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Arbitration and Arbitration Settlement Procedure

Many people often raise concerns about the complicated litigation process for dispute settlement in court. In general, the complexity of litigation in court illustrates the complexity of the bureaucracy in Indonesia. Although the Government has made improvements in many sectors, numerous complaints regarding the litigation process in court still exist until now. Therefore, one of the solution to avoid lengthy litigation process for dispute settlement is through arbitration.


Arbitration and alternative dispute resolution in Indonesia is regulated under the Law Number 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (the “Arbitration Law”). Arbitration is a method of resolving a civil dispute outside the general court pursuant to certain arbitration agreement made in writing by and between the disputing parties.


The arbitration agreement can be in the form of an arbitration clause stated in a written agreement made by the parties before a dispute arises, or a separate arbitration agreement made by the disputing parties after a dispute arises.


Arbitration proceedings shall be held by the Arbitrator. Arbitrator is one or more chosen by the disputing parties or who are appointed by the District Court or by an arbitration institution, to examine and make an arbitration award regarding a particular dispute submitted for resolution by the arbitration.


Arbitrators are members of the Arbitration Institution, among others the Indonesian National Board of Arbitration (BANI), Capital Market Arbitration Board (BAPMI), the National Sharia Arbitration Board (BASYARNAS) and few others arbitrations institutions.


Further, we discuss about the procedure of dispute settlement through arbitration in Indonesia, as follows:


  1. Registration Procedure

The arbitration procedure begins with a notification by the Claimant to the Respondent that the terms and conditions of arbitration is applied and the dispute between the Claimant and the Respondent to be resolved through Arbitration. It is important that from the initial stage, the Claimant must be fully prepared in terms of evidence, reasons, legal standing, and other requirement and supporting documents to ensure smooth proceeding and strengthen the position in respect to the claim.


In respect to the notification from the Claimant to the Respondent, the Arbitration Law stipulate that the notification must at least contains:

  1. the name and address of the parties;
  2. the reference to the applicable arbitration clause or agreement;
  3. the agreement or maters being the subject of the dispute;
  4. the basis of the claim and the amount demanded, if any;
  5. the desired method of settlement; and

f. an agreement made by the parties regarding the numbers of arbitrators or if no such agreement has been made, the Claimant may proposal the numbers of arbitrators desired, provided such is an odd number. Following the notification to the Respondent, the Claimant shall register file the dispute to the designated Board of Arbitration and explained the formality of the arbitration clause, the legal standing of the Claimant associated with the arbitration agreement, the authority of the designated Board of Arbitration to examine and issue an award on the dispute, and dispute settlement process that has been taken prior to filing the dispute for settlement through the arbitration forum.


  1. Appointing the Arbitrator

In principle, the parties may agree whether they want to appoint a single arbitrator, tribunal arbitral, or to extend the authority to the respective Board of Arbitration to decide.


If the parties agree to hold the arbitration by single arbitrator, the parties must reach an agreement on the appointment of the sole arbitrator for which the Claimant shall propose in writing to the Respondent the name of the proposed sole arbitrator.


If within 14 (fourteen) days upon receipt of the proposal by the Respondent, the parties can not reach and agreement in determining the sole arbitrator, based on the request of one of the party, the Chairman of the competent District Court may appoint the sole arbitrator.


If the parties choose to use the arbitral tribunal, the parties shall each appoint one arbitrator and these 2 (two) arbitrators shall select the third arbitrator (who will later become the chairman of the arbitral tribunal).


Please note that the Arbitration Law stipulates if within 14 (fourteen) days after the appointment of the last arbitrator an agreement has not been reached, then at the request of one of the party the Chairman of the competent District Court may appoint the third arbitrator and this request may be subject for cancellation (Article 15 Paragraph (4) Arbitration Law ).


In addition, Article 15 Paragraph (2) of the Arbitration Law stated, if upon 30 (thirty) days after the receipt of the notification by the Respondent and one of the parties fails to appoint arbitrator for the arbitral tribunal, the arbitrator appointed by the other party will act as the sole arbitrator and the award shall be final and binding on both parties.


  1. The Respondent’s response

If the designated Arbitration Board decides that it is capable to examine the dispute, then after the registration of the dispute, one or more Secretary of the Arbitration Board must be appointed to assist in the administrative work of the arbitration.


The Secretary must submit a copy of the Arbitration Application along with the relevant supporting documents to the Respondent and request the Respondent to submit a written response within 30 (thirty) days.


At the time of the submission of the response, the Respondent may also appoint an arbitrator through written letter along with the Respondent’s response letter. Meanwhile, if the Respondent does not submit the response, then the Respondent shall be deemed to have authorized the Arbitration Board to appointment the arbitrator.


  1. Counterclaim

The Respondent may submit a counterclaim at the time of submission of the response, or otherwise the Respondent may file the counterclaim separately but prior to date of the first arbitration session. In this respect the Claimant and Respondent will be charged with additional fees if a counterclaim is filed.


Upon the payment of the administrative costs for the counterclaim and the dispute settlement by the parties, then the counterclaim will be examined, considered, and awarded together with the primary claim. In the event that the Claimant refuse to pay the administrative costs for the counterclaim, the Respondent must pay the cost for the counterclaim, otherwise, the Arbitral tribunal will not examine the claim.


In arbitration, the Claimant has the right, within a period of 30 days or another period stipulated by the arbitral tribunal, to submit a response to the counterclaim filed by the Respondent.


  1. Arbitration Hearing

Arbitration hearing proceeded by the arbitrator or the arbitral tribunal in closed examination proceeding. The examination is proceeded in Bahasa Indonesia, unless otherwise consented by the arbitrator or the arbitral tribunal, the parties may choose other language for the examination. In the Arbitration the disputed parties can be represented by their respective proxies (attorney) by virtue of a special power of attorney executed by the authorized signor of each of the parties.


Third parties outside the arbitration agreement may participate and join themselves into the arbitral process, provided that they have related interests and such participation is agreed upon by the disputing parties and approved by the arbitrator or the arbitral tribunal examining the dispute.


At the request of one of the parties, the arbitrator or the arbitral tribunal may take a provisional decision or other interlocutory decision to regulate rules for the dispute examination, including the determination of security seizure or depository of assets with the designated third party.


Examination of disputes in arbitration must be carried out in writing. Verbal examinations can be carried out if agreed by the parties or deemed necessary by the arbitrator or arbitral tribunal.


Arbitrators or arbitral tribunals may hear witness statements or hold meetings deemed necessary at certain places outside the place of arbitration held. The examination of witnesses and expert witnesses before the arbitrator or arbitral tribunal, is proceeded in accordance with the provisions of the civil procedure law.


The arbitrator or arbitral tribunal may inspect of the disputed goods or other matters relating to the dispute being examined if it is deemed necessary, the parties will be legally summoned so that they can also be present at such inspection.


Examination of a dispute through arbitration must be completed no later than 180 days after the arbitrator or arbitral tribunal has been formed. The arbitrator or arbitral tribunal has the authority to extend the period of his / her term of office if: a request is made by one of the parties regarding a particular matter; as a result of the provision of provisions or other interlocutory decisions; or deemed necessary by the arbitrator or the arbitral tribunal for the purpose of examination.


In the event that the parties are present on the designated day, the arbitrator or the arbitral tribunal shall first endeavor to encourage amicable settlement of the dispute between the parties. In the event that amicable settlement is reached, the arbitrator or the arbitral tribunal shall draw a deed of amicable settlement that is final and binding to the disputing parties and instructs the parties to perform the terms and conditions under the amicable settlement agreement.


In the event that the respondent is not present on the designated day without any valid reason, while the respondent has been appropriately summoned, the arbitrator or arbitral tribunal shall immediately send second summon to the respondent.


If after maximum of 10 days upon receipt of the second summon by the respondent, the respondent fails to present before the arbitration, the examination will be continued without the presence of the respondent and the request of the Claimant will be fully granted, except if the claim was unreasonable or contrary to the law.


The Arbitral award shall be rendered within a maximum period of 30 days from the closing of the hearings, unless the assembly considers that the period of time needs to be extended accordingly. In addition to stipulating the final decision, the arbitral tribunal also has the right to stipulate preliminary, interim or partial decisions.


Author: Thareq Akmal Hibatullah/Andry Yudistira


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