Arbitration Agreements

1. What, if any, are the legal requirements of an arbitration agreement under the laws of Indonesia?

The principle source of the law of arbitration in Indonesia is Law No 30. of 1999 concerning Arbitration and Alternative Dispute Resolution (August 12, 1999) (the "Indonesian Arbitration Law").

Where appropriate, this paper will also address the Rules of Arbitration Procedure of the Indonesian National Arbitration Body (Badan Arbitrasa Nasional Indonesia or "BANI") (the "BANI Rules").

The legal requirements of an arbitration agreement under the Indonesian Arbitration Law are as follows :

• The agreement to arbitrate must be in writing and signed by the parties or in notarial deed form (Articles 4(2). 9(1) and 9(2) of the Indonesian Arbitration Law).
• If the agreement is made prior to the dispute, the agreement (i.e.the arbitration clause) must clearly state that all disputes arising out of a particular legal relationship between the parties shall be settled through arbitration (Article 2 of the Indonesian Arbitration Law).
• If the agreement is made after a dispute arises, the agreement must contain the following :

          (i)     The subject matter of the dispute;
          (ii)    The full names and addresses of the parties;
          (iii)   The full name(s) and residential address(es) of the arbitrator or the members of the tribunal;
          (iv)   The place where the arbitrator or the tribunal shall make its/their award;
          (v)    The full name of the secretary to the arbitrator or the tribunal;
          (vi)   The time period in which the arbitration is to be completed;
          (vii)   A statement from the arbitrator(s) accepting appointment as such; and
          (viii)  A statement from the disputing parties that they will bear all costs of the arbitration.

To avoid any unnecessary legal risks, the arbitration clause should be in Indonesian if both parties to the agreement are Indonesian, although the agreement may be in English or a national language used by one of the parties with an Indonesian translation if at least one of the parties is foreign.

2. What other elements ought to be incorporated in an arbitration agreement?

Based on Indonesian arbitration practice, an arbitration agreement should also specify :
(i)    The arbitration rules (if any) to be followed;
(ii)   The language of proceedings;
(iii)  The place of arbitration; and
(iv)  Whether the award is to be made on the basis of law or fairness and appropriateness (ex aequo et bono).
 
3. What has been the approach of the national courts to the enforcement of arbitration agreements?

A written arbitration agreement obviates the rights or the parties to bring a dispute in the District Courts, which would otherwise have jurisdiction over civil disputes (Article 11(1) of the Indonesian Arbitration Law). The District Courts have no authority to hear disputes where parties are bound by an arbitration agreement (Article 3 of th Indonesian Arbitration Law), and are required to reject, and not participate in the resolution of, disputes which have already been adjudicated by arbitration, except in limited circumstances as provided in the Arbitration Law (Article 11(2) of the Indonesian Arbitration Law).
Indonesian courts honour arbitration agreements with increasing frequency. It is nonetheless not uncommon for parties who lose (or expect to lose) an arbotration, and in particular an international arbitration, to attempt to bypass an arbitration agreement or award by bringing a suit in a District Court on a theory of tort or fraud. The argument is that the purpoted tort or fraud renders the arbitration agreement unenforceable that a suit on this basis may initially enjoy success in the District Court, although this is not always the case and decisions along these lines are frequently reversed on appeal and/or cassation.