Essential Guide to Arbitration in Indonesia: Exploring the Core Provisions of AADR Law

The existing arbitration law in Indonesia covers both domestic and international arbitration. Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolutions (AADR Law) has been the cornerstone of arbitration law in Indonesia. It sets out the basic framework for conducting arbitration proceedings in Indonesia, including the requirements for an enforceable arbitration agreement, the rules governing the conduct of arbitration and the process for enforcing arbitral awards.

After more than two decades since the enactment of the AADR Law, the Supreme Court introduced a regulation to fill in the gap of the AADR Law.  The Supreme Court issued Supreme Court Regulation Number 3 of 2023 on Procedures for the Appointment of Arbitrators by the Court, the Rights of Recusal, Examinations of Request for Enforcement, and the Annulment of Arbitral Awards (SCR 3/2023). SCR 3/2023 outlines procedures for court-appointed arbitrators, addressing parties’ disagreement on the appointment of an arbitrator. It also details the grounds and process for rights of recusal in arbitration proceedings, stipulates the examination of requests for the enforcement of arbitral awards, and sets forth guidelines for annulment of arbitral awards.

At the international level, Indonesia is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.^[1] This means that foreign arbitral awards rendered in other countries that are parties to the Convention can be enforced in Indonesia in accordance with the Convention’s provisions. In fact, the AADR law exists as an implication of the ratification of this Convention. To conclude, the structure of arbitration law in Indonesia is built on a combination of domestic and international legal instruments, which provide a clear and well-established framework for conducting arbitration proceedings in the country.

Distinctions between International and Domestic Arbitration Law

Arbitration is regulated in the AADR Law. It includes general arbitration procedures, limited court assistance, and domestic and international arbitral award enforcement. There is no specific law on international arbitration.

In determining whether an arbitration is domestic or international, Indonesia generally takes a territorial approach. An award rendered by an arbitration institution or an individual arbitrator outside the jurisdiction of the Republic of Indonesia or an award by an arbitration institution or individual arbitrator, that, according to the laws of the Republic of Indonesia, is considered as an ‘international arbitral award’.[2] Further, the AADR Law encompasses both domestic arbitration proceedings and the enforcement of domestic and international awards without segregating the two into separate legislative instruments.

Existing arbitration institutions in the region

The National Arbitration Body of Indonesia (Badan Arbitrase Nasional Indonesia or BANI) is one of the leading arbitration institutions in the region. There are also several other arbitral bodies that have a more narrow scope with more focused expertise in a particular field, such as the National Sharia Arbitration Body (Badan Arbitrase Syariah Nasional or Basyarnas), the Commodity Futures Trading Arbitration Board (Badan Arbitrase Perdagangan Berjangka Komoditi or BAKTI), the Indonesian Sports Arbitration Board (Badan Arbitrase Keolahragaan Indonesia or BAKI), the Indonesian Sports Arbitration Board (Badan Arbitrase Olahraga Indonesia or BAORI), and Alternative Dispute Resolution Institution in the Financial Services Sector (Lembaga Alternatif Penyelesaian Sengketa Sektor Jasa Keuangan or LAPS SJK).[3]

In addition to local arbitration institutions, a number of arbitrations are seated in Indonesia but administered by internationally known arbitration institutions as well, including the Singapore International Arbitration Centre (SIAC) and International Chamber of Commerce International Court of Arbitration.

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Footnote:

^[1] Presidential Decree No. 34 of 1981, Official Gazette No. 40 of 1981.

[2]Article 1, Number (9), Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolutions.

[3] LAPS SJK was established as a new, integrated alternative dispute resolution entity for the financial services sector in Indonesia, combining the functions of six previous institutions (covering capital markets, insurance, pension funds, banking, guarantees, and venture capital) and extending to include Fintech disputes. This move aimed to streamline dispute resolution, offering consumers uniform standards. Initially intended to merge these entities, legal challenges led to its formation as a separate entity by the Financial Services Authority (OJK). Despite this, LAPS SJK functionally assumes the roles of its predecessors, ensuring a seamless transition of dispute resolution mechanisms as per OJK Regulation No. 61 of 2020.

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Nurmanto

Middle Associate Practice Group International Arbitration and Litigation

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Irvena Ayunya Dewanto

Junior Associate Practice Group International Arbitration and Litigation

Practice Group International Arbitration and Litigation

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Sri Purnama

Junior Legal Research Analyst

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