THE AUTHOR:
Eddy Marek Leks, Partner of Leks&Co and Arbitrator at BANI Arbitration Center
The courts generally are not allowed to intervene in the arbitration proceeding. This is part of the non-interference principle in arbitration. The same applies to the state of Indonesia as a signatory of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”). Indonesia has legalized its adherence to the Convention since 1981 by the enactment of Presidential Decision No. 34 of 1981. Indonesia has also promulgated the arbitration and alternative dispute resolution law in 1999 (Arbitration and ADR Law). The principle of non-interference is adopted but not without exception. This article will discuss the law on the non-interference principle, provisions on setting aside the arbitral award and the case law in Indonesian courts with a focus on Indonesian law and other relevant laws.
Article 11 para (2) stipulates, “The District Court shall decline and not intervene in a dispute resolution that has been determined through arbitration, except for certain matters as stipulated in this Law.” Similar provisions are stipulated in Article II (3) of the New York Convention, “The court of a Contracting State, … refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” From these two provisions, the principle of non-interference, which can also be considered as a universal principle, is recognized, and upheld by Indonesian courts.
The non-interference principle stands as a cornerstone of both domestic and international arbitration, fundamentally tied to the finality and binding nature of arbitral awards. The non-interference principle thereby prohibits courts from scrutinizing the substantive reasoning of arbitral tribunals so that such award is “truly independent, final, and binding” (Article 62 para (4) of Arbitration and ADR Law). But as outlined before, this principle is not without exception.
Article V para (1) and (2) of the New York Convention has given some exceptions. The recognition and enforcement of an award may be refused if:
- the parties to an arbitration agreement are under some incapacity, the agreement is invalid;
- no proper notice of the appointment of the arbitrator or preceding or lacking due process of law;
- the award exceeding the scope of arbitration as agreed;
- the composition of the arbitral tribunal or procedure violates the agreement of the parties or the law of the seat;
- the award has been set aside or has not yet become binding.
Further, para (2) of the same provision stipulates that such refusal of enforcement may occur when the subject matter of a dispute is not arbitrable, or such enforcement would be contrary to the public policy of the country enforcing such award.
The Arbitration and ADR Law, on the other hand, specifically for domestic arbitration award, differentiates the enforcement and the annulment of the awards. There are only three elements to cancel or annul a domestic arbitration award when the award contains:
- a fake document submitted or declared as fake after the award is granted
- a decisive document is found after the award is granted which had been hidden or
- the award was rendered because of deceit by one party.
These three elements are not included in the New York Convention. With regards to enforcement of domestic arbitration awards, Article 62 para (2) of the Arbitration and ADR Law stipulates that prior to order an enforcement, the Chairman of the District Court will have to first examine whether the award is based on an arbitration agreement, the subject matter is arbitrable, no violation of decency and public policy. A similar provision applies to the international arbitration award which may be enforced only to the extent that such award does not violate the public policy. Thus, under Indonesian law, the setting aside procedure of domestic arbitration award consists of two divisions, the annulment, and the challenge of enforcement.
There was a case in Indonesia in which the public policy was used as a ground by the Indonesian court not to enforce the international arbitral award issued by the tribunal under SIAC. In Astro Nusantara International B.V. et al. v PT Ayunda Prima Mitra et al, the District Court of Central Jakarta, as the authorized court to issue an order to enforce an international arbitral award declared that the award issued by SIAC was not enforceable due to violation of public policy. The court initially considered that the award containing (i) instructions to cease the court proceeding in Indonesia (ii) directives to cease financing the court proceeding in Indonesia and (iii) prohibitions on applying for court proceedings in Indonesia clearly constituted an intervention in an Indonesian court proceeding by a foreign institution. This intervention violated civil procedural law, specifically the principles of “poin’t de interest poin’t de action,” and “audi et alteram partem.” On these grounds, the court declared that such award violates public policy as it infringed upon the fundamental aspects of the whole legal system and the people of Indonesia, the prevailing laws of Indonesia, and the sovereignty of the state. Additionally, the court declared that the arbitration agreement between the parties violated both the freedom of contract principle and legal cause requirements stipulated under Indonesian contract law. Accordingly, the court declared the award unenforceable.
The task of defining the scope and meaning of “public policy” presents a significant challenge. In reaching its conclusion, the court did not independently construct this definition but rather drew from various sources. While this decision may face objections and risk creating an impression of unfriendliness toward international arbitration, it serves as a clear signal to the arbitration community that “public policy” is a crucial aspect of a state’s sovereignty, and this has been, remain, and will likely to be a legitimate ground for challenging the enforcement of a domestic or international arbitral award.
ABOUT THE AUTHOR
Dr Eddy Marek Leks, FCIArb, is the founder and managing partner of Leks&Co. He has obtained his doctorate degree in philosophy (Jurisprudence) and has been practising law for more than 15 years and is a registered arbitrator of BANI Arbitration Centre. Aside to his practice, he is also a lecturer at Universitas Atma Jaya, and author and editor of several legal books; as well as being a contributor to Lexology on Litigation. He led the contribution on the ICLG Construction and Engineering Law 2023 and ICLG International Arbitration 2024. He was requested as a legal expert on contract/commercial law and real estate law before the court.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
