The annulment of an arbitral award often arises when questions of jurisdiction come into play. In Indonesia, such issues typically concern the validity or absence of an arbitration agreement under arbitration law.
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Arbitration Agreement
An arbitration agreement under Article 1 number 3 of Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration and ADR Law”). Article 1 number 2 of the Supreme Court Regulation Number 3 of 2023 on the Appointment of Arbitrator by Court, Repudiation Rights, Examination on the Enforcement and Annulment Petition of Arbitral Awards, refers to a mutual consent in form of arbitration clause which is included in a written agreement that is made by both parties before the dispute occurs, or a separate arbitration agreement which is made by both parties after the dispute has occurred.
When a dispute has been, and/or is subsequently agreed upon under an arbitration agreement to be resolved through arbitration, the arbitral institution shall have the jurisdiction to examine and hear the case. Accordingly, the district court will have no jurisdiction whatsoever over the dispute, as such jurisdiction shall be entirely subject to the arbitral institution.
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What happens, however, if the dispute is then submitted to be adjudicated through arbitration, despite the fact that the parties have never signed or agreed to an arbitration agreement? Does the arbitral institution have the jurisdiction to examine and hear the arbitration dispute despite the absence of the arbitration agreement?
“When a dispute has been, and/or is subsequently agreed upon under an arbitration agreement to be resolved through arbitration, the arbitral institution shall have the jurisdiction to examine and hear the case.”
Essential Elements of an Arbitration Agreement
Before discussing further, it should be noted that the Arbitration and ADR Law has provided an explicit provision on this matter. As Article 3 of the Arbitration and ADR Law stipulates that the district court has no jurisdiction to adjudicate disputes between parties who have been bound through an arbitration agreement. This Article 3 is reinforced by Article 11 of the same law, where it was reaffirmed that the district court must reject and not to be involved in a dispute settlement which has been determined using arbitration, unless for certain conditions which have been established under the Arbitration and ADR Law. In addition, it is also emphasized that with the existence of a written arbitration agreement, that will eliminate the parties’ rights from bringing the dispute before the court for resolution.
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An arbitration agreement itself may be entered, whether before the occurrence of the dispute or after the dispute has arisen. While the formal requirements for an arbitration agreement after the dispute arises are separately regulated, through Article 7 of the Arbitration and ADR Law, it has been stated that the parties may agree that a dispute which has been occurred or will occur between them to be settled through arbitration.
Whereas in regard to its validity, an arbitration agreement must be made in writing, whether agreed upon prior to or after the dispute arises. Additionally, the validity of an arbitration agreement is also essentially inseparable from the conditions for a valid agreement stipulated under Article 1320 of the Indonesian Civil Code, which among other thing is a mutual consent. Consequently, there must be mutual consent between the parties involved that the said dispute will be adjudicated through arbitration, which in this case must be set in forth in a written agreement. When the element of “consent” is not achieved nor proven to exist, there is no arbitration agreement between the parties.
Annulment of Arbitral Award
When a dispute is subject to an arbitration agreement and is subsequently adjudicated and rendered through arbitration, the party that objects to such award, has the right to file for annulment. Referring to Article 72 of the Arbitration and ADR Law, petition for the annulment of arbitral award must be submitted to the Chief of District Court, which will further determine the effect of the whole or partial annulment of the arbitral award.
Whereas such annulment is essentially may be carried out under the grounds set forth under Article 70 of the Arbitration and ADR Law, namely the existence of a false documents, after the award was rendered, it is found that there is a decisive document which was buried by the opposing party and the award is rendered based on fraud (tipu muslihat) of one of the parties.
“An arbitration agreement itself may be entered into, whether before the occurrence of the dispute or after the dispute has arisen.”
Yemen Airways v. PT. Comarindo Expres Tama Tour & Travel, Jurisprudence Number 03/Arb.Btl/2005 jo. 254/Pdt.P/2004/PN.Jak.Sel.
This Jurisprudence illustrates a dispute settlement in the national arbitral forum, namely the Indonesian National Board of Arbitration (“Badan Arbitrase Nasional Indonesia/BANI”), notwithstanding the absence of an arbitration clause in the documents and agreements underlying the dispute. The party that filed for annulment contested the arbitral proceeding, but the arbitral institution has nevertheless rendered the dispute. An annulment petition was filed on the grounds of the lack of the arbitral institution’s jurisdiction to settle the dispute. The Judex Juris upheld the claim and annulled the arbitral award.
Judex Juris under the Decision Number 03/Arb.Btl/2005 uses the elucidation of Article 70 of the Arbitration and ADR Law which included the word “among others/among other things” when referring to some of the conditions of an annulment petition, such as fake/false documents, a decisive document that was buried, and an award based on fraud (tipu muslihat). This elucidation has become the basis for Judex Juris to annul the arbitral award.
The Judex Juris subsequently considers the presented evidence and quoting the article under the document mentioning arbitration:
“Arbitration
This Agreement shall in all respects be interpreted in accordance with the Laws of the Republic of Yemen.”
In assessing the existence of the arbitration clause, referring to the provision, Judix Juris then merely considered that the arbitral institution lacked the jurisdiction to examine and hear the arbitration dispute, given that it had to be resolved in accordance with the laws of the Republic of Yemen, without providing any explanation regarding the meaning of “arbitration agreement” as stipulated in the Arbitration and ADR Law. Nonetheless, in the legal consideration at the previous level, as stated by the Judex Facti, the term “Arbitration” appearing as the title of the referred article did not constitute as an arbitration clause, but merely regulated regarding the parties’ choice of law.
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Nevertheless, Judex Juris amended the district court decision and stated that the arbitral institution does not have the jurisdiction to examine and render the dispute. Hence, although the Judex Juris’ legal consideration refers to a different regulation of an applicable law (governing law), the conclusions still refer to the lack of authority of an arbitral institution if it is proven that there is no arbitration agreement between the disputed parties.
“An arbitration agreement constitutes the fundamental basis for a dispute to be heard through arbitration.”
Jurisdictional Issue in Arbitration
Referring to the applicable provisions and jurisprudence provided above, an arbitration agreement constitutes the fundamental basis for a dispute to be heard through arbitration. Accordingly, when there is an error in which an arbitral institution proceeds to adjudicate a dispute in the absence of an arbitration agreement, the party who has not consented to resolve the dispute through arbitration, may seek annulment of the award before the district court. This decision shows that an arbitral award may be annulled even though deviating from the requirements under Article 70 of Arbitration and ADR Law.
Author
Dr Eddy Marek Leks, FCIArb, FSIArb, is the founder and managing partner of Leks&Co. He has obtained his doctorate degree in philosophy (Jurisprudence) and has been practising law for more than 20 years and is a registered arbitrator of BANI Arbitration Centre, Singapore Institute of Arbitrators, and APIAC. Aside to his practice, the author and editor of several legal books. He led the contribution on the ICLG Construction and Engineering Law 2023 and ICLG International Arbitration 2024 as well as Construction Arbitration by Global Arbitration Review. He was requested as a legal expert on contract/commercial law and real estate law before the court.
Co-authored
Miskah Banafsaj is an associate at Leks&Co. She holds a law degree from Universitas Indonesia. Throughout her studies, she was actively involved in student organizations and participated in various law competitions. She has also previously worked as an intern at several reputable law firms. At this firm, she is involved in doing legal research, case preparation, and assists with ongoing matters.
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Sources:
- Indonesian Civil Code.
- Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution.
- Supreme Court Regulation Number 3 of 2023 on the Appointment of Arbitrator by Court, Repudiation Rights, Examination on the Enforcement and Annulment Petition of Arbitral Awards.
- Supreme Court Decision Number 3/Arb.Btl/2005
- South Jakarta District Court Decision Number 254/Pdt.P/2004/PN.Jak.Sel.
