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Experience of Practical Problems of Foreign Arbitral Awards Enforcement in Indonesia
FIFI JUNITA[*]
Despite the increasing growth of parties resolving their disputes by means of arbitration, the difficulty in enforcing the foreign awards has not ceased. Even if an award has been received, it then has to meet the problem of enforcement in the host states. In Indonesia, for example, the judicial hostility problems may range from regulatory, procedural, as well as legal traditions and cultures. The lack of integrated legal framework, high level of national courts’ intervention and a domestic public policy exception as an implication of the Indonesian pluralistic legal traditions and cultures have been considered as some potential factors influencing the enforcement of foreign arbitral awards. This paper will explore whether and to what extent those internal factors play a major role in upholding the finality and enforceability of the awards in Indonesia.
The recognition and enforcement of foreign judgments and foreign arbitral awards have a great concern in Indonesia. Such concerns have started from the period of Dutch colonialism until the new reform era in which the new Arbitration Act No. 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (ADR) has been enacted. The fact that Indonesia has ratified both the New York Convention and the ICSID (The International Centre for the Settlement of Investment Disputes) convention has not meant that the spirit of these conventions has been totally adopted in the Indonesian judiciary system. One of the most notable constraints is the application of public policy exception. Domestic public policy – known as public order (ketertiban umum) – has become the most common application to oppose enforcement of foreign arbitral awards in Indonesia.
This paper is concerned with the ongoing judicial hostility of the enforceability of foreign awards in Indonesia. Firstly, this article identifies the Indonesian legal tradition and legal culture which significantly impact on the Indonesian approach to the enforcement of foreign arbitral awards and judgments. It then will be correlated to the historical and current legal framework of the enforcement of the awards. This part covers both regulatory and procedural flaws in order to identify some obstacles of the ‘pro enforcement’ achievement before and after the enactment of new arbitration law reform.
The enforceability of foreign arbitral awards in Indonesia has a great correlation with the Indonesian legal tradition and culture[1]. Indonesia as a civil law country has a unique feature since the most of its legal system has been inherited from the ancient Dutch legal system based on the principle of concordance (concordantie beginsel) which was determined by centuries of colonialism.[2] Basically, the basic principle of the enforceability of ‘agreement to arbitrate’ has been encapsulated in article 1338 of the Dutch Civil Code (Burgerlijk Wetboek) 1847 concerning the principle of freedom of contract (pacta sunt servanda/the sanctity of contract).[3] Based on this provision, “all valid agreements should be binding on the contracting parties” (including “agreement to arbitrate”). What can be noted from this provision is that it embodies the value of contractual approach which greatly emphasizes on the consent of the parties (consensual principle). It also resemblances the implementation of the party autonomy principle.[4] However, international commercial arbitration has not been regulated in the old Dutch Code on Civil Procedure known as Reglement op de Burgerlijke Rechtsvordering (hereafter Rv).[5] Furthermore, this ancient Dutch legal product has not dealt with the recognition and enforcement of foreign judgment and arbitral awards.[6] The arbitration practices are traditionally based on a strong dichotomy of private and public international law traditions which can expand global barriers of international business practices.[7] This sort of approach stems from traditional concept of territorial sovereignty (jurisdictional theory) root. [8] The most common feature of this sovereignty based approach is the dominancy of national or domestic basis.[9]
The emergence of pluralistic legal culture in Indonesia was inherently influenced by the article 131 and 163 of the Dutch regulation i.e. the Indische Staatsregeling (abbreviated IS) which divided the Indonesian population into three distinct groups based on their racial origin[10], namely: (1) Europeans and Japanese, (ii) the indigenous Indonesians, (iii) East Asians (including Chinese, Arabs and Indians) and (iv) other groups not falling within these three categories.[11] Each of those groups has its judicial institution and procedures and each group has possibility to settle dispute over the “juru pisah” (arbitrator).[12] Not only does this pluralistic legal feature confines to the coexistence of national and the ancient Dutch legal system, but it also relates to the application of customary law which is known “adat” law and Islamic law (sharia law) as part of the Indonesian legal system. Thus, each of racial origin of the pluralistic society may have its own customary law or “adat” law.[13] Since an individual ethnic group pursues its own self interest, the recognition and enforcement of foreign arbitral awards will be influenced by the variety of domestic rules which are inconsistent with the global economy objective.
Historically, the enforcement of foreign judgments in Indonesia met with disfavor. In the first phase – roughly from the Dutch colonialism until before 1927 – the regulatory and procedural legal framework established poorly, as did reflect from economic crisis in Indonesia. During this period, there has been a rule that foreign awards are not enforceable under the Indonesian law.[14] Thus, the execution of foreign judgments against property in Indonesia has to be considered as a new case and an action should be brought in an Indonesian court.[15] Although the contracting parties have agreed to submit their cases to foreign jurisdiction or arbitration, the Indonesian court has a high competence to decide.[16] This judicial hostility to arbitration is not only concerned with the enforceability of pre-dispute arbitration clauses, but it also includes any arbitration agreement and the unenforceability of foreign judgments.[17] The controversy of judicial hostility to arbitration and foreign judgments enforcement was expressly stated in the Code of Civil Procedure which was taken over from the Dutch Code of Civil Procedure – known as the Reglement op de Burgerlijke Rechtsvordering (Rv) – based on the concordance principle (concordantie beginsel).[18] The implementation of Rv was fundamentally based on the Dutch Gazette (Staatblad Hindia Belanda) No. 52 of 1947 jo No. 63 of 1849.[19] The article 436 of Rv expressly provides that the foreign judgments cannot be enforced voluntarily in Indonesia.[20] Thus, these judgments had to be re-examined or re-trial by the Indonesian court as a new case.[21] In addition, the article 23 of Algemene Bepalingen (hereafter AB) provided the exception of the recognition and enforcement of foreign judgments in Indonesia on the ground of public order (ketertiban umum).[22] Not only does this article attempts to limit the party autonomy principle in regards to contractual issue, but it also confines to all legal activities (rechtshandelingen).[23] This means that public policy exception as an escape clause can be applied widely.[24] Despite a legal controversy of the applicability of article 23 AB in the Indonesian Private International Law, it has been obvious that domestic legal pluralism followed by the absence of integrated national legal framework have created practical inconsistencies concerning the execution of foreign judgments and arbitral awards in Indonesia. [25]
Principally, based on the jurisdictional theory, the enforcement of foreign judgments and awards can be considered as a violation of state sovereignty.[26] The juridictionalists legitimate the dominant role of sovereign states (jurisdiction) in regulating any activities within their territories by implementing a given system of domestic laws and they have rights to control both substantive and procedural of awards enforcement based on their own mandatory rules.[27] In Indonesia, where municipal courts greatly interfere with the enforcement of foreign arbitral awards, it reflects a major juridical sovereignty. Hence, it seems that the Indonesian judicial system is primarily based on a jurisdictional theory emphasizing on national sovereignty rather than contractual theory. [28]
However, it has to be noted that such situation is primarily inconsistent with the provision of article 1338 of the Civil Code providing that all valid agreements (including agreement to arbitrate) have a binding effect on the contracting parties.[29] In addition, article 1337 of the Civil Code states that the ‘causa’ (lawful purpose) of a valid contract should not be contrary to the Indonesian mandatory rules and public order (ketertiban umum). Despite a controversy of public order definition, these provisions suggest that the Indonesian judicial system is not mainly based on the contractual theory since the freedom of contract is not absolute but it should be limited by national mandatory rules. [30] Based on those two articles of the Civil Code, Indonesia fundamentally has a feature of a hybrid theory which acknowledges both contractual basis and the jurisdictional basis.[31] It means that agreement to arbitrate which is agreed by the parties should be regarded as a valid contract subject to domestic mandatory rules and public order (ketertiban umum).[32] The inconsistency of substantive and procedural laws have become a major constraint of the enforcement of foreign awards in Indonesia.
The ratification of this convention was fundamentally based on the Dutch Gazette (Staatblad Hindia Belanda) No. 13 jo No. 133 of 1933.[33] Theoretically, based on the Indonesia’s accession to the Geneva Convention, the enforcement of foreign arbitral awards should be possible. In practice, however, enforcement procedure remained have difficulty. After the end of Dutch imperialism, a controversial issue concerning the validity of the implementation of Geneva Convention arouse. The lack of centralized jurisdiction handling the enforcement of the foreign arbitral award worsen the issue. There had been a distinctive point of view between the District court and the Supreme Court resulting in a confusing and uncertainty judicial decisions.[34] According to the supreme court, since the Geneva Convention was ratified in the period of the Dutch imperialism, thus it cannot absolutely bind the Republic of Indonesia as a sovereign and independent state.[35] The absence of legal basis of the enforceability of the awards led to a controversial situation and inconsistent domestic judicial decisions in practice.[36]
This historical background has led the Indonesian government to ratified the New York Convention 1958 based on the Presidential Decree No. 34 of 1981 as the implication of the emergence of global economy. The implementation of this convention subject to three basic conditions namely: (1) reciprocity reservation; (2) commercial reservation and (3) public policy exception. After the ratification of the New York Convention, however, the enforcement of foreign arbitral awards still have an inherent flaw regarding the lack of implementing legislation. The lack of arbitration legal framework has led to the inconsistency and uncertainty of the implementation of the Presidential Decree No. 34 of 1981. The case of Navigation Maritime Bulgars v. PT Nizwar was one of the legal realities of an unfriendly execution of foreign arbitral award in Indonesia right after the ratification of the Convention due to the violation of national sovereignty.[37] In this period, the Indonesian Supreme Court (the Mahkamah Agung) refused exequatur rendered in London on the basis that the absence of implementing regulation of the Presidential Decree No. 34 of 1981 has considered the award as a foreign judgment.[38] Thus, based on article 436 of the Civil Code Procedure (Reglement op de Burgerlijke Rechtsvordering/BRv), it cannot be enforced in Indonesia.[39] In this case, it can be noted that the ancient Dutch Civil Code Procedure has been out of date in global economy perspective and it should be reformed since it can create some practical gaps.
The need to improve national economic development, Indonesian government has tried to accelerate a high level of international business transactions. This objective cannot be achieved without an international approach to dispute settlement issue in Indonesia, including international arbitration and the enforcement of foreign arbitral awards. It has been a patent risk of the developed countries that municipal courts and unfamiliar national laws of host states tend to protect their own interests. Thus, foreign investors have given preference over international commercial arbitration rather than domestic litigation. In order to increase national economic development, new arbitration law reform has come into effect in Indonesia on August 1999 by the enactment of the Act No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution. Previously, the Indonesian arbitration law was based on the Code of Civil Procedure of 1847, book III, article 615 – 651.[40] According to the article II of the Indonesian Constitution, the Dutch legislations can be applied in Indonesia as long as they do not contrary to the Indonesian Constitution.
Ironically, however, the Indonesian Supreme Court only considered the Code Civil Procedure merely as a guideline, thus it had no binding effect.[41] The lack of integrated legal basis of arbitration at this period has exemplified the discretion application of the recognition and enforcement of foreign arbitral awards in Indonesia.[42] Finally, based on article 81 of the Act No. 30 of 1999, the Code of Civil Procedure was no longer applied after the enactment of new arbitration law. Although the new Indonesian Arbitration Act can be considered as an arbitration friendly legal framework, inherent flaws concerning the binding effect of the arbitration agreement need to be uphold. Basically, article 3 of the Arbitration Act provides that the District Court has no legal jurisdiction to the settlement of dispute between parties having agreed to be bound by arbitration agreement.[43] However, misleading approach to this provision has led to inconsistent implementation of this article. One of the most prominent feature of inconsistency application of the new Arbitration Act is the huge level of municipal court intervention. It can be seen from the case between PT Perusahaan Dagang Tempo v. PT Roche Indonesia.[44] This, of course, violates the principle of party autonomy and the freedom of contract which are enshrined in article 1338 of the Civil Code (Burgerlijk Wetboek)[45] and article 11 of the 1999 Act. Based on this latter article, the agreement to arbitrate waives the parties rights to settle their disputes to the district court. As a consequence, the chairman of the district court shall reject and do not involve in the dispute settlement arise from the contract.[46] Yet it is important to note that the historical record of the Indonesian arbitration practices appears to show that municipal courts generally attempted to obstruct enforcement of foreign arbitral awards.
Compared to the previous legislation (Code of Civil Procedure – known as CCP), the 1999 Act contains provision relating to the ‘pro enforcement’ approach of the New York Convention. Principally, national and international arbitral awards are final and binding as long as it fall within the prerequisite of the article 66 of the Indonesian Arbitration Act.[47] It has no differentiation and discrimination in terms of the enforceability of domestic and foreign arbitral awards. What can be noted from this provision is that the Indonesian Arbitration Act 1999 applies the monistic approach to the enforcement of arbitral awards. This approach is conceptually aimed to uphold the finality and enforceability of arbitral awards..[48] There is no discretion between ‘domestic’ and ‘international’ arbitration in order to achieve a ‘unified regulatory model’ for arbitration. [49] In practice, however, there has been a discretionary treatment between domestic and international arbitration.[50] Thus, there has been a ‘hidden dualism’ of the Act 1999. [51]
In respect of the enforcement of awards, however, the Act no. 30 of 1999 expressly implements a dualistic approach by distinguishing between ‘domestic’ and ‘international’ awards.[52] The preference of dualistic approach has been primarily inspired by a desire to promote a centralized jurisdiction system in the enforcement of foreign arbitral awards in Indonesia.[53] In addition, this statutory regime can also maintain the unified law enforcement standard among all court across the country and to upgrade the quality of judgment in respect of the enforcement of foreign arbitral awards.[54] From an economy perspective, however, this dualism approach can promote inefficiency since the discretionary power of the municipal courts can obstruct the achievement of mutual benefit of the contracting parties.[55] Moreover, this approach can be used as a parochial devise in order to protect state’s political and economic interests.
.
The recognition and enforcement of foreign arbitral awards in Indonesia is primarily influenced by the increase of Foreign Direct Investment (FDI).[56] The Investment and International trade need a strong legal protection and a speedy dispute resolution mechanism. One of the most possible solutions is arbitration since it can provide both a speedy dispute settlement and participant’s confidentiality. Thus, Indonesia has ratified the New York Convention 1958 based on the Presidential Decree No. 34/1981. However, the lack of implementing legislation has led to the ineffectiveness of the application of the convention, particularly in respect of the enforcement mechanism.[57] This inherent flaw is not only a distinctive feature of Indonesia, but it also happened in some other countries such as Bangladesh and Nigeria. [58] The debate of the issue of the need of implementing regulation has led to inconsistent and controversy judicial decision regarding the enforceability of foreign arbitral awards.[59] These controversies in regard to the absence of implementing legislation have become a major inherent flaw of the enforceability of the awards.
The lack of implementing legislation has led to the refusal of two arbitration awards made in London based on the Indonesian Supreme Court decision.[60] In fact, the need of implementing legislation had been a controversial issue. Since the ratification of the Convention was based on the Presidential decree – not based on act or legislation product - some argued that there was no need of implementing legislation.[61] While others insisted upon the enactment of the implementing legislation to enforce the Convention. Compared to the ratification of International Centre for Settlement of Investment Disputes (ICSID) convention, it has been approved by the legislative or the Indonesian parliament (Dewan Perwakilan Rakyat – abbreviated DPR) by the enactment of the Act No. 5 of 1968.[62] These two distinct situations basically exemplified the lack of integrated legal framework of the Indonesian legal system. In order to handle this controversy situation and uphold the New York Convention, Indonesian government finally had enacted the Supreme Court Regulation No. 1/1990 (Peraturan Mahkamah Agung) on 1 March 1990 which was ‘implicitly’ considered as an implementing regulation of the promulgation of the Presidential Decree No. 34/1981.[63] However, this regulation still did not guarantee a consistent attempt to upheld the enforceability of the awards. Moreover, following the enactment of the Supreme Court Regulation No. 1/1990, there were two reported cases refused to be enforced such as the case of Sikinos Maritime Ltd. (Malta) v. PD Perdata Lot (Indonesia) and E.D. & Mann (Sugar) Ltd. (London) v. Yani Haryanto (Indonesia).[64] The latter was refused to be enforced due to the violation of the ambiguous concept of the Indonesian public policy.
As mentioned previously, the arbitral awards fall within the 1999 Act is considered as final and binding. It should be noted that since Indonesia follow a dualistic regime in terms of enforcement, this has led to different enforcement mechanism between ‘national’ and ‘international’ awards. Based on article 59 of the 1999 Act, domestic arbitration awards can be enforced by the District Courts. In this case, there is no centralization of jurisdiction. Foreign arbitral awards, on the other hand, can only be enforced by the Central Jakarta District Court and the Supreme Court if it involves state contracts.[65] Despite the fact that arbitral awards are deemed final and binding, it has to be noted that not all of the foreign arbitration awards can be enforced in Indonesia. Based on the 1999 Act, the arbitration awards can be enforced in Indonesia if: firstly, the awards was made by the member country having a bilateral or multilateral agreement with Indonesia in respect of the recognition and enforcement of foreign arbitral awards (reciprocity reservation); secondly, the scope of the awards is commercial or trade under the Indonesian law (commercial reservation); thirdly, the awards do not violate the public order (ketertiban umum) of Indonesia.[66]
It is argued that the spirit of liberalism and unification of laws in the global economy have led to an autonomous of arbitration procedure and the reduction of municipal courts intervention.[67] However, this is not always the case. In Indonesia, for example, the enforcement of foreign arbitral awards should previously receives an ‘exequatur’ (writ of execution) from the Chairman of the Central Jakarta District Court.[68] In line with this provision, state contracts can also be enforced in Indonesia upon the receipt of an ‘exequatur’ from the Supreme Court.[69] This ‘exequatur’ is then used by the Central Jakarta District Court to enforce the awards.[70] Based on these provisions, the enforceability of the awards mostly depends on the approach of national courts. Therefore, domestic courts still have a major role of enforcement mechanism. In responds to the high level of municipal court intervention, it may be said that foreign arbitral awards may not be enforceable despite its final and binding characteristic. The major role of the domestic courts can also be an inherent flaw of the enforcement of foreign arbitral awards. Thus, the involvement of court should be limited and there must be a balance between the supervisory jurisdiction and a limitation of court intervention in order to support the finality of the awards.[71]
Basically, Indonesia implements dual institutions[72] dealing with the recognition and enforcement of foreign arbitral awards.[73] The article 66 point (d) and (e) differentiate between international arbitral awards in regards to pure private contracts and state contracts. Based on this article, there are two institutions dealing with the issuance of exequatur (writ of execution) of foreign arbitral awards namely: the Central District Court of Jakarta and the Supreme Court. As a rational consequence of this dual execution system, the law enforcement standard of any cases cannot be unified since both of them can issue a different judicial decisions. Principally, the arbitration resolution is primarily aimed to avoid a multiple proceeding of domestic litigation and promote single, centralized dispute resolution procedure in a single forum. [74] However, this is not always the case in regards to the enforcement of the awards. Since the enforceability of international awards is primarily depended on the rule of procedure of the enforcing states, thus each sovereign state has its own authority to determine the procedure of enforcement.[75] This, of course, may lead to exhaustive enforcement proceeding worldwide.
The controversy of a judicial decision which was rendered by the District Court and the Supreme Court can be seen from the case of E.D. & F. Man (Sugar Ltd) v. Yani Haryanto. In this case, the Central Jakarta District Court had annulled the underlying contract based on the violation of the Indonesian public policy. [76] On the other hand, the Indonesian Supreme Court (the Mahkamah Agung) rendered the exequatur (writ of execution) upon this case. However, the exequatur of the Supreme Court was then considered as unenforceable since the underlying contract was invalid. It can be noted from this case that the absence of centralized jurisdictional system can promote a legal gap and inconsistent judicial decision between the two judicial institutions.
Most of the provision of the 1999 Act relating to the form and content of arbitration agreement is no longer based on the Code of Civil Procedure (CCP) and have undergone several changes. A number of new provisions have also been introduced, specifically with respect to the place of arbitration, applicable law, and the correction of the award and additional awards. [77] In terms of form and content of arbitration agreement, the 1999 Act has no differentiation between the arbitration agreement at the present dispute (submission) and the future disputes (pactum de comprommitendo).[78] The existence of two types of arbitration agreements do not impose any distinctive features of treatment in respect of their validity. The Act only provides for their separate treatment concerning the mechanism for commencing arbitration and the contents of a submission agreement.[79] The proceeding of arbitration agreement are considered to have been initiated on the day when a party receives a written notice containing information that the other party commencing arbitration.[80]
In practice, however, Indonesian court usually disregard ‘agreement to arbitrate’. Although article 3 and 11 of the Act No. 30 of 1999 embody a “limited court involvement values”[81] and expressly states that domestic courts have no authority or competency to litigate the case of the contracting parties, it is not always the case in practice. Inconsistency of application of this provision remain exists. This controversial situation can be noted from the case of Bankers Trust Company and Bankers Trust International PLC (BT) v. Mayora Ltd which has justifiably raised concerns.[82] Basically, since the contract of both parties had agreed to resolve their disputes on the arbitration, the District court of Jakarta certainly had no authority to settle this dispute based on article 11 of the Act No. 30 of 1999.[83] However, the court disregard the arbitration clause provision of the contract and issued a court decision No. 46/Pdt.G/1999 on 9 December 1999 due to the lack of commerciality. This inconsistency, of course, fundamentally violates the provision of the 1999 Act as a basic arbitration regulation in Indonesia and undermines the article III of the New York Convention.
The Absence of Integrated Legal Framework of Procedural and
Regulatory of Pro Enforcement Procedure
The inherent obstacles of the enforcement mechanism do not only relate to procedural issues, but it also concern with the substantive regulatory issues. Since some of the Indonesian law mostly based on the ancient Dutch Codes e.g. Civil Code, most of the provisions are inconsistent with the global legal standard. Moreover, Indonesian legal pluralism has also become a major characteristic of the Indonesian contemporary legal system.[84] This, of course, one unfortunate feature of the Indonesian civil law system. In regards to the contract formation, for instance, the ‘causa’ (lawful purpose) still required to be the most important prerequisite in determining the validity of contract. The article 1320 of Burgerlijk Wetboek states that: the validity of contract is mainly based on offer and acceptance, subject capability, subject matter and legitimate ‘causa’. It means that the objectives of the contracting parties should not be contrary to the Indonesian public order and mandatory law (dwingend rechts). If a contract is contrary to national mandatory rules, it can be deemed as null and void, thus it cannot be enforced in Indonesia. From this point, the validity of contract as stated in article 1320 of the Civil Code (Burgerlijk Wetboek) can be equated with public order (ketertiban umum). Compared to the New Dutch Contract Law (Niew Burgerlijk Weboek/NBW) and the UPICC (UNCITRAL Principles of International Commercial Contract), the prerequisite of ‘causa’ in civil law system has been removed since it can create legal uncertainty and vagueness. Unfortunately, the coexistence of public policy and the validity of contract has become the major feature of the refusal of enforcement of foreign arbitral awards in Indonesia. This, of course, may expand the application of public policy exception.
Mandatory rules of economic regulations also play a significant role in the application of public policy exception. However, the absence of clear restriction of what can be called as mandatory rules has caused potential sources of inconsistency of the application of public policy exception.[85] The centrality emergence of delegated legislation in the form of presidential decrees, ministerial decrees and other administrative decrees has led to inconsistency, overlapping and contradiction between lower level decrees and legislations on a daily basis of administrative activities.[86] Most of economic activities in Indonesia has been administratively regulated by delegated legislation.[87] It has been claimed that the Indonesian law is primarily influenced by administrative and government policies.[88] Consequently, administrative regulation plays a major role rather than the formal legislation. This peculiar feature of the ”lawlessness”[89] situation in Indonesia has widened the scope of public policy exception in terms of the violation of public order or the Indonesian mandatory laws.
Interestingly, as a civil law country, Indonesian laws are not mainly based on the rigidity of codification or legislation. The freedom of contract, economic liberalization and investment openness policy have forced Indonesia to become more receptive to international commercial treaty and agreement. Despite those peculiarities of the Indonesian legal framework which has been previously mentioned, it is arguably to claim that the Indonesian law does not receptive to usages and customs law. In respect of contract law, for instance, based on the article of 1339, good faith (bona fides) which is known as one of the major principle of UNCITRAL Principles of International Commercial Contracts (UPICC) has always been a major legal basis in every contract formation. In addition, since Indonesia does not apply parol evidence rules, it seems to be more receptive to the usage and customs. According to article 1397 of the Civil Code (Burgerlijk Wetboek), not only do the contracting parties bind to the written provisions, but they also bind to usage and customs in relation to the contract. This, of course, exemplifies the receptiveness of the Indonesian law to the implementation of the general principles of international law and the new lex mercatoria such as pacta sunt servanda (sanctity of contract), freedom of contract, force majeure, good faith etc. However, it should be noted that the uncertainty of those general principles application can also be a problematic issue in the finality and enforceability of the awards.
V THE RELEVANCE AND PROBLEMATIC ISSUES OF THE INDONESIAN ARBITRATION ACT, THE NEW YORK CONVENTION AND THE MODEL LAW
Although Indonesia has ratified the New York Convention based on the Presidential Decree No. 34 of 1981 and the substance of the Indonesian Arbitration Act No. 30 of 1999 basically adopts the New York Convention, there are still some controversies of enforcement mechanisms of foreign arbitral awards in practice. Theoretically, since Indonesia has ratified the New York Convention, the enforcement of the awards should be possible. In practice, however, the public policy exception and court intervention have become the ongoing judicial hostility to arbitration. In other words, the Indonesian law system remains apply traditional “dualistic approach”[90] to the implementation of the New York Convention in domestic legal system.[91] In terms of the Indonesian judicial experience which has been mentioned in previous section, it can be seen that the municipal courts tend to apply domestic public policy rather than international public policy. Consequently, it can undermine the spirit of pro enforcement bias of the New York Convention.
Basically, the tension of the dichotomy of municipal law and international law has led to a major ambivalent of the distinction application of domestic and international public policy.[92] Some scholars[93] argue that both laws are totally two different legal systems.[94] The opponents of this approach (monists), however, claim that international law is a part of domestic legal system.[95] What is notable about this two categorizations is that they provide a great implication to the distinctive application of domestic, international and transnational (truly international) public policy exception.[96] The international standard of public policy exception which has been drafted by the International Law Association (ILA) aimed to provide a restrictive approach to public policy defense through the formulation of international public policy.[97] However, it has to be noted that international law is not merely a part of domestic law unless it is enacted in the national law.[98] Thus, although most countries have ratified the New York Convention, the scope of public policy exception which is enshrined in the article V (2) (b) remains ambiguous and vague. Since international public policy basically derives from restrictive approach of national public policy, its application mainly focuses on the national law basis rather than international law basis.[99] Therefore, it is believe that each state has its own international public policy. Consequently, the application of international public policy mostly depends on how the municipal courts in various countries have interpreted the doctrine of public policy in the context of global economy.
The article III of the New York Convention left much discretionary power of foreign arbitral enforcement to the ‘rule of procedure’ of the territory where the award relied upon. Since the enforcement of foreign arbitral awards left open to the procedural rule of the enforcing states, it may lead to more exhaustive conditions of enforcement procedure. Based on the article 66 (d) of the Indonesian Arbitration Act, foreign arbitral awards can be enforced in Indonesia after it receives ‘exequatur’ (writ of execution) from the Central Jakarta District Court or the Supreme Court.[100] This enforcement mechanism of foreign arbitral awards confine to ‘the rules of procedure’ of Indonesia as the enforcing state. In other words, the Indonesian municipal courts have a judicial authority to intervene to the enforcement of international arbitral awards. Previously, it will also be examined whether the enforcement of the awards will violate the Indonesian public policy. Thus, those awards cannot be directly enforced upon application in writing (submission) to the competent court. The UNCITRAL Model Law, on the other hand, does not specifically confine to ‘the rules of procedures’ of the competent court, but it is more confine to ‘the enforcement’ of foreign arbitral awards upon the submission.[101] Article 35 of the UNCITRAL Model Law on International Commercial Arbitration, by contrast, provides that ‘an arbitral award should be enforced upon application in writing to the competent court.’ It means that no complicated procedure or exhaustive municipal court intervention should be applied in respect of the enforcement mechanism.
The ‘pro enforcement policy’ of the New York Convention implicitly emphasizes on foreign arbitral awards rather than domestic awards. In other words, the enforcement of international arbitral awards should not be restricted by excessive conditions. It specifically can be noted from the provision of article III of the New York Convention:
“…there shall not be imposed substantially more onerous conditions or higher fees of charges on the recognition and enforcement of arbitral awards to which the conventions applies than are imposed on the recognition or enforcement of domestic arbitral awards. “
From this provision, it can be seen that the Convention implicitly distinguish the enforcement of foreign arbitral awards and domestic arbitral awards. However, controversies and complexities of this provision remain exists since the distinction between domestic and foreign awards is not always clear. This so called “pro enforcement bias” of the New York Convention consequently need a narrow approach to public policy exception. Thus, it refers to international public policy rather than domestic public policy. Accordingly, the phrase of public policy in the context of public policy exception should be restricted to basic notion of justice and morality.[102]
In terms of arbitral awards enforcement, the Indonesian Arbitration Act No. 30 of 1999 has a similar scope of application to the New York Convention. For example, both the 1999 Act and the New York Convention differentiate between domestic arbitral awards and international arbitral awards. The article 1 (3) of the UNCITRAL Model Law, by contrast, gives specific limitation to international commercial arbitration (not the awards). The monistic approach to lex arbitri[103] is basically beneficial to the enforceability of foreign arbitral awards since it creates a single regulatory pattern for arbitration. In terms of the product, however, the Act 1999 does differentiates between domestic and international awards.[104] The different procedure of enforcement between two kinds of awards may lead to discriminatory treatment.[105] From this point, it can be noted that the Act no. 30 of 1999 does not purely monism, but it also implies dualistic approach to the enforceability of foreign awards.[106]
The emergence of on going issues of judicial hostility on a legal basis of public policy exception has not only been provided in the article V (2) (b) of the New York Convention 1958, but it is also stated in the article 36 (b) (ii) of the UNCITRAL Model Law on International Commercial Arbitration. Both international conventions provide:
“Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(b) the recognition or enforcement of the award would be contrary to the public policy of that country.”[107]
“Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:
(b) If the court finds that:
(ii) the recognition and enforcement of the award would be contrary to the public policy of this state”.[108]
It can be noted from these provisions that these two international conventions did not attempt to establish a unified and global standard of public policy exception.[109] Furthermore, there has not been a fixed definition of what should be categorized as a public policy exception.[110] Moreover, it also implies a common principle that the municipal courts of the enforcing states have an exclusive authority to set aside the awards on the ground of public policy.[111] This discretionary power of the court of the country of origin in regard to the application of public policy exception may lead to an extensive interpretation of public policy principle.[112] Article III of the New York Convention, however, has restricted the discretionary power of the states’ courts in respect of the enforcement of international arbitral awards.[113] This provision implies that public policy exception should be construed narrowly and it should confine to international public policy rather than domestic public policy. However, this provision remain vague since there has not been a clear cut distinction between domestic and international public policy exception.[114]
The Act No. 30 of 1999 concerning the Indonesian Arbitration and Alternative Dispute Resolution (ADR) also has a similar concept of the Convention. The article 66 (c) of the 1999 Act provides that: “foreign arbitral awards can be recognized and enforced in Indonesia unless they violates the Indonesian public order (ketertiban umum).”[115] However, there is no clear definition or standard interpretation of the meaning of public order in this Act. The explanatory remarks of the 1999 Act has not strictly defined the scope and meaning of what can be characterized as the Indonesian public order. As a result of this vague concept of public order (ketertiban umum), thus, it can be widely applied. In addition, this principle is patently used as a protective devise of national interests of the country.[116]
As previously mentioned, foreign arbitral awards which fall within article 66 of the Act No. 30 of 1999 can be enforced in Indonesia. However, Indonesian arbitration law also provides for legal basis to set aside foreign arbitral awards on the ground of the violation of public order (ketertiban umum).[117] This provision is fundamentally adopted article V (2) (b) of the New York Convention and article 36 (b) (ii) of the UNCITRAL Model Law. Actually, the Indonesian arbitration law does not distinguish between international and domestic arbitration regimes.[118] What can be noted from the provisions of these two international treaties, they basically justify non enforcement on the ground of the violation of states’ public policy. The term of “states’ public policy”, of course, may lead to a divergence of the application of public policy exception in the global legal pluralism.
Since this provision opens for national interpretation of public policy, this term is very subjective. Consequently, the municipal court of the enforcing states have a legal discretionary power to enforce or refuse the awards based on their national standards of public policy.[119] Unfortunately, public policy has been frequently used by the loosing parties to oppose the enforceability of contract. The article 66 (c) of the Act No. 30 of 1999 does not specifically refer to the Indonesian public order (ketertiban umum). It just expressly states that the enforcement of foreign arbitral awards in Indonesia should not be contrary to public order (ketertiban umum) with no corresponding reference to Indonesia.[120] The Explanation of the Act 1999 does not mention any specific scope and definition of what can be characterized as public order (ketertiban umum).[121] However, since the Indonesian Arbitration Act is intended to regulate both domestic and international arbitral awards, a reference to public policy must necessarily refer to the public policy of Indonesia.[122]
From this perspective, it can reasonably be inferred that the public policy meaning left completely at the municipal court’s discretion. The difficulty is compounded by the fact that public policy meaning is frequently equated with mandatory rules of law, the validity of contract and commerciality. This, of course, has widened the public policy notion. In the case of E.D.& F. Man (Sugar) Ltd. vs. Yani Haryanto, for example, public policy has been interpreted as the violation of the validity of contract and the lack of commerciality. Since government’s issuance of economic regulation prohibiting private party to import sugar into Indonesia based on the Presidential Decree no. 38 of 1978, thus, this economic activity can be deemed as a sovereign activity – not commercial activity. In addition, since the enforcement of the award will violate the Indonesian mandatory rules, this award cannot be enforced in Indonesia. It is mainly because the contract is considered invalid due to its illegal ‘causa’ (unlawful purpose). From this case, it can be noted that the Indonesian Supreme Court defined the nature of public policy exception as domestic public policy rather than international public policy. Therefore, anything which the Indonesian court perceives as contrary to the notion of public morality in Indonesia can be considered as contrary to public order (ketertiban umum).
This domestic interpretation of public policy exception may lead to the reluctance of the municipal courts to enforce foreign arbitral awards. In the period of the post ratification of the New York Convention, for example, Indonesian Supreme Court refuse to enforce foreign award on the ground of public policy exception in a wide concept and non exceptional circumstances.[123] The absence of the scope of public order (ketertiban umum) defense in the Arbitration Act no. 30 of 1999 constitutes that the Indonesian courts can either apply a narrow or wide interpretation of the scope and meaning of public policy. This domestic judicial practices, of course, may lead to a serious problem in international context.[124] It will increase a legal tension between domestic and international public policy in national court practices.[125] Therefore, internationalisation approach to public policy exception plays a major role in the application of public policy exception in global business community.[126]
The absence of clear concept and scope of public policy exception in the New York Convention has led to a dilemma of the application of public policy in global legal pluralism regime.[127] Indonesia as one of the developing countries has not fully positioning pro enforcement policy beyond its own national jurisdiction and economic interests.[128] The open texture of the scope of public policy tend to be widely interpreted by the national courts. Not only does this trend leads to an expansion meaning and scope of public policy exception, but it also creates inconsistent judicial decisions and inefficiency. The Indonesian courts tend to define public policy exhaustively including ‘non arbitrability’, ‘invalidity of contract formation’ or ‘illegality’ and the violation of mandatory rules.[129] Longdong also claimed that the scope of public policy exception in the New York Convention includes the article V (1) (b), article V (1) (d), article V (2) (a) and article V (2) (a) and article II (3).[130] What can be noted from this interpretation is that it is mainly based on domestic public policy per se, without considering the international concept of public policy exception in a globalization regime.
The emergence of transnational legal order in the twentieth century has shifted a nationalist approach to an international approach which is more receptive to external legal standards.[131] International context of public policy defense has been widely promoted in a global legal pluralism and it is rarely that public policy exception has resulted to the refusal of foreign arbitral awards.[132] In other words, the application of public policy exception should be construed narrowly. However, since public policy exception as a legal basis of the refusal enforcement of foreign arbitral awards closely relates to policies of the forum,[133] therefore, the diversity of concept and scope of public policy worldwide has been inevitable.[134] The most common approach to achieve a narrow interpretation of public policy exception is subject to either “international public policy” and “transnational or truly international public policy” as the fundamental patterns of the awards enforcement in global commerce.[135] Such international values consist of universal values such as fundamental rules of natural law, principle of universal justice, jus cogens in public international law and the general principles of morality.[136] This application of these universal principles, of course, will prevent the setting aside of international awards on the basis of a “pure domestic requirement” [137] which is very unfamiliar and subjective.[138] Moreover, it has been argued that universal adoption of general principles of international law which are universally accepted and recognized would reduce conflict of national laws since all of states implement a global legal standard.[139] However, confusion still exists even if international public policy is also part of the enforcement state’s public policy due to its general scope and the lack of precise definition of domestic and international public policy. Neither the New York Convention nor the ILA resolution have achieved a global and standard interpretation of public policy exception. It can be seen from the characterization of international public policy based on ILA Resolution which consists of: (i) fundamental principles of justice and morality; (ii) lois de police or public policy rules; and (iii) the comity.[140] Principally, this broad characterization has not absolutely revealed a certain basic standard of public policy exception. Its wide scope still needs a states’ court discretionary power to interpret those principles in favor of the pro arbitration policy.[141] This context demonstrates that a narrow approach of public policy cannot be self executed. Therefore, internationalisation and transnational approach to public policy exception should be promoted in order to shift from a traditional domestic approach to a global approach.
Despite the statutory reform of arbitration law, some problematic issues concerning the finality and enforceability of foreign arbitral awards remain exist in Indonesia. The judicial hostility as a reflection of territorial sovereignty has become a common ground of the unenforceability of foreign arbitral awards. The domestic pluralistic legal tradition and culture as well as the lack of internationalization approach have also significantly influenced the pro arbitration bias of the Indonesian judicial experience. As the number of international commercial transactions arises, the Indonesian courts should be forced to uphold the finality and enforceability to assure predictability and legal certainty for parties that use arbitration as a dispute settlement body.
[*] Lecturer of the Airlangga University, Indonesia, and currently undertaking her PhD at the Division of Law, Macquarie University.
[1] The Legal tradition should be distinguished from legal culture. In this case, the legal tradition is more formal than legal culture. The substance of the legal culture is expressly encapsulated and formalized in a legal tradition in the form of codes, statutes and judicial decision which are established in the form of principles, standards and rules of law. See Trakman, “Legal Traditions” and International Commercial Arbitration, 2007, available at: <http://www.austlii.edu.au/au/journals/UNSWLRS/2007/29.html> , viewed on 3 June 2008, p. 2.
[2] This principle based on the article 131 of the Indishe Staatsregeling (IS). Based on this principle, since the Dutch occupation period, the Dutch law can be implemented in Indonesia in order to prevent legal vacuum. However, the ancient Dutch law still become the main part of the Indonesian legislation after the independence era. According to article II of the Indonesian Constitution 1945 concerning the Transitional Rule, those law can be still applied as long as the new legislation has not been enacted. See Sudargo Gautama, The Commercial Laws of Indonesia, Citra Aditya Bakti, Bandung, 1998, p. 1. See also Sudargo Gautama, Indonesian Business Law, Citra Aditya Bhakti, Bandung, 2002, p. 10-11.
[3] See Luttrel SR, Lex Arbitri Indonesia – The Law, Practice and Place of Commercial Arbitration in Indonesia Today, available at:
<http://:www.srluttrell.com/articles/Lex_Arbitri_Indonesia_(Int_A_L_R-%2520Dec-2007).pdf> , viewed on 29 May 2008, p. 9. See also article 1338 of the Indonesian Civil Code (Burgerlijk Wetboek).
[4] It means that the parties have right to choose preferred legal traditions which can be applied to their contracts. See Trakman, above no. 1, at 5.
[5] The ancient Dutch concerning Civil Procedure implied an intention to isolate Indonesia from international commercial arbitration development. See Harahap Y, Arbitrase, Sinar Grafika, Jakarta, 2003, p. 13.
[6] Ibid.
[7] Trakman, above no. 1, at 6.
[8] See article 436 of the Code of Civil Procedure.
[9] The jurisdictionalists often claims that each sovereign state has its own international public policy. Thus, there is no international character of public policy since it is basically derived from national public policy. See Gautama, Hukum Perdata International Indonesia, Citra Aditya Bakti, Bandung, 1998, p. 125.
[10] See Gautama, above no. 2, at 4.
[11] Ibid. Although this provision is no longer valid after the independence of the Republic of Indonesia based on the article II of the Constitution 1945 concerning the Transitional Regulation, it still likely to be practically applied in some cases such as inheritance law, property law and contract law etc. See Gautama, above no. 2, at. 4.
[12] The judicial institution and procedures of the indigeneous Indonesian (Bumiputera) is Landraad and its procedural law is Herziene Inlandsch Reglement (abbreviated HIR). See Gautama S, above no. 2, at. 4. The dispute between the indigenous Indonesia (bumiputera) v. East Asians can be solved by arbitrator upon their consents based on the Code of Civil Procedure. See article 377 Herziene Inlandsch Reglement (HIR) and article 705 Reglement Buitengewesten (RBg). See Widjaja G & Yani A, Hukum Arbitrase, RajaGrafindo Persada, Jakarta, 2003, p. 13.
[13] See Gautama, above no. 2, at. 4.
[14] Green Stephen B, Arbitration: A Viable Alternative for Resolving Commercial Disputes in Indonesia?, in Indonesia, Law and Society, Lindsey T (ed), Federation Press, Australia, 1999, p. 292.
[15] Ibid., at. 293.
[16] Ibid.
[17] The old judicial hostility was also visible in the United States of America (the US) in the nineteenth century. In this period, as the reflection of judicial hostility to arbitration, agreement to arbitrate was considered as non enforceable and revocable. See Burton Steven J & Murray John F, The New Judicial Hostility to Arbitration: Unconscianability and Agreement to Arbitrate, available at:
http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID957829_code650352.pdf?abstractid=957829&mirid=1, Viewed on 24 April 2008, p. 9-10.
See also Scodro Michael A, Deterrence and Implied Limits on Arbitral Power, available at: <http//www.law.duke.edu/shell/cite.pl?55+Duke+L.+J.+547+pdf>, viewed on 24 April 2008, p. 549.
[18] Louis Tuegeh Longdong, Asas Ketertiban Umum dan Konvensi New York 1958, Sebuah Tinjauan atas Pelaksanaan Konvensi New York 1958 pada Putusan-Putusan Mahkamah Agung RI dan Pengadilan Asing, Citra Aditya Bakti, Bandung, 1998, p. 189. Concordance principle is a principle stating that all of Dutch Law can also be implemented in Indonesia as a colonialized state. Previously, the arbitration law in Indonesia was enshrined in the Code of Civil Procedure of 1847, Book III, articles 615-651. See also Adolf H, Arbitrase komersial Internasional, Raja Grafindo Persada, Jakarta, 2002, p. 131.
[19] Adolf, above no. 18, at. 131.
[20] See article 436 Rv, Staatblad No. 52 of 1947 jo No. 63 of 1849.
[21] Longdong , above no. 18, at. 187.
[22] Gautama , above no. 9, at. 59
[23] Ibid.
[24] Gautama, above no. 9, at. 59.
[25] Taylor Veronica L, Contract and Contract Enforcement in Indonesia: An Institutional Assessment, in Indonesia, Law and Society, Lindsey T (ed), 2nd edition, Federation Press, Sydney, 2008, P. 581.
[26] Ibid.
[27] Ibid.
[28] Barraclough A & Waincymer J, Mandatory Rules of Law in International Commercial Arbitration, available at: http//www.law.monash.edu.au/research/2005-research-publication-data.pdf>, viewed on 24 April 2008, p. 3. The jurisdictional theory has been challenged by the contractual theory. Based on contractualists, the agreement to arbitrate which is agreed by the parties has a paramount importance of the authority of the arbitrators to make the awards. The arbitrator, thus, play a major role as an agent of the parties. The states have no control over the arbitration authority and it hostile to mandatory rules. See also Tsakatoura A, The Immunity of Arbitrators, available at: <http://www.inter-lawyer.com/lex-e-scripta/articles/arbitrators-immunity.htm> , viewed on 27 April 2008, p. 4.
[29] See article 1338 of the Civil Code (Burgerlijk Wetboek). See also Hornick RN, Indonesian Arbitration in Theory and Practice, The American Journal of Comparative Law, Vol. 39, No. 3, 1991, p. 559.
[30] Based on contractualist view, arbitration and the execution of awards should be detached from domestic legal system and municipal court intervention. See also Barraclough A & Waincymer, see above no. 28, at. 4.
[31] Ibid.
[32] Ibid. The hybrid theory is not primarily based on consensual basis, but it also gives a legitimacy to the control of the national legal system as a reflection of national sovereignty. Ibid., p.5.
[33] Longdong , above no. 18, at. 187.
[34] See the case between Navigation Maritime Bulgare v. PT Nizwar (No. 2288/1979 P), 19 June 1981. This case was previously executed by the district court, but the supreme court then refuse the enforcement of that award on the ground of violation of the Indonesian territorial sovereignty.
[35] Longdong , above no. 18, at.. 189.
[36] Ibid.
[37] Green Stephen B, above no. 14, at 296. See also Berkowitz D, Moenius J & Pistor K, Legal Institutions and International Trade Flows, Michigan Journal of International Law, Vol. 26, 2004, available at: <http:// www.pitt.edu/~dmberk/Berkowitz%20Moenius%20Pistor.pdf> , Viewed on 8 May 2008, p. 22.
[38] Luttrel SR, above no. 3, at. 8.
[39] Ibid.
[40] Adolf, above no. 18, at. 131. See also Mills Karen, Arbitration in Indonesia, available at: <http:// www.hkiac.org/odr/DotAsia/Panelist/MILLS%20Karen.pdf> , viewed on: 8 May 2008, p. 5. The application of the Dutch codification was mainly based on the concordance principle (concordantie beginsel).
[41] Ibid.
[42] Ibid.
[43] See article 3 of the Act no. 30 of 1999 concerning the Arbitration and Alternative Dispute Resolution (ADR)..
[44] See article 11 of the Act no. 30 of 1999 regarding the Arbitration and the Alternative Dispute Resolution (ADR)..
[45] This article provides that that every valid contract shall be applied as a mandatory rules of the contracting parties. This is also known as pacta sunt servanda principle (sanctity of contract).
[46] See article 11 (2) of the Act No. 30 of 1990 concerning the Arbitration and Alternative Dispute Resolution (ADR).
[47] See article 60 of the Act No. 30 of 1999 regarding the Indonesian Arbitration and Alternative Dispute Resolution.
[48] This approach is similar to the Netherlands Arbitration Act 1986. Adolf, above no. 18, at. 133.
[49] Luttrell SR, above no. 3, at. 11.
[50] Ibid, at. 12.
[51] Ibid. In contrast, the dualist approach distinguish between international and domestic arbitration. Thus, there is a discretionary treatment between domestic and international arbitration. See also article 59-65 of the Act no. 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (ADR).
[52] Ibid. See also article 59 – 69 of the Act No. 30 of 1999 regarding the enforcement of arbitral awards. Based on this provision, the District Courts have a legal jurisdiction to enforce national arbitration awards. The recognition and enforcement of foreign arbitral awards and arbitral awards of state contracts, however, can only be handled by the Central Jakarta District Court and the Supreme Court respectively based on article 65 of the 1999 Act.
[53] Xiaolong L, The Recognition and Enforcement of Foreign Arbitral Awards in China, in New Horizons in International Commercial Arbitration and Beyond, ICCA International Arbitration Congress, Van den Berg AJ (ed), Kluwer Law International, the Netherlands, 2005, p. 347.
[54] Xiaolong L, see above no. 53, at. 347.
[55] O’Hara EA & Ribstein LE, From Politics to Efficiency in Choice of Law, in Economics of Conflict of Laws, Edward Elgar, UK, p. 245.
[56] Ibid.
[57] Ibid., at. 12.
[58] Albert Jan Van den Berg, Why Are Some Awards Not Enforceable ?, in the New Horizon in International Commercial Arbitration and Beyond, ICCA International Arbitration Congress, Albert Jan Van den Berg (ed), Kluwer Law International, The Netherland, 2005, p.316.
[59] Van den Berg, above no. 58, at. 316. This has been a debate concerning whether the ratification of the New York Convention 1958 need to be followed by the implementing regulation or not. Some believe that the ratification of NYC by the enactment of Presidential Decree no. 34 of 1991 has legal implication on Indonesian government to implement pro enforcement bias which is enshrined in article III of the convention. Thus, foreign arbitral awards should be enforced in Indonesia. Another scholar claims that Based on the Indonesian constitutional system, the effectiveness application of international convention mostly depends on the enactment of the implementing legislation. Further, it is argued that the New York Convention as an international soft law is not a transnational law and it cannot be legally enforced in Indonesia before it has been incorporated in the national law. Indonesian accession to the New York Convention has been legally based on the Presidential Decree No. 34 of 1981 See Gautama, above no. 2, at 78.
[60] Mahkamah Agung (Supreme Court), 20 August 1984, Navigation Maritime Bulgare v. PT Nizwar, Jakarta and Mahkamah Agung (Supreme Court), 1984, PT Bakri & Brothers v. Trading Corporation of Pakistan Limited, See Longdong Tuegeh L, above no. 18, at. 13-14.
[61] Adolf, above no. 18, at. 121.
[62] The ratification of the New York Convention, however, was solely based on the presidential decree. Thus, it disregard the involvement of parliament (Dewan Perwakilan Rakyat – DPR). Thus, this had led to the controversy issue of whether this ratification should be followed by the implementing regulation or not. This inconsistent legal framework, of course, gave a negative impact on the enforceability and finality of the foreign awards.
[63] Longdong, above no. 18, at. 12.
[64] Ibid., at. 14 -15.
[65] See article 65 of the Act No. 30 of 1999 regarding the Indonesian Arbitration and Alternative Dispute Resolution.
[66] See article 66 of the Act No. 30 of 1999 regarding the Indonesian Arbitration and Alternative Dispute Resolution.
[67] Babu Rajesh R, International Commercial Arbitration and the Developing Countries, AALCO Quarterly Bulletin, No. 4, 2006, available at:
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=981123> , Viewed on: 11 May 2008, p. 394.
[68] See article 66 (d) of the Act No. 30 of 1999 regarding the Indonesian Arbitration and Alternative Dispute Resolution.
[69] See article 66 (e) of the Act No. 30 of 1999 regarding the Indonesian Arbitration and Alternative Dispute Resolution.
[70] See article 66 (e) of the Act No. 30 of 1999 regarding the Indonesian Arbitration and Alternative Dispute Resolution. See also Mills Karen, Arbitration in Indonesia, available at: <http:// www.hkiac.org/odr/DotAsia/Panelist/MILLS%20Karen.pdf> , Viewed on: 8 May 2008, p. 33.
[71] Theresa Cheng SC, Comments on Enforceability of Awards, in the New Horizon in International Commercial Arbitration and Beyond ICCA International Arbitration Congress, Albert Jan Van den Berg (ed), Kluwer Law International, The Netherlands, 2005, p. 364.
[72] The enforcement of foreign arbitral awards which does not involve the Republic of Indonesia as a contracting party , the exequatur shall be granted by The District Court of The Centre of Jakarta. If the enforcement of international awards involves the Republic Indonesian government, the exequatur should be granted by the Indonesian Supreme Court. See article 66 point (d) and (e) of the Act no. 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (ADR).
[73] See article 66 point (d) and (e) of the Act no. 30 of 1999 concerning the Arbitration and Alternative Dispute Resolution (ADR).
[74] Born G & Miles W, Global Trends in International Arbitration, available at: <http://209.85.173.104/search?q=cache:KJ-gjNdhzyAJ:www.wilmerhale.com/files/Publication/3eadc21b-4cad-4ea8-bf29-012226df50b5/Presentation/PublicationAttachment/bb9cd3fd-f046-4489-b2a9-086a72f6d24d/GlobalTrends_InternationalArbitration.pdf+centralized+jurisdiction+system+of+foreign+arbitral+awards+enforcement & hl=id & ct=clnk & cd=2> , viewed on 2 May 2008, p. 3.
[75] See article III of the New York Convention 1958.
[76] The contract was considered as contrary to public policy since it violates the Presidential Decree No. 43 of 1971 and Decree No. 39 of 1978 concerning the prohibition of private individual to import sugar. Based on these decrees, only the Indonesian government procurement agency (BULOG) that can import sugar. See Mills K, Enforcement of Foreign Arbitral Awards in Indonesia & Other Issues of Judicial Involvement in Arbitration, available at: http://209.85.173.104/search?q=cache:DCUp2L_2Q8sJ:www.arbitralwomen.org/files/publication/4310102632224.pdf+ED+%26+F+Man+v.+Yani+Haryanto+and+arbitral+awards+enforcement&hl=id&ct=clnk&cd=2>, viewed on 2 May 2008, p. 10.
[77] Mills K, above no. 76, at. 143-145.
[78] Huala Adolf, above no. 18, at. 134.
[79] SeeArticle 8 (2) of the Act No. 30 of 1999 regarding the Arbitration and Alternative Dispute Resolution (ADR)
[80] Ibid.
[81] Faiz Mohamad, P, Kemungkinan Diajukannya Perkara dengan Klausula Arbitrase ke Muka Pengadilan, available at: <http://www.jurnalhukum.blogspot.com/2006/09/klausul-arbitrase-dan-pengadilan_18.html> , Viewed on 24 April 2008, p. 9.
[82] Ibid.
[83] Ibid.
[84] Taylor Veronica L, above no. 25, at. 578.
[85] Berkowitz D, Moenius J & Pistor K, above no. 17, at. 25.
[86] Ibid.
[87] Ibid.
[88] Luttrell SR, Lex Arbitri Indonesia – The Law, Practice and Place of Commercial Arbitration in Indonesia Today, available at:
<http://www.srluttrell.com/articles/Lex_Arbitri_Indonesia_(Int_A_L_R-%2520Dec-2007.pdf> , viewed on: 8 May 2008, p. 6.
[89] Ibid.
[90] Danilenko GM, Implementation of International Law in CIS States: Theory and Practice, European Journal of International Law (EJIL), Vol. 10, 1999, available at: <http://ejil.oxfordjournals.org/cgi/reprint/10/1/51.pdf> ., viewed on: 8 May 2008, p. 1.
[91] It means that although the New York Convention as an international law has become an integral part of the Indonesian legal system, the Indonesian judicial practices and public policy interpretation has not always been reflected in practice. The interpretation of public order (ketertiban umum) as one of the major grounds of application to set aside foreign arbitral awards is mainly interpreted in accordance with domestic legislation rather than international laws and values. See Danilenko GM, above No. 90, at. 1.
[92] There has been a debate about the relation of the public – private international law. Some of the scholars claims that the private international law cannot be totally isolated from the public international law since the latter can also be originated from the customary international law which is derived from the common legal activities of several states in a certain period. See Ma, above n 118, at 91. Compare with Maniruzzaman, AFM, State Contract in Contemporary International Law: Monist versus Dualist Controversies, available online at: <http://www.ejil.oxfordjournals.org/cgi/content/abstract/12/2/309> , viewed on May 2008, p. 309-310. He argues that the monist of international law give the supremacy of public international law over municipal or domestic law (private international law).
[93] See Winnie (Jo Mei) Ma, Public Policy in the Judicial Enforcement of Arbitral Awards, Lessons for and From Australia,
<http://epublications.bond.edu.au/context/theses/article/1023/index/0/type/native/viewcontent/ -> , viewed on 8 May 2008, p. 91. See also Kirby M, The Growing Rapprochment Between International Law and National Law, available at
<http:// www.hcourt.gov.au/speeches/kirbyj/kirbyj_weeram.htm> , viewed on 21 May 2008, at. 1&6.
[94] “They exist side by side within the different sphere of action – the international plane and the domestic plane.” This can be considered as a traditional concept since it views international law is not an integral part of the domestic law. See Kirby M, above no 93, at 6. See also Maniruzzaman AFM, above no. 91, at. 319. This concept is commonly applied by the dualist theory which claims that the application of international law in a particular national jurisdiction since its application is being transformed and incorporated within the domestic condition. It means that the domestic law system have a supremacy over the international law.
[95] Kirby M, above no. 93, at. 1.
[96] See Parameshwaran A, Conflict of Laws in the Enforcement of Foreign Awards and Foreign Judgments – The Public Policy Defense and Practice in US Courts, available at: <http://.law.uga.edu/stu_llm/40/ - 14k> viewed on 8 May 2008, p. 6. See also Blom J, Public Policy in Private International Law and Its Evolution in Time, available at <http:// digitalcommons.law.uga.edu/stu_llm/40/ - 14k> , viewed on 20 March 2008, p. 395-398. He asserts that the fundamental values of public policy exception is not mainly based on domestic laws, but it also fundamentally refers to the general principles of public international law.
[97] International Law Association, Resolution of the ILA on Public Policy as Bar to Enforcement of International Arbitral Awards, 2002, available at:
<http://www.epublications.bond.edu.au/context/theses/article/1023/index/2/type/native/viewcontent> , viewed on 8 May 2008.
[98] Some argues that “international public policy is basically national law as it can be sanctioned only by national judges.” See United Nations Conference on Trade and Development, Dispute Settlement, International Commercial Arbitration, Recognition and Enforcement of Arbitral Awards: The New York Convention, available
at: <http://www.unctad.org/Templates/Page.asp?intItemID=2102 & lang=1 - 70k> , viewed on 21 May 2008, p. 39.
[99] See Gautama, above no. 9, at 122-123.
[100] See article 66 (d) and (e) of the Act No. 30 of 1999 regarding the Arbitration and Alternative Dispute Resolution (ADR). The enforcement of state contracts should be based on the exequatur of the Supreme Court.
[101] See article 35 (1) of the UNCITRAL Model Law on the International Commercial Arbitration.
[102] Kohler Gabrielle K, Enforcement Awards – A Few Introductory Thoughts, in New Horizon in International Commercial Arbitration and Beyond, ICCA International Arbitration Congress, Albert Jan Van den Berg (ed), Kluwer Law International, The Netherlands, 2005, p. 288.
[103] The Act no. 30 of 1999 does not distinguish between domestic and international arbitration. See Luttrel SR, above no. 3, at 11.
[104] See article 65 – 69 of the Act no. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (ADR). See also Luttrel SR, above no. 3, at. 13.
[105] The foreign arbitral awards should be granted exequatur from the Jakarta District Court or the Supreme Court in order to be enforced in Indonesia. See article 65 of the Act no. 30 of 1999 concerning the Arbitration and Alternative Dispute Resolution (ADR).
[106] See Luttrel SR, above no. 3, at. 14.
[107] See article V (2) (b) of the New York Convention. 1958.
[108] See article 36 (b) (ii) of the UNCITRAL Model Law on International Commercial Arbitration
[109] Sheppard A, Public Policy and the Enforcement of Arbitral Awards: Should there be a Global Standard?, Transnational Dispute Management, Vol. 1, Issue 01, February 2004, available at: <http:// www.gasandoil.com/ogel/samples/freearticles/article_67.htm - 59k -> , Viewed on 30 April 2008, p. 3.
[110] Ibid.
[111] Albert Jan Van den Berg, The New York Convention of 1958, Kluwer Law and Taxation, The Netherlands, 1990, p. 20.
[112] Ibid.
[113] See article III of the New York Convention 1958.
[114] Green Stephen B, above no. 37, at. 295.
[115] See article 66 (c) of the Act No. 30 of 1999.
[116] Ibid., at. 280.
[117] See article 66 (c) of the Act No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (ADR).
[118] It should be noted that Indonesia do distinguishes in terms of the awards, namely domestic and international arbitration awards. In respect of this issue, Indonesian Arbitration Act mainly adopts the article II of the New York Convention. The UNCITRAL Model Law, however, do recognize the differentiation between international and domestic arbitration regimes. See Article 59 and 65 of the Act No. 30 of 1999 regarding the Arbitration and Alternative Dispute Resolution (ADR), article III of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and article 1 of the UNCITRAL Model Law on International Commercial Arbitration.
[119] Winnie (Jo Mei) Ma, Public Policy in the Judicial Enforcement of Arbitral Awards, Lessons For and From Australia, available at:
http://epublications.bond.edu.au/context/theses/article/1023/index/0/type/native/viewcontent>, viewed on May 2008, p. 57.
[120] This, of course, slightly different with the provision of the article 31 (4) (b) of the Singapore Arbitration Law (IAA) which expressly refer to the public policy of Singapore. See Wong K, Public Policy – The Ride of the Unruly Steed on the Highways of International Arbitration, available at: <http://www.lawgazette.com.sg/2003-12/Dec03-col2.htm> , viewed on 13 May 2008, p. 1.
[121] See the explanatory of the Act No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (ADR).
[122] Ibid.
[123] Navigation Maritime Bulgare v. PT Nizwar, Supreme Court Decision of Republic of Indonesia, registration No. 2944 K/Pdt/1983, on 29 November 1984. See also Longdong, above no. 7, at. 220. In this case, the lack of implementing legislation had been considered as a violation of public policy exception in Indonesia despite its ratification of the New York Convention based on Presidential Decree No. 34 of 1981.
[124] Wong K, above no 120, at. 2.
[125] Ibid. The international public policy establish a narrow approach to public policy exception in order to uphold pro enforcement policy. The domestic public policy, however, apply a wide concept of public policy defense in order to protect national interests.
[126] Ibid.
[127] Ibid.
[128] Mills, above no. 76, at. 33.
[129] In Karaha Bodas CO LLC v. Perusahaan Pertambangan Minyak dan Gas Bumi (Pertamina), extract in Schwartz EA, The Enforcement of Foreign Arbitral Awards, <http:// journals.cambridge.org/production/action/cjoGetFulltext?fulltextid=1529216> , viewed on 13 May 2008, p. 7. In this case, the Indonesian court issued an injuction for the advantage of the Pertamina in order to prohibit Karaha Bodas from enforcement of its awards in Indonesia. The Pertamina appealed to annul the Hongkong arbitral awards in the District Court of Jakarta on the ground of the violation of article 1320 of the Indonesian Civil Code since the execution of this awards will violates the Presidential Decree No. 34 of 1981. Thus, the scope of public policy does not only concern with the fundamental justice and morality. See also Umam K, Pelaksanaan Putusan Arbitrase Internasional Ditinjau dari Undang-Undang No. 30 Tahun 1999 tentang Arbitrase dan Alternative Penyelesaian Sengketa (Studi Kasus (Pertamina vs Karaha Bodas Company), <http://> at 13 May 2008, p. 7.
[130] Longdong, above no 18, at. 142. Based on this argument, the scope and meaning of public policy is interpreted broadly including due process of law, non arbitrability, and impartiality
[131] Mistelis L, Is Harmonization is necessary Evil? The Future of Harmonization and New Sources of International Trade Law, in Foundation and Practices of International Trade Law, Fletcher I, Mistelis L & Cremona M (eds), Sweet & Maxwell, London, 2001, available at: <http://www.cisg.law.pace.edu/cisg/biblio/mistelis2.html> , viwed on 11 March 2008, p. 2.
[132] Id.
[133] Van den Berg, above no. 111, at. 376.
[134] Ibid.
[135] Sheppard A, above no. 109, at. 2.
[136] Redfern A & Hunter M, Law and Practice of International Commercial Arbitration, Sweet & Maxwell, London, 2004, p. 499.
[137] Ibid.
[138] Ibid., at. 498.
[139] Garnett R, International Arbitration Law: Progress Towards Harmonization, Melbourne Journal of International Law, Vol. 3, 2002, available at:
http://www.papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1045601_code609399.pdf?, Viewed on 11 May 2008, p. 5.
[140] International Law Association, Resolution of the ILA on Public Policy as Bar to Enforcement of International Arbitral Awards, 2002, available at:
<http://www.epublications.bond.edu.au/context/theses/article/1023/index/2/type/native/viewcontent> , viewed on 8 May 2008, p. 1.
[141] It means that the refusal of the enforcement of foreign arbitral awards should be construed narrowly and it can only be set aside in a limited number of exceptional circumstances or. This, of course, is aimed to uphold the finality of the awards in international context. See also International Law Association (ILA), Committee on International Commercial Arbitration, New Delhi Conference, 2002, available at:
<http:// www.epublications.bond.edu.au/context/theses/article/1023/index/2/type/native/viewcontent> , Viewed on 8 May 2008, p. 2.
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