Factual Manipulation: A Ground for Annulment of an Arbitral Award

Questions surrounding the integrity of arbitral awards remain crucial, particularly when factual inaccuracies or manipulations emerge in the tribunal’s reasoning. This article examines how factual manipulation in an arbitral award may constitute fraud and serve as grounds for annulment under Indonesia Arbitration Law, as affirmed by Indonesian court jurisprudence.

Fraud as a Ground for an Arbitral Award Annulment

Article 70 of Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration and ADR Law”) essentially stipulates that a petition for annulment of an arbitration award may be filed if it contains elements, one of which is that the award was derived from fraud (tipu muslihat) committed by one of the parties during the dispute hearing. The petition for annulment of the arbitral award shall be submitted to the district court no later than 30 (thirty) days from the date of the delivery and registration of the relevant arbitral award.

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As one of the three elements stipulated under Article 70 of the Arbitration and ADR Law, thus an arbitral award alleged to have been rendered through fraud may be subject to annulment. However, it is unfortunate how, across all various laws and regulations governing the annulment of arbitral awards, there is no proper elucidation on what constitutes fraud within an arbitral award as provided in the Arbitration and ADR Law. Consequently, it sometimes becomes unclear when proving the existence of fraud in an arbitral award, as to what extent an arbitral award may be said to contain elements of fraud.

When referring to the element of fraud in the context of criminal law, as stipulated under Article 378 of the Indonesian Penal Code (“IPC”), essentially, an act of fraud may be understood as an act committed with the intention of benefiting oneself or others unlawfully, by using deceit or a series of lies. With the absence of elements of fraud under the Arbitration and ADR Law, the alleging parties, in proving such elements, may refer to the elements under the IPC, in order to prove the existence of fraud in the relevant arbitral award.

In this regard, therefore, it can be concluded that fraud is generally interpreted as a form of an act. However, in the context of annulment of an arbitral award, what if the fraud or manipulation was not the result of an action by one of the parties in the dispute examination, but rather an error that deviated from the facts and was stated in the arbitral award?

Fulfilment of the Element of Fraud not Arising from an Act

Before discussing further, it shall be understood that an arbitral award is final and binding in nature, and also possesses permanent legal force upon the parties involved. Consequently, while it may be subject to annulment, an examination of such award may only be conducted with respect to the elements stipulated under Article 70 of the Arbitration and ADR Law. Thus, an examination in an arbitral award annulment proceeding by the court is limited to an assessment regarding the validity within the scope of its formal aspects. The court does not have the authority to conduct a substantive examination of the dispute that has been adjudicated through arbitration.

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When understanding the concept of fraud generally, one of the elements is the existence of “an act committed by a party”. Hence, typically, when an annulment petition of an arbitral award is filed on the grounds of fraud, the claimant must be able to demonstrate or prove the existence of a fraudulent act which is alleged to have been committed by the other party. In practice, however, an assessment of an arbitral award that is alleged to have been rendered as a result of fraud, sometimes does not always require the existence of a specific act which committed by one of the disputing parties.

Proving the existence of fraud, which does not rely on a specific deliberate act, will certainly differ. This is because, the existence of fraud in an arbitral award might be assessed from a different approach. For instance, an arbitral award may contain errors, whereby the legal considerations or even the rendered award may not correspond to the facts established in the arbitration proceeding.

Subsequently, in the case where an arbitral award is filed for annulment to the district court on the grounds of fraud because it allegedly contains factual inaccuracies compared to what occurred in the arbitral hearing, what are the consequences, and how will the court assess such petition? Further, can a misrepresentation or misrepresentation of the facts, whether intentional or unintentional, contained in an arbitration award constitute grounds for annulment?

PT. Republik Energi & Metal v. Zainal Abidinsyah Siregar, Jurisprudence Number 62 B/Pdt.Sus-Arbt/2017 jo. 332/Pdt.G/Arb/2016/PN Jkt. Pst

In this legal case, an annulment petition against an arbitral award was filed due to a discrepancy between the actual events and what was stated in the arbitral award. The factual discrepancy is, the existence of the affidavit proposed in the proceeding by an expert, and the affidavit was only being read out in the proceeding.

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The Claimant bases the grounds for annulment on Article 70 letter c of the Arbitration and ADR Law. As it was argued that the factual discrepancy constituted fraud during the dispute examination in the previous arbitration proceeding. Whereas the Claimant further claimed that the legal expert did not, in fact, present at the hearing. The arbitral award, however, stated that the expert gave the testimony at the hearing. This fact was also confirmed by the expert during the proceedings of the petition for annulment in the district court.

In addition to the claim regarding a factual discrepancy, the Claimant also alleged that the Respondent committed fraud in the previous arbitration proceedings by describing the legal relationship between the parties were based on a loan relationship, whereas in reality, it was a share acquisition agreement. Regarding this, the Judex Facti in its consideration further stated that this clearly supported the petitioner’s allegation of fraud under Article 70 of the Arbitration and ADR Law. Specifically, the Judex Facti further stated that:

“Considering, that this is reinforced by the testimony of the Expert presented by the Respondent… who stated at the trial that during the BANI proceedings he merely submitted an Affidavit, but in evidence T-5, which is an arbitral award Number 606/VIII/ARB-BANI/2014, page 60, it is stated that… he gave testimony in the proceeding. Therefore, based on these facts, the Panel of Judges ruled that there had been manipulation of the proceedings at BANI during the arbitration examination filed by the Respondent.”

Against the decision of the first instance, an appeal was subsequently filed before the Supreme Court, as in its legal consideration, Judex Juris, in Decision Number 62 B/Pdt.Sus-Arbt/2017, argues:

“That it is proven that the Arbitration Award… was based on the results of trial manipulation when the examination was conducted by… as an expert witness who testified at trial even though the expert was not present at the hearing and only provided an affidavit that was read out.”

Accordingly, Judex Juris then upheld the district court’s decision to annul the arbitration award.

Factual Manipulation as the Fulfillment of Fraud Element in the Arbitral Award Annulment

The court does not provide a clear consideration regarding whether the issue regarding the expert’s statement arose from a deliberate act by one of the parties, or whether due to its discrepancy constitutes fraud, allowing annulment. Whereas, it appears that both Judex Facti and Judex Juris in this annulment decision, did not require the existence of an “act committed by a party.” What is clear is that, whether the error was deliberately an act caused by one of the disputing parties or not, the court, regardless, still held that the award contained fraud, in the form of a factual manipulation, and therefore should be annulled.

Ultimately, the jurisprudence above shows that the existence of the fraud element in an arbitral award did not always require proof of intent or a specific act by the other party. This means that the court held that a discrepancy between what actually occurred in the arbitral proceeding and what was stated in the arbitral award, regardless of whether it was truly caused by the respondent, was sufficient for the court to consider that the award contained fraud as referred to in the Arbitration and ADR Law.

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Reference

• Indonesian Penal Code.
• Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution;
• Supreme Court Decision Number 62 B/Pdt.Sus-Arbt/2017;
• Central Jakarta District Court Decision Number 332/Pdt.G/Arb/2016/PN Jkt. Pst.