration Law empowered arbitral tribunals to order security seizures, it lacked guidance on the enforcement of such orders.
Article 29 of SCR 3/2023 now fills this gap by requiring tribunals to register any security seizure order with the relevant court, which is then responsible for carrying out the execution. Following execution, the court must notify the arbitrator or arbitral institution of the execution within 2 days. This procedure promotes fairness, transparency, and enforceability of interim measures.
Other Procedural Enhancements under SCR/2023
SCR 3/2023 further refines the interplay between annulment and enforcement proceedings. Where a domestic award is subject to both enforcement and annulment applications, enforcement is suspended until the annulment process is resolved.
Additionally, SCR 3/2023 outlines a more structured approach for domestic annulment proceedings – including the reading of the application and response, potential interlocutory hearings, submission of evidence, and the issuance of the final ruling. These procedural enhancements seek to minimise procedural abuse and improve transparency in Indonesia’s arbitration framework.
Constitutional Court Decision No. 100/PUU-XXII/2024
In 2024, the Constitutional Court clarified the definition of an ‘international arbitral award’ under Article 1(9) of the Arbitration Law.
Article 1(9) of the Arbitration Law defines an ‘international arbitral award’ as follows:
“International Arbitral Award refers to [i] an award which is rendered by an arbitral institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or [ii] an award which is rendered by an arbitral institution or individual arbitrator, of which, according to legal provisions of the Republic of Indonesia, it shall be deemed as an international arbitral award.”
This provision has two limbs. An award qualifies as an international arbitral award if it is:
- rendered outside the jurisdiction of the Republic of Indonesia; or
- deemed as international under Indonesian law.
The second limb – which relies on the term “deemed” – has been criticised for its vagueness and lack of statutory guidance, resulting in inconsistent judicial interpretation and legal uncertainty. The absence of clear criteria has provided the courts broad discretion in classifying awards, blurring the distinction between domestic and international arbitrations, and creating opportunities for procedural manipulation.
Three key cases illustrate the inconsistency in interpretation:
- Pertamina v. Lirik Petroleum: An ICC award was classified as international based on factors such as the foreign seat of the institution, the use of foreign currency, and the use of English—despite both parties and the underlying contract being Indonesian, and the place of the execution of obligation was Indonesia.
- PT Daya Mandiri Resources Indonesia and PT Dayaindo Resources Internasional., Tbk v Suek AG and PT Indiratex Spindo v. Everseason Enterprises, Ltd: The Supreme Court relied solely on the territorial origin of the award – classifying it as international on the basis that it was rendered abroad.
- Fico Corporation Co. Ltd. v. BANI and PT Prima Multi Mineral: a Jakarta seated award was classified as international simply because one party was a foreign entity.
To resolve this uncertainty, the 2024 Constitutional Court Decision ruled for the removal of the term “deemed” from the second limb of Article 1(9). This Decision reinforces a territorial approach to the process of defining international arbitral awards. The place where the award is issued is a primary factor in determining an award’s status.
This ruling enhances legal certainty and reduces the scope for judicial discretion in classifying arbitral awards. It also strengthens Indonesia’s alignment with international arbitration norms, particularly the territoriality principle recognised under the New York Convention.
Conclusion
The reforms introduced by way of SCR 3/2023 and the 2024 Constitutional Court Decision represent significant progress in Indonesia’s arbitration landscape. By clarifying the definition of public policy, establishing clear procedures for arbitrator appointments, streamlining registration and enforcement processes, and, reinforcing a territorial approach to the exercise of defining international arbitral awards, these measures address longstanding issues of ambiguity and procedural uncertainty. Further refinements may still be needed to ensure complete legal certainty, but these developments contribute to a more predictable, transparent and use-friendly environment for domestic and international stakeholders.
