Enforcing Arbitral Awards in Indonesia a QA with Rob Palmer and Prawidha Murti

Compared to foreign court judgments, the ease and simplicity of having an international arbitral award recognised and enforced is a prominent feather in arbitration’s cap, and one of its greatest advantages. In addition, the reluctance of parties to trust foreign courts makes international arbitration a compelling choice for resolving cross-border commercial disputes.

Rob Palmer, Ashurst dispute resolution partner and Prawidha Murti, dispute resolution partner of OSP in association with Ashurst, discussed with Financier Worldwide the current trends in enforcing arbitral awards in Indonesia. 

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Could you provide an overview of recent arbitration activity in your country of focus? Are there any common themes among the types of cases you are seeing?

Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (the Arbitration Law) came into force in 1999 and has not been amended or replaced since, despite ongoing calls for this to happen. However, in 2021, Indonesia’s best-known domestic arbitration body, the Indonesian National Board of Arbitration (BANI), updated its institutional rules. This was the fifth time BANI has updated its rules since its inception in 1977. The 2021 Rules introduced several new provisions, including with respect to consolidation, the appointment of arbitrators, evidence and hearing procedure. Statistics from BANI for the period between 2019 and 2021 indicate that most cases handled have been construction disputes.

What strategies might be used by a losing party to challenge an arbitral award and frustrate the enforcement process? To what extent are ‘tactical’ challenges becoming more common?

Tactical challenges to frustrate the enforcement process are not uncommon in Indonesia. Most commonly these take the form of challenges to issuance of a Writ of Execution (exequatur), including on public policy grounds under Article 66 of the Arbitration Law. There is also scope for a losing party to raise challenges during the execution process, namely, challenges to the Order to Comply and the asset seizure process itself. Anecdotal evidence suggests that relatively few of these challenges are ultimately successful. However, they create considerable delays in the enforcement of awards as courts typically will wait for the result of any challenge before proceeding further with the enforcement process.

Have there been any recent legal or judicial developments in your country of focus, which impact the process of enforcing arbitral awards?

One development of note is that in 2020 the Supreme Court issued guidelines for the award execution process – which stipulate that provisions relating to registration of domestic arbitration awards should apply also to the registration of international awards. Of note, these provisions include a time limit for registration of 30 days from award. No such limitation is contained in the Arbitration Law, giving rise to some uncertainty as to the applicable timeframe. In practice, we have seen late registration accepted in some circumstances.

How are courts in your country of focus dealing with challenges to arbitral awards? What insights can we draw from recent cases?

Indonesian jurisprudence includes several infamous examples where the courts have upheld challenges on somewhat irregular grounds. One such example is the case of Astro Nusantara Bv et al v. PT Ayunda Primamitra, where enforcement was refused on the basis that an antisuit injunction issued by the tribunal constituted a violation of Indonesian public policy. However, our experience has been that the Indonesian courts increasingly respect parties’ agreements to arbitrate and that cases of these types are becoming uncommon. That said, the Indonesian Civil Court system lacks effective pre-trial mechanisms, meaning that challenges to arbitral awards must be examined by the courts and can result in considerable delays to enforcement.

When it comes to enforcing arbitration awards, what strategies can companies deploy to enhance their chances of success?

Companies can deploy several strategies to enhance their chances of success in enforcing arbitration awards in Indonesia. Among other things, they should be sure to understand the legal procedures that must be undertaken to enforce the arbitration award, such as the time limits for each process set out in the existing legislation and guidelines, as well as any legal requirements that must be satisfied – for example, the Arbitration Law requires any arbitral awards, both domestic and foreign, to be registered by the respective arbitrators or their authorised representatives. Failure to comply with these procedures can stymie enforcement efforts. They should also identify, locate and familiarise themselves with the assets of the counterparty, which can be a difficult process in Indonesia, often requiring the use of asset-tracing firms. This is necessary because, when executing the seizure of assets as part of the enforcement of the award, Indonesian courts will not conduct their own searches.

When negotiating and drafting business agreements, what steps can parties take to ensure that contractual arbitration clauses are clear and valid? How important is this to facilitating award enforcement down the line?

In any contract, a clear arbitration clause is key to avoiding disputes over jurisdiction and avoiding challenges to enforcement. Specifically in an Indonesian context, parties should consider including an express reference to arbitration for non-contractual claims, as the Indonesian courts have at times construed arbitration clauses narrowly in the absence of such wording. They should consider making an Indonesian language counterpart of the contract, including the arbitration clause, where required by Indonesia’s Law 24 of 2009, the so-called ‘Language Law’. It has long been an issue in Indonesia that the validity of contracts is contested due to the absence of an Indonesian language counterpart or translation. Finally, parties should consider engaging local Indonesian counsel during the negotiation and drafting of agreements to avoid any clauses in the contract, including the arbitration clause itself, which may conflict with or contravene Indonesian public policy, law or customary practices.

Going forward, what trends do you expect to see around arbitral award enforcement? What predictions would you make for the months ahead?

With the ongoing COVID-19 pandemic, we expect to see increasing use of virtual and electronic procedures, including hearings, in arbitration proceedings and in associated enforcement proceedings. However, acceptance of virtual hearings is not universal in Indonesia. For example, in our experience, BANI tribunals typically continue to take a more traditional approach, holding virtual hearings only in circumstances where all parties consent. We anticipate that in the months ahead we will see instances where losing parties seek to set aside or resist enforcement of awards on the basis that virtual hearings, and associated denial of an alleged right to a physical hearing, violate Indonesian public policy.

Authors: Rob Palmer, Partner; Prawidha Murti, Partner.