THE ROLE OF INTERNATIONAL ARBITRATION BODIES IN
RESOLVING INTERNATIONAL TRADE CASES
ARIZONA STATE UNIVERSITY
ECN 736 - INTERNATIONAL TRADE THEORY
WEEK 5
A.
Understanding Arbitration and Alternative Dispute Resolution:
Arbitration awards are independent, final, and binding (like decisions that have permanent
legal force) so that the head of the court is not allowed to examine the reasons or
considerations of the national arbitration award. The term arbitration comes from the word
"arbitrare" (Latin) which means "the power to settle a case according to discretion". The
terminological definition is put forward differently by scholars today although it actually has
the same core meaning, among others: first, Subekti states that arbitration is the settlement or
termination of a dispute by a judge or judges based on an agreement that the parties will
submit to or obey the decision given by the judge they choose. Second, Priyatna Abdurrasyid
states that arbitration is a process of examining a dispute conducted judicially, such as by the
parties to the dispute, and the solution will be based on the evidence submitted by the parties.
Third, M.N. Poerwosujtipto uses the term referee for arbitration which is defined as a justice
of the peace, in which the parties agree that Their disputes about personal rights over which
they have full control are heard and adjudicated by an impartial judge appointed by the parties
themselves and the award is binding on both parties. Arbitration is essentially a specialized
form of court. The key point that distinguishes courts from arbitration is that while courts use
a permanent or standing court, arbitration uses a tribunal forum set up specifically for the
purpose. In arbitration, the arbitrator acts as a judge in the arbitral tribunal, like a permanent
judge, albeit only for the case at hand.
According to Frank Elkoury and Etna Elkoury as cited by Husseyn and Kardono,
arbitration is an easy or simple process chosen by parties voluntarily who wish to have their
case decided by a neutral arbitrator according to their choice where the decision is based on
the arguments in the case.
The parties agree from the outset to accept the award as final and binding. According to
Law Number 30 of 1999, arbitration is a method of resolving a civil dispute outside the public
courts based on an arbitration agreement made in writing by the parties to the dispute.
Based on the above definitions of arbitration, there are several elements in common,
namely: (1) there is an agreement to submit disputes, both future and current, to one or more
third parties outside the public courts to be decided; (2) the disputes that can be resolved are
disputes concerning personal rights that can be fully controlled, especially here in the fields of
industrial trade and finance; and (3) the decision is final and binding.
The forum used to resolve disputes usually consists of 2 (two) types, namely mechanisms
through the courts and mechanisms outside the courts. For the context of disputes that occur
in the field of business transactions, for Indonesia, can be resolved through, among others:
district courts and commercial courts, which can reach the stage of cassation or judicial
review which is processed by the Supreme Court. However, the mechanism through the courts
is often considered protracted, so it is not in accordance with the principles of fast, simple and
low cost. Not to mention, the mechanism through the court is very prone to corrupt practices.
So it is not surprising that many parties suggest or wish to avoid the court mechanism. Ward
Berenschot and Adriaan Bedner even refer to the court mechanism as a place where law
enforcement is actually influenced by negative factors, such as social inequality problems in
society, good connections (backing), money, or corruption. To overcome the protracted
situation when disputes are resolved through court channels, an out-of-court dispute
resolution mechanism was established, which in practice can consist of various mechanisms.
All of these out-of-court dispute resolution mechanisms are commonly referred to as
Alternative Dispute Resolution (ADR) or Alternative Dispute Resolution (APS). Juridically,
based on Article 1 point 10 of Law Number 30 Year 1999 on Arbitration and Alternative
Dispute Resolution, what is meant by Alternative Dispute Resolution (APS) is: "An
institution for resolving disputes or differences of opinion through procedures agreed by the
parties, namely out-of-court settlement by means of consultation, negotiation, mediation,
conciliation, or expert judgment". From the perspective of legal experts (doctrine),
Alternative Dispute Resolution (APS) still has various definitions. Defining Alternative
Dispute Resolution (APS) is not an easy thing, as the attorney general of the state of Victoria,
Australia, said: "Alternative Dispute Resolution (ADR) means different things to different
people." However, as a guideline, one definition as put forward by Jacqueline M. Nolan-
Haley can be used, that: "Alternative Dispute Resolution (ADR) is an umbrella term which
refers generally to alternatives to court adjudication of disputes such as negotiation,
mediation, arbitration, mini-trials, and summary jury trials." This difference in defining
Alternative Dispute Resolution (APS) also includes the forms of dispute resolution that can be
included in Alternative Dispute Resolution (APS). According to the view of scholars in
general, Alternative Dispute Resolution (APS) includes various forms of dispute resolution
other than the judicial process. The forms of Alternative Dispute Resolution (APS), as is often
the subject of discussion in foreign literature, especially in the United States, are: negotiation,
mediation, fact-finding, policy dialog, and arbitration. However, there are also legal experts
who consider only forms of dispute resolution based on a consensus approach to fall into the
category of Alternative Dispute Resolution (APS). Thus, arbitration is not included in the
category of Alternative Dispute Resolution (APS) according to their view.
B.
Definition of Arbitration:
According to Article 1 number 1 of Law Number 30 Year 1999, arbitration is: "A method of
resolving a civil dispute outside the public courts based on an arbitration agreement made in
writing by the parties to the dispute". From a doctrinal perspective, several experts have also
given their opinions on the definition of arbitration. Priyatna Abdurrasyid explains that
arbitration is another form of private adjudication. Settlement through arbitration is generally
chosen for contractual disputes, both simple and complex. Furthermore, Priyatna Abdurrasyid
also explained that arbitration can be classified into:
1.
Quality arbitration, which concerns contractual issues (questions of fact) which in itself
requires arbitrators with high technical qualifications.
2.
Technical arbitration, which does not concern factual issues, as is the case with issues arising
in the construction of documents or the application of contractual provisions.
3.
Mixed arbitration, which is for disputes on both questions of fact and law.
C.
Arbitration in the Context of International Law:
One way to resolve disputes between states, including business entities, is through arbitration.
In the context of the history of international law, arbitration has been used since Greek times.
In the Christian era, disputes between kings and rulers were submitted to Papal Arbitration.
Vitoria, Suarez and Grotius had used arbitration to settle disputes. Based on history, it can
also be understood that arbitration turned out to be the first way of resolving disputes and
inspired the establishment of permanent international judicial institutions.
Arbitration in modern history is known in the Jay Treaty of 1794 between the UK and the
US which regulates the establishment of 3 (three) mixed commissions whose function is to
resolve disputes between the two parties. Arbitration was also successfully utilized in the
Alabama Claims Arbitration in 1872 between the UK and the US, the outcome of which
required the UK to pay compensation for losses caused by Confederate warships built in the
UK. The success of this arbitral institution motivated subsequent arbitrations, for example in
the Behring Sea, British Guiana, and Venezuela Boundary cases in the late 18th century. As
with other peaceful means of settling international disputes, dispute settlement through
arbitration is also voluntary. There must first be a willingness (consent) of states to submit to
arbitration. The consent of states to submit to special arbitration procedures may be given
before a dispute arises, such as in the Permanent Court of Arbitration established under the
1899 and 1907 Hague Conventions on the Peaceful Settlement of Disputes. In 1899, the
Hague Conference not only codified arbitration law, but also established the Permanent Court
of Arbitration. The 1907 Hague Conference then completed the work of the 1899 Conference.
The Permanent Court of Arbitration sitting in The Hague is neither a "permanent" nor a
"court". Its members are appointed from the states parties to one of the Hague Conventions.
Each state may appoint 4 (four) persons qualified in the field of international law. From
among them arbitrators will then be appointed if needed.
Arbitration is a method of settlement carried out by submitting to a third party. According
to the Advisory Opinion of the Permanent Court of Justice regarding the Interpretation of the
Treaty of Lausanne Case (1925) PCIJ Ser. B No. 12, arbitration in international law has a
more specialized meaning, namely: first, arbitration is a procedure for the settlement of legal
disputes. In other words, arbitration concerns the rights and obligations of the parties to a
dispute under the terms of an international treaty, and settlement will be sought by applying
the treaty to the facts of the case. Second, arbitration awards are legally binding on the parties
to the dispute. Once, a state or legal subject as a party, agrees to use arbitration, it is under a
legal obligation to enforce it. Third, in an arbitral tribunal, the parties to the dispute may
choose their arbitrator. Unlike in court, the parties to a dispute through arbitration have
discretion over the composition of the arbitral tribunal and its procedures.
In its dynamics, to answer the needs of the activities of international legal subjects, such
as countries, international organizations, and business entities such as large-scale companies,
which are increasingly complex, the arbitration institution has also developed. Then several
international arbitration institutions or bodies began to be formed, the types of which, among
others, can be explained as follows:
1.
UNCITRAL Arbitration Rules:
Promulgated by the UN Commission on International Trade Law on April 28, 1976 and
approved by the UN General Assembly on December 15, 1976. Among the important things
contained by the UNCITRAL Arbitration Rules is that no arbitration shall fail on the ground
that the parties do not agree on the arbitrator or for any reason an arbitrator cannot work. In
the event that the parties fail to appoint an arbitrator within 60 (sixty) days of receipt of the
request, each party may request the secretary-general of the Permanent Court of Arbitration at
The Hague to appoint as an authority. The authority of this arbitral body covers disputes,
controversies and other claims arising out of or relating to the contract, its rescission or
termination or non-performance.
2.
The London Court of Arbitration:
It is sponsored by the London Chamber of Commerce, The City of London Corporation, and
the Chartered Institute of Arbitrations. It is open to both members and non-members of the
London Chamber of Commerce. Its powers include the enactment, making and performance
of contracts which shall be governed by English law and any disputes arising out of such
contracts shall be arbitrated under the rules of the London Court of Arbitration, which in the
absence of such rules shall apply the rules of UNCITRAL.
3.
ICC Court of Arbitration:
This arbitration body of the International Chamber of Commerce in Paris applies to both
members and non-members of the ICC. In 1976, the ICC established the International Center
for Technical Expertise, which is intended to assist in technical matters, such as construction
and installation contracts, in which case a neutral expert may be appointed. Thus, the powers
of this arbitral body include all disputes arising out of an applicable contract to be settled
according to the conciliation and arbitration rules of the International Chamber of Commerce
by one or more arbitrators appointed in accordance with the ICC rules.
4.
Japanese Model Arbitration:
This arbitration body was established in 1979. Its powers include all disputes, controversies
and differences that may arise between the seller and the buyer or relating to the contract and
breach of contract may be settled by arbitration in Osaka according to the commercial
arbitration rules of the Japan Commercial Arbitration Association. In this case, the applicable
law is Japanese law.
5.
Indonesian National Arbitration Board (BANI):
In Indonesia, the body that takes part in resolving trade disputes, both national and
international, is BANI. Actually this arbitration body is very much needed because as we
know the settlement of a case through the court domestic disputes are time-consuming and
costly. Therefore, BANI is expected to be an alternative in resolving disputes, despite the fact
that BANI is less well known in Indonesia.
D.
Settlement of International Business Disputes Through Arbitration:
Based on Article 1 point 1 of Law Number 30 Year 1999 on Arbitration and Alternative
Dispute Resolution, arbitration is defined as a way of resolving civil disputes outside the
public courts based on an arbitration agreement made in writing by the parties to the dispute.
Settlement through arbitration can be done by individuals or institutionally. Currently,
arbitration is increasingly used in resolving national and international trade disputes.
In terms of the timing of the settlement selection, arbitration is divided into 2 (two),
namely: arbitration clause and submission agreement. The former is arbitration that has been
included in the parties' contract, while the latter is an action taken by the parties to submit
dispute resolution to arbitration. Before an arbitration clause can be used, there are several
requirements that must be met first, namely:
1.
The arbitration agreement must be in writing;
2.
regarding an existing or new dispute;
3.
disputes are concerned with the legal relationship between the parties, whether contractual or
not;
4.
the dispute is one that can be resolved by arbitration.
In addition, 2 (two) more conditions were added, namely that the parties must have the
capacity to choose arbitration, and also that the arbitration clause is permitted by the laws of
their respective countries. Due to developments in the practice of resolving disputes, there are
now several reasons why arbitration institutions are becoming more common used to resolve
disputes, especially disputes that occur in the field of business, namely:
1.
Dispute resolution is relatively faster than litigating in court. There is no appeal, cassation or
judicial review in arbitration. The arbitral award is final and binding.
2.
Dispute resolution through arbitration is confidential, both the confidentiality of the
proceedings and the confidentiality of the arbitral award.
3.
The parties are given the freedom to choose their arbitrators who they think are neutral and
also experts in resolving the dispute at hand. The selection of arbitrators is entirely at the
discretion of the parties and the arbitrators selected are not necessarily legal experts, but may
be engineers, insurance experts, banking experts, etc.
4.
It is possible for the arbitrators to apply the dispute on a fit and proper basis (if the parties so
wish).
5.
In the case of international arbitration, the arbitral award is relatively more enforceable in
other countries than if the dispute is resolved through, for example, the courts.
6.
In arbitration the parties are also given the freedom to determine the procedural law or the
terms on which an award will be based, for example in determining the procedural law and
the law to be applied in the subject matter of the dispute.
In line with the explanation above, according to Erman Rajagukguk, arbitration is the
most popular and most frequently used alternative dispute resolution institution compared to
other alternative dispute resolution institutions. This is due to the many advantages possessed
by this arbitration. These advantages are as follows:
1.
procedures are straightforward and decisions can be reached in a relatively short time;
2.
cheaper cost;
3.
the verdict may avoid public exposure;
4.
The law on procedure and evidence is more flexible;
5.
the parties may choose which law to apply to the arbitration proceedings;
6.
the parties may choose the arbitrators themselves;
7.
arbitrators may be selected from among experts in the field;
8.
decisions can be more related to the situation and conditions;
9.
arbitral awards are generally final and binding (without the need for appeal or cassation);
10.
arbitral awards are generally enforceable and executable by the courts with little or no review;
11.
The process (procedure) of arbitration is more understandable to the general public;
12.
rules out the possibility of "forum shopping" ("forum smuggling" or bad faith attempts to
divert the subject matter);
13.
Dispute resolution in court will seek to find out who is wrong and who is right, and the result
will be a strained trade relationship between them (the parties to the dispute).
Dispute resolution through arbitration is considered to be able to produce a compromise
decision, which is acceptable to both parties to the dispute. However, in addition to the
positive sides as stated above, it turns out that the arbitration institution is also still considered
to have several shortcomings, among others:
1.
In general, legal subjects in the form of states are still reluctant to commit to submitting their
disputes to international court bodies, including international arbitration bodies. This situation
is quite different from the attitude of legal subjects in the form of business entities, such as
companies. The tendency is that business entities will prefer that the disputes they are facing
be brought to arbitration for resolution, taking into consideration the advantages of the dispute
resolution mechanism through arbitration as described above.
2.
The process of resolving disputes through arbitration does not guarantee that the award will
be binding. International law does not guarantees that the losing or dissatisfied party will
enforce the award. Although arbitration is not yet fully operational, it seems that in the future
arbitration could become the main legal option for dispute resolution.
In the event that the parties wish to resolve a dispute through arbitration, it must be
expressly stated by the parties in writing in a dispute resolution clause in a contract (an
agreement in writing). Usually the title of the clause is written directly by stating
"arbitration". Sometimes other terms used are "choice of forum" or "choice of jurisdiction".
There are 2 (two) forms of arbitration agreement, namely factum the compromitendo (an
arbitration clause contained in a written agreement made by the parties before a dispute
arises), and deed of compromise (a separate arbitration agreement made by the parties after a
dispute arises). Currently, there are already several conventions relating to or regulating
arbitration, especially in terms of the enforcement of its awards, namely:
1.
1958 New York Convention:
Initially with respect to the enforcement of foreign arbitral awards, the enforcement was based
on the 1927 Geneva Convention. However, the 1927 Geneva Convention apparently still
caused differences in connection with the recognition and enforcement of foreign arbitral
awards. So on June 10, 1958 in New York, the United Nations Convention on the recognition
and enforcement of foreign arbitral awards was signed, namely:
Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Indonesia itself has ratified the 1958 New York Convention through Presidential Decree
No. 34 of 1981. The 1958 New York Convention regulates, among other things, the position
of arbitration agreements, the form of arbitration agreements, and the attitude of courts in
participating countries towards arbitration agreements. It also stipulates that the arbitration
agreement must be in writing, regarding the parties to the agreement the dispute is between a
private person and a private person, and so on. Although it is said that the arbitral award is
final and binding, the arbitral award here can be rejected (Article 5, paragraph 5).
(1) New York Convention 1958). The reasons are:
a.
The arbitration agreement made is invalid.
b.
One of the parties is denied the opportunity to make a defense so that the arbitral award is
deemed to have been improperly obtained.
c.
The appointment of the arbitrator concerned was not in accordance with the assignment made.
d.
The appointment of the arbitrators/arbitration procedure is not in accordance with the
agreement between the parties.
e.
The arbitral award in question has not been binding on the parties or has been set aside in the
country where it was made.
2.
Washington Convention 1965:
This convention is known as the Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States. The origin of this convention was initiated by
the economic situation in the world at that time, especially in several developing countries
that took unilateral action against foreign investors in the territory of their country. The
unilateral action was in the form of nationalization of companies owned by foreign investors.
This unilateral action has resulted in economic conflicts that can then develop into political
disputes. On this basis, the World Bank then initiated the establishment of an international
arbitration body. This body would handle investment disputes between foreign investors and
host countries. This effort resulted in a convention called the ICSID convention. The purpose
of this convention is to provide a legal remedy in resolving foreign investment cases. At the
same time, it encourages greater flows of private investment to accelerate the economic
development of developing countries.
One of the articles of the convention describes the conditions under which a dispute can
be resolved through ICSID arbitration, namely:
a. There must be legal disputes that arise directly between the state and the foreign investor in
the field of investment;
b. the subject of the dispute is between a state party and a national of another state party;
c. There must be consent from the parties to resolve the dispute through ICSID.
What is quite interesting about this convention is that although the arbitral award is final
and binding or cannot be subject to legal remedies, such as appeal, cassation, or judicial
review, the arbitral award can be canceled by forming a committee. This causes parties who
bring their disputes to ICSID arbitration to lack legal certainty.
E.
Arbitration in the Perspective of Lawrence Friedman's Legal System Theory:
In this section, we will explain the existence of the arbitration institution from the perspective
of Lawrence Friedman's legal system theory. This discussion is intended to look at some
important aspects that exist in the arbitration institution as a legal system. Then, with this
discussion, it is hoped that it can be understood that the existence of arbitration does have a
positive effect (needed) on efforts to resolve international business transaction disputes more
adequately.
1.
About Structure:
Seen from the point of view of its structure, arbitration as a dispute resolution structure can be
said to be quite capable of the parties to the dispute who use it. In a formal structure, in the
Indonesian context, the arbitration mechanism is contained in the Indonesian National
Arbitration Board (BANI).
The procedures applied by BANI in resolving disputes are regulated in Law Number 30
Year 1999. What is actually interesting from a structural point of view is that BANI applies
the principle of an organization that is not large (fat), but rich in functions. The BANI
structure is very different from the court structure in general in resolving disputes.
For example, in the scope of the general judiciary, a dispute that enters to be examined
and adjudicated will take a long path, namely entering the district court as the court of first
instance, continuing to the high court as the court of appeal, and can continue to the Supreme
Court as the court of cassation. Even after cassation, a dispute can still proceed to the review
mechanism which also takes place at the Supreme Court.
This is very different from what takes place in arbitration, in this case BANI. In BANI,
structures related to dispute resolution only take place in one place, namely BANI itself. The
decision produced through the arbitration process, apart from being processed only in one
place, is also first and binding. This means that the arbitration award once rendered cannot be
requested for legal remedies against it, so that it can directly bind the parties to the dispute.
Regarding this, the legal basis can be seen in Article 60 of Law Number 30 of 1999 which
states that: "The arbitration award is final and has permanent legal force and is binding on
the parties".
2.
About Substance:
Substantially, the mechanism of arbitration has been regulated in the Indonesian legal system,
namely through Law Number 30 Year 1999. In connection with this substance, of course, one
of the interesting things to ask is at what points has Law Number 30 Year 1999 positively
accommodated the needs of dispute resolution practices, especially for those engaged in
international business transactions?
This is questionable considering that factually it turns out that arbitration mechanisms are
widely chosen and used, especially those engaged in business. Judging from the articles
contained in Law Number 30 Year 1999, it can be understood that arbitration institutions
provide a relatively flexible dispute resolution mechanism in terms of processing time, fast
(short) and with relatively straightforward procedures.
In principle, the parties to the dispute are free to determine the arbitration procedure used
in the examination of the dispute as long as it does not conflict with the provisions of Law
Number 30 Year 1999. This determination of the arbitration procedure must be agreed upon
expressly and in writing.
Dispute settlement through arbitration can be carried out using national or international
arbitration institutions based on the agreement of the parties. If the chosen institution has been
determined, the dispute settlement shall be conducted according to the rules and procedures of
the chosen institution unless otherwise stipulated by the parties. In the agreement, there must
be an agreement on the terms of the period and place of arbitration. If the period and place of
arbitration are not specified, the arbitrator or arbitral tribunal is authorized to extend the
period of its duties if:
a.
An application is made by one of the parties on a specific matter, for example because of an
interlocutory or incidental claim outside the subject matter of the dispute, such as a request for
security;
b.
as a result of a provisional or other interim ruling, or;
c.
deemed necessary by the arbitrator or arbitral tribunal for the purposes of the hearing.
Conversely, if the parties do not themselves determine the provisions regarding the
arbitration procedure to be used in the hearing and an arbitrator or arbitral tribunal has been
established, either appointed by the parties or appointed by the president of the district court,
the dispute will be examined and decided according to the provisions of Law No. 30/1999.
The hearing of disputes in arbitration must be conducted in writing, but it does not rule out the
possibility of the hearing of disputes being conducted orally if this is agreed by the parties or
deemed necessary by the arbitrator or arbitral tribunal.
Dispute resolution that is relatively flexible, fast (short) and with relatively short
procedures (not long-winded) through arbitration is of course very different from dispute
resolution through the court mechanism.
It is an "open secret" that dispute resolution through the courts will contradict the
principles of litigation in the courts, namely the principles of simplicity, speed, and low cost.
In fact, dispute resolution in court is complicated, protracted (takes a long time), and
relatively expensive.
The matters just described above, both with reference to the contents of Law No. 30/1999
and with reference to comparisons with court mechanisms in general, are justified arguments
to be able to say that in terms of dispute resolution, especially business disputes, it turns out
that arbitration more effectively performs its function as a dispute resolution law.
3.
About Culture:
This legal culture will relate to, among other things, the habits and perceptions
(understanding) of legal subjects. And related to the issue of arbitration, at least the habit or
perception (understanding) that emerges is the understanding that the parties involved in the
dispute want the dispute to be resolved quickly, simply, and at low cost. Of course, such a
thing can be understood, and it turns out that it has also been accommodated in Indonesian
legislation by making the principle of fast, simple and low cost as a principle in the practice of
dispute resolution through the courts. However, unfortunately, in practice it has not been able
to run optimally, so that finally gave rise to arbitration institutions as an alternative to out-of-
court dispute resolution.
So how can the understanding that has become part of the culture, namely the
understanding that parties involved in disputes want their disputes to be resolved quickly,
simply and at low cost, be accommodated by arbitration institutions?
When viewed from the flow (process) of the arbitration mechanism in resolving disputes,
it can be understood that the actual understanding of the legal subjects, especially business
people, so that their business activities are carried out not so disturbed even though the
business dispute being faced has been accommodated by the mechanism run by the arbitration
institution, which for Indonesia is facilitated by BANI. The argument for this can be based on
the relatively fast, simple and complete process when the arbitration institution is resolving
the dispute.
Therefore, it can be said that from a cultural point of view there has been a kind of
"mutualistic relationship" between the culture that has existed in the field of business
(activities) and the organizational culture of the arbitration institution.
The above presentation will also be interesting if it is connected to the circumstances of
the enactment of the ASEAN Economic Community (AEC). The AEC concept has been
pioneered since the informal meeting of ASEAN (Association of Southeast Asian Nations)
heads of state in Kuala Lumpur, on December 15, 1997. The AEC is the ultimate goal of
economic integration, as proclaimed in ASEAN Vision 2020, namely: "To create a stable,
prosperous and highly competitive ASEAN economic goods, services, investment, skill labor
economic development and reduced poverty and socio-economic disparities in year 2020".
Effectively, the AEC came into effect in 2015.
In the circumstances of the enactment of the AEC, with all the potential that can arise in
it, including the potential for disputes in the field of international trade, the existence of
arbitration institutions, especially BANI in the Indonesian context, becomes very important.
Because the arbitration institution with all its advantages is clearly more suitable if it is
positioned as a dispute resolution institution that is relatively simple, flexible, and fast in
resolving disputes in the field of international trade that may occur within the ASEAN region.
If examined again, the AEC really wants smooth or unimpeded business activities in the
ASEAN region. This is one of the demands and challenges for the existence of arbitration
institutions, including BANI.
Dispute resolution mechanisms through arbitration have been known for a long time, at
least they have been used since the Greek era. And based on history it can also be understood
that arbitration It turned out to be the first means of dispute settlement and inspired the
creation of permanent international judicial institutions.
The practice and activity of business transactions, especially on an international scale,
requires the support of the availability of dispute resolution mechanisms that are more
effective, brief, and efficient than institutions in the form of courts that have tended to be
ineffective, long-winded, inefficient, and even full of corrupt practices. To answer the needs
of the world (field) of international business transactions, the arbitration institution was
established and developed.
Currently, arbitration has become the most popular and most frequently used alternative
dispute resolution institution compared to other alternative dispute resolution institutions.
This is due to the many advantages that arbitration has. These advantages are, among others:
the procedure is straightforward and the decision can be reached in a relatively short time; the
law on procedure and evidence is more flexible, the parties can choose which law to apply to
the arbitration process; the parties can choose their own arbitrators who are considered
qualified and who are experts in their fields; arbitration decisions are generally final and
binding (without having to appeal or cassation); and dispute resolution through arbitration is
also considered to produce a compromise decision, which is acceptable to both parties to the
dispute (win-win solution).
When viewed from the perspective of Lawrence Friedman's legal system theory, the
existence of arbitration institutions and their functions as alternative dispute resolution outside
the court mechanism can be understood as follows:
Seen from the point of view of its structure, the arbitration institution as a dispute resolution
structure can be said to be quite capable, even relatively more favorable for the parties to the
dispute who use it. In a formal structure, in the Indonesian context, the arbitration mechanism
is contained in the Indonesian National Arbitration Board (BANI), whose procedures are
based on or based on the provisions of Law Number 30 of 1999.
Structurally, the arbitration institution in Indonesia, BANI, applies the principle of an
organization that is not large (fat), but rich in functions. Of course, the BANI structure is very
different from the court structure in general in resolving disputes.
Then in substance, the arbitration mechanism has been regulated in the Indonesian legal
system, namely regulated through Law Number 30 of 1999. Judging from the articles
contained in Law Number 30 Year 1999, it can be understood that the arbitration institution
provides a relatively flexible dispute resolution mechanism in terms of processing time, fast
(short) and with relatively short procedures (not long-winded).
Dispute resolution that is relatively flexible, fast (short) and with relatively
straightforward procedures through arbitration is certainly very different from dispute
resolution through the court mechanism. Furthermore, with regard to culture, it can be seen
that from a cultural point of view there has been a kind of "mutualistic relationship" between
the culture that has existed in the field of business (activities) and the organizational culture of
the arbitration institution.
When viewed from the flow (process) of the arbitration mechanism in resolving disputes,
it can be understood that in fact the understanding (perception) which is part of the culture of
the legal subjects, especially business people, so that their business activities are not disrupted
even though there is a business dispute being faced has been accommodated by the
mechanism run by the arbitration institution. Because the arbitration institution has provided a
dispute resolution mechanism that is relatively more flexible in terms of processing time, fast
(short) and with procedures that are relatively not long (not wordy).
Talking about the international community when it comes to economic interests, the
international community is divided into developing countries and developed countries. It is
human nature that humans cannot live alone, must live together in an organized society to
achieve common goals. In order for their goals to be achieved properly, and in their efforts do
not always clash with interests, a norm is needed that regulates the prosperity of the people.
Economic growth is a development goal, and to achieve it, economic growth must be
increased. As J.D. Nyhart stated, that: "Economic development is the result of all the forces
and energies in a country which collectively its per capita," meaning that economic growth is
the result of all the forces and energies of a country that can collectively increase per capita
income. Between the legal system and the economic system of a country there is a very close
relationship and mutual influence. On the one hand, the renewal of the rationale in the
economic field also changes and determines the basis of the legal system concerned. Good
enforcement of legal principles will also facilitate the formation of the desired economic
structure. Conversely, poor enforcement of legal principles will actually hinder the creation of
the aspired economic structure. Facing the development of the world today that leads to
changes that cross the territorial boundaries of the state, it would appear that the rule of law
must also change. Globalization that hit the world, both industrialized and developing
countries is the progress of the world of technology that needs to be balanced with rules that
are able to protect the consequences of globalization so that it is less appropriate if the attitude
insists on upholding the existing rules of law to be maintained, while the problems faced have
developed asking for management that changes as well. Transactions or trade relations take
many forms, from the sale and purchase of goods, delivery and receipt of goods, production
of goods and services based on a contract, and others.
In general, in addition to agreeing on the institution or forum that will resolve the dispute,
the parties also need to agree on what law will be applied by the new judicial body agreed by
the parties. All of these transactions are loaded with the potential to create disputes. Because
international trade generally involves 2 (two) countries where the laws of these countries are
different from each other, conflicts of law between the countries involved cannot be avoided.
Generally, trade disputes are often preceded by negotiated settlements. If this fails or is
unsuccessful, other means, such as settlement by court or arbitration, are pursued. The referral
of a dispute, either to a court or to arbitration, is often based on an agreement between the
parties. The usual step is to make an agreement or include a dispute resolution clause in the
contract or agreement they make, either to the court or to an arbitration body. The legal basis
for the forum or dispute resolution body that will handle the dispute is the agreement of the
parties. The agreement is made either at the time the contract is signed or after the dispute
arises. Usually, the parties' failure to determine the forum will result in difficulties in
resolving the dispute because the lack of choice of forum will be a strong reason for each
forum to declare itself authorized to examine a dispute. Typically in the legal system
(common law) is known as the concept of long arm jurisdiction. Under this concept, a court
can declare its authority to accept any dispute brought before it even though the relationship
between the court and the dispute is very thin. For example, judicial bodies in the United
States and the United Kingdom often accept disputes that parties bring before them even
though the relationship or connection between the dispute and the judicial body is very small.
For example, the respondent has a business in the United States or the contract expressly or
tacitly refers to one of the states of the United States or English law. In addition to a court
forum or arbitral body, parties may also submit their disputes to alternative means of dispute
resolution, commonly known as ADR (Alternative Dispute Resolution) or APS (Alternative
Dispute Resolution). Alternative arrangements here can be alternative means in addition to the
courts. It can also mean alternative resolution in general, namely the various alternatives to
dispute resolution that the parties use, including alternative resolution through the courts.
Usually, the clause also includes or states the law to be applied by the dispute resolution body.
In international trade law, the principles of international trade dispute settlement can be stated
as follows:
a.
Principle of Agreement of the Parties (Consensus):
The principle of agreement of the parties is a fundamental principle in the settlement of
international trade disputes. Principle This is the basis for whether or not a dispute resolution
process is implemented. This principle can also be the basis for whether an ongoing dispute
resolution process is terminated. Thus, this principle is essential. Judicial bodies (including
arbitration) must respect what the parties have agreed. Included within the scope of this notion
of agreement are: 1) that one or both parties do not attempt to deceive, pressure or mislead the
other party; and 2) that changes to the agreement must come from the agreement of both
parties. This means that termination of the agreement or revision of the contents of the
agreement must also be based on the agreement of both parties.
b.
Principle of Freedom to Choose Means of Dispute Resolution:
The second important principle is the principle that the parties have full freedom to determine
and choose the means or mechanism by which their dispute is resolved (principle of free
choice of means). This principle is contained, among others, in Article 7 of The UNCITRAL
Model Law on International Commercial Arbitration. This article contains a definition of an
arbitration agreement, which is an agreement to submit a dispute to an arbitration body.
According to this article, the submission of a dispute to arbitration is an agreement or
agreement of the parties. This means that the submission of a dispute to an arbitral body must
be based on the parties' freedom of choice.
c.
Principle of Freedom of Choice of Law:
Another important principle is the principle of the parties' freedom to determine for
themselves what law will be applied (if the dispute is resolved) by the judicial body
(arbitration) to the subject matter of the dispute. This freedom of the parties to determine the
law includes the freedom to choose equity and propriety (ex aequo et bono). This latter
principle is the source from which a court will decide a dispute based on principles of
fairness, propriety or reasonableness of a dispute resolution. An example of this freedom of
choice that must be respected by judicial bodies is Article 28 paragraph (1) of the UNCITRAL
Model Law on International Commercial Arbitration, which is as follows: "The arbitral
tribunal shall decide the dispute in accordance with such rules of law as chosen by the parties
as applicable to the substance of the dispute, any designation of the law or legal system of a
given state shall be construed, unless otherwise expressed, as directly referring to the
substantive law of that state and not to its conflict of laws rules".
d.
Principle of Good Faith:
The principle of good faith can be said to be the fundamental and most central principle in
dispute resolution. This principle requires and obliges the good faith of the parties in resolving
their disputes. In dispute resolution, this principle is reflected in two stages. First, the
principle of good faith is required to prevent disputes from arising that could affect good
relations between states. Second, this principle is required when the parties settle their
disputes through the means of dispute resolution known in international (trade) law, namely
negotiation, mediation, conciliation, arbitration, courts, or other means of the parties' choice.
e.
Principle of Exhaustion of Local Remedies:
The principle of exhaustion of local remedies was originally born from the principle of
customary international law. In its efforts to formulate the regulation of this principle, the UN
International Law Commission (ILC) contains specific rules regarding this principle in Article
22 of the ILC Draft Articles on State Responsibility. Article 22 states as follows: "When the
conduct of a state has created a situation not in conformity with the result of it by an
international obligation concerning the treatment too be accorded to aliens, whether natural
or juridical persons, but the obligation allows that this or an equivalent result may
nevertheless be achieved by subsequent conduct of the state, there is a breach of the
obligation only if the aliens concerned have exhausted the effective local remedies available
to them without obtaining the treatment called for by the obligation or, where that is not
possible, an equivalent treatment". According to this principle, customary international law
provides that before parties submit their disputes to an international tribunal, dispute
resolution measures available or provided for by a country's national law must first be pursued
(exhausted). In the dispute The Interhandel Case (1959), the International Court of Justice
affirmed:
"Before resort may be had to an international court ... the state where the violation occurred
should have an opportunity to redress it by its own means, within the framework of its own
domestic legal system".
The era of globalization began with the rise of information technology. Therefore, in
response to this reality, the potential natural resources of a nation can no longer lead the
nation to become a welfare state. On the contrary, countries that do not have or have few
natural resources can actually realize a sense of justice and welfare for their people. The
forum for dispute resolution in international trade law is in principle the same as the forum
known in (international) dispute resolution law in general. These forums are negotiation,
inquiry, mediation, conciliation, arbitration, settlement by law or by court, or other dispute
resolution methods chosen and agreed upon by the parties. The above methods of dispute
resolution have been recognized in various countries and legal systems in the world. These
methods are seen as an integral part of dispute resolution recognized in the legal system. For
example, the national law of Indonesia can be found in Article 6 of Law Number 30 of 1999
concerning Arbitration and Alternative Dispute Resolution. Other countries are the United
States, the United Kingdom, and Australia.
A brief description of these forums follows. Not all forums are discussed, but will be
limited to negotiation, mediation, conciliation, courts and arbitration. Inquiries or other means
agreed by the parties are not included.
a.
Negotiation:
Negotiation is the most basic and oldest form of dispute resolution. Negotiated settlements are
the most important. Many disputes are resolved every day by these negotiations without any
publicity or attracting public attention. According to Munir, negotiation is a process of
bargaining or talks to reach an agreement on a particular issue between the parties. The main
reason is that this way, the parties can supervise the dispute resolution procedure. Any
settlement is based on the agreement or consensus of the parties. The main disadvantages of
using this method to resolve disputes are: First, when the parties are unequally situated. One
party is strong and the other is weak. In this situation, one of the strong parties is in a position
to pressure the other party. This often happens when two parties negotiate to settle a dispute
between them. Second, that the process of negotiation is often slow and can take a long time.
This is mainly due to the difficulty of the issues that arise between the parties. In addition,
there is rarely a time-limit requirement for the parties to settle their disputes through
negotiation. A third drawback is when a party is overly rigid in its stance. This can make the
negotiation process unproductive. Regarding the conduct of negotiations, the procedures
involved need to be distinguished as follows: First, negotiation is used when a dispute has not
yet been born (also known as consultation); and second, negotiation is used when a dispute
has been born, this negotiation procedure is a process of dispute resolution by the parties (in
the sense of negotiation).
b.
Mediation:
Mediation is a method of settlement through a third party. The third party can be an individual
(employer) or an institution or a professional or trade organization. The mediator actively
participates in the negotiation process. Usually he or she, in his or her capacity as a neutral
party, attempts to reconcile the parties by providing dispute resolution suggestions. According
to Munir, mediation is a dispute resolution process in the form of negotiations to solve
problems through a neutral and impartial outsider who will work with the disputing parties to
help find a solution to resolve the dispute to the satisfaction of both parties. This third party is
called a mediator. Proposals for settlement through mediation is rather informal. These
proposals are made on the basis of information provided by the parties, rather than on their
own investigation. If the proposal is not accepted, the mediator can still continue his
mediation function by making new proposals. Therefore, one of the main functions of the
mediator is to seek solutions, identify matters on which the parties can agree and make
proposals that will bring the dispute to an end. As in negotiation, there are no specific
procedures to be followed in the mediation process. The parties are free to determine the
procedure. What is important is the agreement of the parties starting from the process
(selection) of the mediation method, accepting or not accepting the suggestions made by the
mediator, to the termination of the mediator's duties. When the parties fail to settle their
dispute through mediation, they can still submit it to a binding forum, namely settlement
through the law, namely court or arbitration.
c.
Conciliation:
Conciliation is similar to mediation. Both involve a third party to resolve the dispute
amicably. Conciliation and mediation are difficult to distinguish. The terms are often used
interchangeably. Conciliation can also be completed by an individual or a body called a
conciliation body or commission. Conciliation commissions can be institutionalized or ad hoc
(temporary) and serve to set the terms of a settlement that is acceptable to the parties.
However, its decision is not binding on the parties. The proceedings of a conciliation
commission usually consist of two stages, a written stage and an oral stage. First, the dispute
(described in writing) is submitted to the conciliation body. It will then hear oral testimony
from the parties. The parties may be present at the hearing stage, but may also be represented
by proxies. Based on the facts obtained, the conciliator or conciliation body will submit its
report to the parties along with its conclusions and proposals for dispute resolution. Again,
these proposals are not binding. Because Therefore, whether or not the proposal is accepted
depends entirely on the parties. An example of an institutionalized conciliation commission is
the body established by the World Bank to resolve foreign investment disputes, The ICSID
Rules of Procedure for Conciliation Proceedings (Conciliation Rules). However, in practice,
it is less popular. Since its establishment (1966), the ICSID conciliation body has only
received two cases. The first case was accepted on October 5, 1982. (Thus, a 16-year void).
However, before the conciliation body was formed, the parties agreed to end the dispute. The
second case, Tesoro Petroleum Corp. v. Government of Trinidad and Tobago was accepted in
1983. This case was successfully settled in 1985 after the parties agreed to accept the
proposals made by the conciliator.
d.
Arbitration:
Conventional dispute resolution is done through a body called a court. For hundreds of years
and even thousands of years, these court bodies have been working. However, over time,
these courts have become increasingly confined within juridical walls that are difficult for
justitiabelen (justice seekers) to penetrate, especially if the justice seekers are business people,
with business-related disputes. Thus, other alternatives to settle disputes have begun to be
considered, including arbitration. Arbitration is the voluntary submission of a dispute to a
neutral third party. This third party can be an individual, institutionalized arbitration, or
temporary (ad hoc) arbitration. Arbitration bodies have become increasingly popular.
Nowadays, arbitration is increasingly used in resolving national and international trade
disputes. According to Munir, what is meant by arbitration is a way of resolving private civil
disputes outside the public courts based on an arbitration contract made in writing by the
parties to the dispute. Where the dispute resolution (arbitrator) is chosen by the parties
concerned, consisting of people who have no interest in the case concerned, which people will
examine and resolve the dispute. ruling on the dispute. Whereas international arbitration is
both institutional arbitration and ad hoc arbitration, involving parties from 2 different
countries.
The main reasons why these arbitral bodies are increasingly being utilized are as follows:
a.
The first and foremost advantage of dispute resolution through arbitration is that it is
relatively faster than litigation through the courts. In arbitration there is no appeal, cassation
or judicial review as we know in our judicial system. The arbitral award is final and binding.
This speed of resolution is much needed by the business world.
b.
Another advantage of dispute resolution through arbitration is its confidentiality, both the
confidentiality of the proceedings and the confidentiality of the arbitral award.
c.
In a settlement through arbitration, the parties have the freedom to choose their "judge"
(arbitrator) who they think is neutral and an expert or specialist on the subject matter of the
dispute they face. The selection of arbitrators is entirely up to the agreement of the parties.
Usually the arbitrators chosen are those who are not only experts, but also they do not always
have to be legal experts. He may have expertise in other fields. He could be an engineer, a
company manager, an insurance expert, a banking expert, and so on.
d.
Another advantage of this arbitral body is that it allows the arbitrators to apply the dispute on
a fit and proper basis (if the parties so wish).
e.
In the case of international arbitration, the arbitral award is relatively more enforceable in
other countries than if the dispute is resolved through, for example, the courts. This is possible
partly because in the scope of international arbitration there is a special agreement on this
matter, namely the 1958 New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards.
The forum for dispute resolution in international trade law is in principle the same as the
forum recognized in (international) dispute resolution law in general. These are negotiation,
inquiry, mediation, conciliation, arbitration, judicial settlement, or other dispute resolution
methods chosen and agreed by the parties. Generally, trade disputes are often preceded by
negotiated settlement. If this fails or is unsuccessful, other means, such as court settlement or
arbitration, may be resorted to. The referral of a dispute, either to a court or to arbitration, is
often based on an agreement between the parties. The usual step is to make an agreement or
include a dispute resolution clause in the contract or agreement they make, either to a court or
to an arbitration body.
The times have brought many changes to aspects of life, such as information technology,
telecommunications, and trade. In cross-border trade, there are trade actors that have an
important role in running the world economy. These actors include the state,
nongovernmental organizations, and multinational corporations. So far, the state is still
considered the most important legal subject, because only the state has sovereignty. As a
result, legal regulations in the field of international trade have until now only been limited to
the state so that other legal subjects seem to be neglected.
Arbitration is the voluntary submission of a dispute to a neutral third party. This third
party can be an individual, institutionalized arbitration, or ad hoc arbitration. Ad hoc
arbitration is arbitration established specifically to resolve or decide a particular dispute.
However, it is important to note that the parties must fully understand the nature of arbitration
and formulate their own rules of procedure. Institutional arbitration is a permanent arbitration
body that will remain in existence even after the dispute has been resolved. Dispute resolution
through arbitration requires the existence of consent of both parties to the dispute to submit
the dispute to arbitration. This must first be satisfied before arbitration can exercise its
jurisdiction. In this arbitration settlement the parties are free to choose judges (arbitrators)
who they think are neutral and experts or specialists on the subject matter of the dispute they
are dealing with. Arbitration awards are also relatively more enforceable in other countries
than disputes resolved through, for example, the courts.
In addition to the advantages described above, in actual practice arbitration has
weaknesses. An arbitral award will completely lose its force if one of the parties or parties
involved in the dispute does not meet the requirements of bona fides (good faith). Therefore,
to minimize this, it must be complemented by improvements to the weaknesses of arbitration,
for example by ensuring the bona fides of the parties, the national law of a country regarding
the execution of an arbitration decision, and stipulating the arbitration clause carefully,
concisely and clearly regarding the arbitration forum that will be chosen to resolve the
dispute.
The use of arbitration as a dispute resolution forum for multinational companies provides
more advantages than disadvantages for the disputing parties. Arbitration procedures that are
faster and cheaper, and can guarantee the confidentiality of the arbitral award are things that
multinational companies that are involved in disputes need to consider. This is related to the
efficiency that is the nature of international business and the importance of maintaining the
good image of the multinational company in the eyes of the public, therefore arbitration
should be an alternative dispute resolution used by multinational companies.
Rapidly growing economic growth makes the trade and industrial system also advance
rapidly, both in national and international relations. This often triggers disputes between
business actors and businesses, which require the parties to resolve them, either through court
channels or out of court channels, so that it is expected not to disrupt the business climate
between the disputing parties. In terms of dispute resolution through out-of-court channels,
several alternative dispute resolutions are offered that provide convenience with a fast,
inexpensive, and well-resolved process, including through arbitration, negotiation, mediation,
and conciliation. For entrepreneurs, arbitration is the most attractive option to resolve disputes
in accordance with their wishes and needs. Thus, dispute resolution through arbitration is
specifically regulated in Legislation No. 30/1999 on Arbitration and Alternative Dispute
Resolution. The definition of arbitration according to the law is a way of resolving a civil
dispute outside the public courts based on an arbitration agreement made in writing by the
parties to the dispute. Meanwhile, the definition of an arbitration agreement is an agreement
in the form of an arbitration clause contained in a written agreement made by the parties
before a dispute arises, or a separate arbitration agreement made by the parties after a dispute
arises. In the Civil Code listed in Article 1320 as the conditions for the validity of an
agreement are agreement, capacity, matter, certainty and halal causa. In many civil
agreements, arbitration clauses are widely used as an option for dispute resolution. The legal
opinion given by the arbitration institution is binding, because the opinion given will become
an integral part of the main agreement. Any opinion that contradicts the legal opinion given
means a violation of the agreement (breach of contract / default). Therefore, it cannot be
challenged in any form of legal remedy.
F.
The Position of Arbitration as Non-Litigation:
After Indonesia's independence, to prevent a legal vacuum, Regulation Number 2 was issued
at that time, which in Article 1 states: "All state bodies and regulations that existed until the
establishment of the Republic of Indonesia on August 17, 1945 as long as a new one has not
been made according to the Constitution are still valid, provided that they do not conflict with
the Constitution".
Therefore, during that period, the existing provisions for dispute resolution through
arbitration still applied HIR, RBG and RV. In the parts of the Republic of Indonesia
controlled by the Dutch as a substitute for the Japanese courts, landrechter was established for
all people as an everyday court and appelraad as a court in civil matters of the second degree.
However, at the time of the Republic of Indonesia, the landrechter became a district court,
while the appelraad became a high court, in accordance with the provisions applicable in
areas that were never controlled by the Dutch Government. Furthermore, if we look at the
provisions of the 1950 Provisional Constitution, Article 142 states that: "The laws and
administrative regulations that already existed on August 17, 1950, remain in effect
unchanged as RI's own laws and regulations, as long as and only if these laws and
regulations are not revoked, supplemented, or amended by laws and administrative
regulations under the authority of this Constitution".
Institutionally, the history of arbitration development in Indonesia gained momentum in
1977 with the establishment of the National Arbitration Board on December 13, 1977. This
situation continued until the issuance of Law Number 30 of 1999 concerning Arbitration and
Alternative Dispute Resolution which is the foundation for non-litigation alternative dispute
resolution. In its development today, it has been widely used, especially by business actors
who prefer to resolve disputes through this arbitration route rather than having to go through
the general judicial process which is very inefficient and time-consuming and costly. To
better understand the arbitration body in today's arbitration characteristics, it is necessary to
know how the role of this arbitration body is. Arbitration institutions that have a very
important role in dispute resolution include the following: (a) that this arbitration body is a
way or method of dispute resolution; (b) the dispute is resolved by a third party and a neutral
party or arbitrator who is specifically appointed;
(c) that the arbitrators have the authority granted by the parties to the dispute; (d) the
arbitrators are expected to decide the dispute according to the law; (e) arbitration is a civil
judicial system meaning that the parties are the ones authorized to supervise it; (f) the decision
issued by the arbitral body is not an arbitral award (g) the decision of the arbitrators is binding
on the parties based on the agreement between them to submit the dispute to arbitration that
they will accept and voluntarily give effect to the decision; and (h) that in principle the
proceedings through the arbitral body and the award are independent and free from state
interference.
In the development of this globalization era, many disputes occur in the business world,
both in the fields of trade, economics, industry, and other businesses. This is inevitable due to
different interpretations, changes in the economic climate, unequal distribution of profits, and
also because of the greed of one party. However, often these disputes, disagreements, and
business disputes cannot be resolved quickly and satisfactorily. Protracted time processes and
high costs are often the obstacles that hamper the business, and this often happens in the
public court process. Including Indonesia, the general judicial process is very expensive, and
takes a long and convoluted time. So that many business people or entrepreneurs are more
likely to empower arbitration institutions in non-litigation dispute resolution than having to go
through the general judicial process, for reasons and factors that underlie business people
prefer to resolve disputes through arbitration institutions. The arbitration institution here is a
body chosen by the parties to the dispute to provide a decision on a particular dispute, the
institution can also provide a binding opinion regarding a certain legal relationship in the
event that no dispute has arisen. Arbitration here can be in the form of an arbitration clause
contained in a written agreement made by the parties before a dispute arises, or a separate
arbitration agreement made by the parties after a dispute arises. The following is an
explanation of the advantages and disadvantages of dispute resolution through arbitration.
G.
Types of Disputes under Arbitration Authority:
The object of the arbitration agreement (disputes to be resolved out of court through
arbitration institutions and / or alternative institutions other dispute resolution) according to
Article 5 paragraph 1 of Law Number 30 Year 1999 are only disputes in the field of trade and
regarding rights that according to the laws and regulations are fully controlled by the
disputing party.
The activities in the field of trade are, among others: commerce, banking, finance,
investment, industry, and intellectual property rights. Meanwhile, Article 5 paragraph 2 of the
Arbitration Law provides a negative formulation that disputes that are deemed unable to be
resolved through arbitration are disputes that according to the laws and regulations cannot be
reconciled as stipulated in the Civil Code Book III, Eighteenth Chapter, Articles 1851 to
1854, which reads as follows:
Article 1851: Peace is an agreement by which both parties, by delivering, promising or
withholding something, put an end to a pending case or prevent a case from arising. This
agreement is not valid unless it is made in writing.
Article 1852: To conclude a peace it is necessary that a person has the power to waive his
right to the matters set forth in the peace. Trustees and guardians cannot conclude a peace
except when they act in accordance with the provisions of the fifteenth and seventeenth
chapters of the First Book of this Code. The regional heads acting as such, as well as the
public institutions, cannot conclude a peace except in compliance with the procedures laid
down in the legislation concerning them.
Article 1853: Peace may be made in respect of civil interests arising from a crime or
misdemeanor. This peace does not in any way prevent the prosecution from prosecuting the
case.
Article 1854: Every peace shall be confined to the matter referred to therein, and the waiver
of all rights and claims mentioned therein shall be construed to mean only those rights and
claims which are connected with the dispute for which the peace was made. Thus, arbitration
is not applicable to matters within the scope of family law. Arbitration can only be applied to
commercial matters. For businessmen, arbitration is the most attractive option to resolve
disputes in accordance with their wants and needs.
H.
Enforcement of Arbitral Award:
The enforcement of arbitral awards can be divided into two, namely national arbitral awards
and international arbitral awards. National arbitration awards are arbitration awards, both ad
hoc and institutional, which are decided in the territory of the Republic of Indonesia.
Meanwhile, an international arbitral award is an award rendered by an arbitration institution
or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or an award of an
arbitration institution or individual arbitrator which according to the legal provisions of the
Republic of Indonesia is considered an international arbitral award.
First, national arbitration awards. The enforcement of national arbitration awards is
regulated in Articles 59-64 of Law Number 30 Year 1999. Basically, the parties must execute
the award voluntarily. In order for an arbitral award to be enforceable, it must be submitted
and registered with the registrar of the district court, by registering and submitting the original
sheet or an authentic copy of the national arbitral award by the arbitrator or his/her attorney to
the registrar of the district court, within 30 (thirty) days after the arbitral award is pronounced.
National arbitration awards are independent, final, and binding (like decisions that have
permanent legal force) so that the district court chairman is not allowed to examine the
reasons or considerations of the national arbitration award. The authority to examine that the
head of the district court has is limited to formally examining the national arbitration award
rendered by the arbitrator or arbitral tribunal.
Based on Article 62 of Law No. 30/1999, before giving an enforcement order, the
chairperson of the court shall first examine whether the arbitral award complies with Article 4
and Article 5, and is not contrary to decency and public order. If it does not comply, then the
chairman of the district court may reject the request for arbitration and against such rejection
no legal remedy is open.
Second, international arbitration awards. The enforcement of international arbitral awards
is based on Articles 65-69 of Law Number 30 Year 1999. Article 65 states: "Authorized to
handle the issue of recognition and enforcement of international arbitral awards is the
Central Jakarta District Court".
Article 66 explains in more detail that: "International arbitral awards are only recognized
and enforceable in the jurisdiction of the Republic of Indonesia, if they meet the following
conditions: (a) the international arbitral award is rendered by an arbitrator or arbitral
tribunal in a country with which Indonesia is bound to an agreement, either bilaterally or
multilaterally, regarding the recognition and enforcement of international arbitral awards;
(b) the international arbitral award as referred to in letter a is limited to awards which
according to the provisions of Indonesian law fall within the scope of trade law; (c) the
international arbitral award as referred to in letter a can only be enforced in Indonesia
limited to awards that are not contrary to public order; (d) the international arbitral award
can be enforced in Indonesia after obtaining an execution from the Chairman of the Central
Jakarta District Court; and
(e) the international arbitration award as referred to in letter a which involves the State of the
Republic of Indonesia as one of the parties to the dispute, can only be implemented after
obtaining execution from the Supreme Court of the Republic of Indonesia which is then
delegated to the Central Jakarta District Court".
The technicalities of enforcing international arbitral awards are regulated in Article 67,
which in paragraph (1) states: "Application for enforcement of an international arbitral award
shall be made after the award has been submitted and registered by the arbitrator or his
attorney to the Registrar of the Central Jakarta District Court". Paragraph (2) states:
"Submission of the application file for enforcement as referred to in paragraph (1) must be
accompanied by:
(a) the original or an authentic copy of the international arbitral award, in accordance with
the provisions regarding the authentication of foreign documents, and its official translation
in Indonesian; (b) the original or an authentic copy of the agreement on which the
international arbitral award is based in accordance with the provisions regarding the
authentication of foreign documents, and its official translation in Indonesian; and (c) a
statement from the diplomatic representative of the Republic of Indonesia in the country
where the international arbitral award is stipulated, which is states that the applicant country
is bound to an agreement, either bilaterally or multilaterally with the Republic of Indonesia
regarding the recognition and enforcement of international arbitral awards".
An international arbitration execution decision can only be executed by the decision of
the Chairman of the Central Jakarta District Court in the form of an execution order
(executuator). After the Chairman of the Central Jakarta District Court gives an execution
order, further implementation is delegated to the chairman of the district court which is
relatively authorized to carry it out. Confiscation of execution can be carried out on the
property and goods belonging to the execution respondent where the procedure for
confiscation and execution of the decision follows the procedure as specified in the Civil
Procedure Law.
I.
Strength of Arbitration Award:
The arbitral award is final and has permanent legal force and is binding on the parties. Thus,
no appeal, cassation, or judicial review may be filed against the arbitration award. If any party
is not willing to execute the arbitration award voluntarily, then: (1) the arbitral award shall be
executed based on the execution order of the chairman of the local district court at the request
of one of the interested parties; (2) the interested party may submit a complaint to the board of
the association/organization of which it is a member; and (3) the association/organization of
which the interested party is a member may submit a complaint to the Capital Market
Supervisory Agency and the association/organization of which the party unwilling to execute
the arbitral award voluntarily is a member.
