Questioning the Pros and Cons of Arbitration in Indonesia

 In Arbitrase

Arbitration is now a quite popular method of alternative dispute resolution among businesses. The rule of arbitration in Indonesia are regulated in Law Number 30 Year 1999 on Arbitration and Alternative Dispute Resolution (hereinafter Arbitration Law).
It is said in many literatures that the advantages of arbitration compared to judiciary are:

    1. Confidentiality of the matter in dispute.

Arbitration and its tribunal are bound by agreement to ensure the confidentiality of all disputes they deal with. Thus, the disputes that are being resolved in arbitration will not come up in the media and public. It is very advantageous for businesses, particularly for the businesses related to the end customers. Disputes are very bad for their business.

    1. The arbitration hearing is done on time as scheduled.

Punctuality will result in prevention of delays caused by procedural and administrative matters. It means a lot for businesses as it is not time-wasting and more cost-effective, particularly for those who use lawyer services in hourly basis.

    1. Arbitrators are not only experienced, but also expert in matter of business dispute.

One of the requirements to become an arbitrator is to have at least 15 years of experience in an area of expertise. Hence, with hours of practice and focus on its expertise, an arbitrator is considered to have more qualified skills than a court judge dealing with various civil and criminal cases. Moreover, both parties may choose the arbitrator who will resolve their dispute in accordance with arbitrator’s background and expertise.

    1. The parties may determine the choice of law for the dispute resolution.

Arbitration gives autonomy to the parties to determine the rule of procedure. However, the governing law shall be in accordance with the business contract that has been agreed by the parties as a guide to the parties in conducting business.

    1. The parties may determine the seat of arbitration.

The seat of arbitration may be determined by the parties themselves upon agreement. It does not only have to be determined based on the domicile of the opponent party. This is clearly different from the provision of Article 180(1) HIR (Herzien Inlandsch Reglement), stated that the lawsuit is filed in the district court having the jurisdiction in accordance with the domicile of defendant.

    1. Arbitral award is final and binding.

In general, an arbitral award will be examined and decided within six months and the award is final and binding. Thus, there will be no appeal nor cassation for arbitral award. Nevertheless, there is a possibility to set aside an arbitral award in district court, or even to suspend the enforcement of arbitral award.

Despite its advantages, there are several things considered as weaknesses of arbitration:

    1. Arbitration Fees are considered more expensive than the Distrct Court Fee.

As an illustration, the arbitration fees of Indonesia National Board of Arbitration (BANI) are as below:

      1. Registration Fee: Rp. 2.000.000,- (payable upon the date of submission of the arbitration application)
      2. Administration Fee, Hearings Fee and an Arbitrator’s Fee for convention or reconvention are as follows:

ADMINISTRATION FEE FOR DISPUTE RESOLUTION

Claims (in Rupiah) Costs

A

Less than

500.000.000

10.0 %

B*)

500.000.000

9.0 %

C*)

1

1.000.000.000

8.0 %

2

2.500.000.000

7.0 %

3

5.000.000.000

6.0 %

4

7.500.000.000

5.0 %

5

10.000.000.000

4.0 %

6

12.500.000.000

3.5 %

7

15.000.000.000

3.2 %

8

17.500.000.000

3.0 %

9

20.000.000.000

2.8 %

10

22.500.000.000

2.6 %

11

25.000.000.000

2.4 %

12

27.500.000.000

2.2 %

13

30.000.000.000

2.0 %

14

35.000.000.000

1.9 %

15

40.000.000.000

1.8 %

16

45.000.000.000

1.7 %

17

50.000.000.000

1.6 %

18

60.000.000.000

1.5 %

19

70.000.000.000

1.4 %

20

80.000.000.000

1.3 %

21

90.000.000.000

1.2 %

22

100.000.000.000

1.1 %

23

200.000.000.000

1.0 %

24

300.000.000.000

0.9 %

25

400.000.000.000

0.8 %

26

500.000.000.000

0.6 %

D*)

More than

500.000.000.000

0.5%

The fees should be made payable as soon as BANI issues the corresponding invoices to the parties.
The fees mentioned above are exclusive of:

      1. Cost of summoning, transportation and fee for a witness or expert.

The party which requires the presence of a witness/expert shall bear the cost. The parties will bear the cost if if the presence of the witness/expert is required by the arbitral tribunal. These costs have to be paid in advance to BANI before the hearing of the witness/expert.

      1. Cost of transportation, accommodation and additional fee (if applicable).

This costs applies when the arbitrator resides outside the place of hearing. This cost has to be paid by the party that chooses aforesaid arbitrator and the amount will be decided by BANI and will be paid to the aforesaid arbitrator through BANI.

      1. Cost related to the venue for hearing other than the venue provided by BANI.

This costs includes the cost of the venue, transportation and accommodation (if applicable), and must be paid by the party who requested the change of venue, or by both parties if the change of venue is required by the arbitral tribunal.

      1. Cost of submission/registration of the arbitral award to the District Court.
    1. Having dependence to the District Court to Enforce the Arbitral Award.

Given the nature as quasi judicial, the enforcement of arbitral award still requires the assistance of district court. Prior to the enforcement of arbitral award, the arbitral award has to be registered first to the district court. This indicates that arbitration has no coercive effort against the parties to comply with the award. Therefore, the arbitral award will be effectively enforced if both parties have good faith.

    1. Problems in Enforcing the Arbitral Award.

Although the provision on enforcement of international and national arbitral awards have been made clear in Arbitration Law, there are still some problems in enforcing the arbitral award. In its practices, the party who ordered to pay a sum of money as a compensation makes attempts to suspend the enforcement of arbitral award.

BP Lawyers can assist you
We can assist you in providing the best solution to the problems or disputes related to contracts, settlement through the arbitration process and the general judiciary. You can contact us by:

Email: bpl@smartlegal.id
Phone: +62821-1234-1235

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