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There is a conflict between arbitration clause and clause of litigation through the district court in a single agreement. Which one is applicable?

In a cooperation agreement on the apartment construction, we found an arbitration clause and a clause of litigation through the district court at the same time. Both parties agree to choose arbitration through Indonesian National Arbitration Board (BANI) to resolve the dispute, yet simultaneously appointed Semarang District Court as their choice of legal domicile.

Who is competent to resolve the dispute between them? Is it BANI or Semarang District Court?

Position of Arbitration
Arbitration is not a new institution in this country. Arbitration’s position in legal system in Indonesia has been recognized since the Dutch colonial period. The evidences are provisions under Article 377 of HIR (Renewed Indonesian Regulation), Article 705 of RBG (Procedural Law for regions outside Java and Madura), and Article 615 to 651 RV (Code of Civil Procedure) which explicitly recognized the existence of arbitration. The latest regulation is Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (Arbitration Law).

Definition of Arbitration based on Article 1 number 1 of Arbitration Law is a method of settling civil disputes outside the district courts, based on an arbitration agreement made in writing by the parties to the dispute.

From definition above, it is clear that there is a strict separation that arbitration is an out of court dispute settlement. It is something that should not be mixed up anymore.

Absolute Jurisdiction of Arbitration
Provision under Article 3 of Arbitration Law is even more assertive in defining arbitration’s position. It states that the District Court is not competent to adjudicate dispute between the parties who have been bound by arbitration agreement.

Furthermore, Article 11 of Arbitration Law further confirms the absolute jurisdiction of arbitration. Article 11 paragraph (1) of Arbitration Law states that the existence of written arbitration agreement shall exclude the right of the parties in dispute to file a lawsuit in the District Court. It is in accordance with the lex specialis derogate legi generalis principle. Hence, the Arbitration Law is applied.

Moreover, Arbitration Law even instructed the Court to decline the aforesaid lawsuit and not interfere the dispute settlement which has been processed through arbitration. Except in certain conditions mentioned in Arbitration Law. This is regulated in Article 11 paragraph (2) of Arbitration Law.

From provisions under Arbitration Law above, it can be concluded that dispute settlement through arbitration should be prioritized in case there are arbitration clause and clause of determinining legal domicile in one agreement.

This is reinforced by some jurisprudences which affirm the absolute jurisdiction or arbitration in an agreement, namely jurisprudence of Supreme Court Decision No. 225 K/Sip/1976, No. 3179 K/Pdt/1984 and No. 224 K/Sip/1981.

In his book, Hukum Acara Perdata, Yahya Harahap also stated that although substantially the disputed matters fall within the jurisdiction of the District Court, its competence to adjudicate the aforesaid dispute ceases to exist due to the existence of arbitration clause.

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Author :
Imam Hadi Wibowo/Bimo Prasetio

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