THE AUTHOR:
Eddy Marek Leks, Partner of Leks&Co and Arbitrator at BANI Arbitration Center
Early this year, the Constitutional Court reviewed the Indonesian Arbitration Law of 1999 specifically on the definition of ‘international arbitral award’. Under Article 1(9): “A foreign arbitral award is a decision rendered by an arbitral institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or a decision rendered by an arbitral institution or individual arbitrator that, according to the legal provisions of the Republic of Indonesia is considered as a foreign arbitral award’. In summary, the Court ruled that the word ‘considered’ creates legal uncertainty and therefore should be removed and should be read as “[…] or a decision rendered by an arbitral institution or individual arbitrator that, according to the legal provisions of the Republic of Indonesia is a foreign arbitral award”.
The Court has not actually granted the relief sought in the judicial review. The applicant sought a declaration from the Court that the phrase “that, according to the legal provisions of the Republic of Indonesia is considered as a foreign arbitral award” violates the principle of legal certainty and lacks legally binding power unless interpreted as an international arbitral award, meaning an award rendered by an arbitral institution or a sole arbitrator outside the territory of the Republic of Indonesia. Essentially, the applicant aimed for the Court to affirm the applicability of the narrow territorial principle and eliminate the wide territorial principle from the Indonesian Arbitration Law. Conversely, the Court only removed the term ‘considered’ from the definition of ‘international arbitral award.’
The applicant highlights a perceived contradiction between two Supreme Court decisions, as also noted by expert Yetty Komalasari Dewi. Specifically, the decisions in PT Lirik Petroleum v. PT Pertamina and PT Pertamina EP (Decision No. 904 K/Pdt.Sus/2009) and PT Indiratex Spindo v. Everseason Enterprises Ltd. (Decision No. 219 B/Pdt.Sus-Arbt/2016), as well as PT Daya Mandiri Resources and PT Dayaindo Resources Internasional Tbk. v. Suek AG (Decision No. 674 B/Pdt.Sus-Arbt/2014), appear to diverge in their interpretation of international arbitral awards. In PT Indiratex Spindo v. Everseason Enterprises Ltd., the Supreme Court recognizes an international arbitral award as one rendered outside Indonesia, subject to annulment by the courts of the country where it was issued. In contrast, PT Lirik Petroleum v. PT Pertamina and PT Pertamina EP suggests that the presence of a ‘foreign element’ in the arbitration renders the award international in character. The applicant argues that this discrepancy creates uncertainty.
However, a closer examination by the author reveals that these decisions may not be contradictory but rather reflect two distinct interpretations of ‘foreign arbitral award’ under Indonesian law. The law allows for both a narrow territorial principle (awards rendered outside Indonesia) and a wide territorial principle (awards considered foreign under Indonesian law). Therefore, these decisions can be seen as applications of these different perspectives, rather than contradictions.
In its analysis, the Court discusses the conflict between the narrow territorial principle—where an award is recognized and enforced beyond the state’s territory—and the wide territorial principle—where an award is classified as national or international based on the law governing its recognition and enforcement). The Court explains that this debate has occurred in the discussion on the formulation of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”). Civil law countries support the nationality of the award principle (i.e., wide territorial principle), while common law countries prefer the narrow territorial principle. The middle ground can be found in the second sentence of Article I (1), which states, “It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought”. Ultimately, the Court explains that the definition and scope of international arbitral award in Indonesia depend on the territorial principle and other factors as outlined in the prevailing laws and regulations. In other words, despite the removal of ‘considered’, the understanding of the term of ‘international arbitral award’ remains unchaged.
The author considers that the Court should have made a definitive ruling on the relief sought by the applicant. Either clearly establishing the wide territorial principle as applicable and dismissing alternatives considerations or rejecting the claim entirely. However, since the Court mereley removed the word ‘considered’ without providing the requested clarity, the author considers this limited modification as inadequate and unnecessary.
If the word ‘considered’ creates uncertainty, a more constructive approach would be to replace it with a cleared term such as ‘determined’, rather than just removing it. Moreover, ‘considered’ is a standard legal terminology widely used in many legal drafting, whether it is laws and regulations or agreements, and is often interchangeable with ‘deemed’. The term does not automatically create legal uncertainty. For example, the New York Convention itself employs this language. Furthermore, if Indonesia had implemented regulations defining the types and criteria for an award to be deemed as ‘international’ (regardless of whether parties agree to seat their arbitration in Indonesia), the word ‘considered’ would provide certainty rather than ambiguity. In the case of Indonesia, established jurisprudence already exists, including the precedent set in Pertamina v. Lirik Petroleum, Judgment of the Supreme Court of the Republic of Indonesia, 29 June 2012, which consistently applies the second interpretation of ‘international arbitral award.
Therefore, the removal of ‘considered’ does not add any substantive value to existing practice and may instead generate confusion about the practical impact the Court’s decision on the arbitration landscape in Indonesia.
With over two decades of implementation, Indonesia’s Arbitration Law has revealed limitations, particularly in its provisions governing international arbitral awards. The extent to which institutions can determine their own arbitration rules, potentially deviating from statutory requirements, raises important questions. Given the evolving landscape of arbitration practice and the potential for outdated regulations, updating the arbitration mechanism and procedure is crucial. Furthermore, aligning Indonesia’s arbitration law with the UNCITRAL Model Law on International Commercial Arbitration could enhance its effectiveness. As the law is slated for revision as part of the 176 priority laws for 2025-2029, it is hoped that these considerations will be taken into account to modernize and strengthen Indonesia’s arbitration framework.
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, the author and editor of several legal books. He led the contribution on the ICLG Construction and Engineering Law 2023 and ICLG International Arbitration 2024 as well as Construction Arbitration by Global Arbitration Review. 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.
