Arbitral Jurisdiction vs. Court Intervention: A Jurisprudential Analysis

The boundaries between arbitral jurisdiction and court intervention remain a crucial issue in maintaining the integrity of arbitration. This article explores how the District Court’s authority is confined within strict legal limits to preserve the final and binding nature of arbitral awards.

Public Court’s Authority over Arbitral Awards

To challenge an arbitral award, the parties concerned often file for annulment of the arbitral award, which is filed and is under the authority of the District Court. While an arbitral award is final and binding in nature, annulment can still be carried out on the grounds set forth under Article 70 of Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration and ADR Law”), namely:

• Letters or documents filed in the hearings which are admitted to be forged or are declared to be forgeries after the award has been rendered;
• After the award has been rendered documents are founded which are decisive in nature and were deliberately concealed by the opposing party; or
• The award was rendered as a result of fraud (tipu muslihat) committed by one of the parties to the dispute.

Despite the inability to adjudicate disputes bound by an arbitration agreement, the District Court still possesses the authority to examine petitions for the annulment of arbitral awards. However, this authority is limited in scope. The District Court’s authority in examining such petition is essentially confined to the three grounds stipulated under Article 70 of the Arbitration and ADR Law above. Accordingly, when referring to these provisions, the panel of judges should not be able to examine or adjudicate on matters beyond those explicitly mentioned in the article, even if the claimant presents other arguments outside the prescribed grounds.

Discussion

Essentially, Article 3 of the Arbitration and ADR Law stipulates that the District Court shall not have the competence to adjudicate disputes between parties who have been bound through an arbitration agreement. A similar provision is reaffirmed under Article 11, stating that the District Court must reject and not be involved in a dispute settlement that has been determined using arbitration.

Article 62 paragraph (4) of the same Law explicitly provides that the Chief Judge of the District Court shall not examine the reasons or considerations underlying the arbitral award. The Elucidation of the article, in essence, further clarifies that this limitation aims to ensure that arbitral awards remain independent, final, and binding.

Read Also: Annulment of an Arbitral Award: Unveiling the Jurisdictional Issue in Arbitration Law

Additionally, the District Court is also authorized to examine arbitral awards in relation to petitions for the annulment of such awards. As previously outlined, such authority is limited solely to the grounds stipulated under the Article 70 of the Arbitration and ADR Law. Nevertheless, while it has been clearly stipulated under the law, it is still a common practice for the relevant parties raise their arguments on the grounds that fall outside the conditions stipulated in Article 70 of the Arbitration and ADR Law, including a request to examine matters that are related to the subject matter of the respective arbitration dispute. The claimant will most likely argue that its claim falls under the Article 70 of the Arbitration and ADR Law. Thus, in this regard, does the court then have the authority to examine and re-adjudicate matters that have already been considered and decided by the arbitral tribunal?

PT. Parna Raya v. PT. Cheil Jedang Indonesia, Jurisprudence Number 48 B/Pdt.Sus-Arbt/2015 jo. 411/Pdt.G.Arb/2014/PN Jkt. Sel.

This case was previously initiated when the parties filed a dispute before the Indonesian National Board of Arbitration (“Badan Arbitrase Nasional Indonesia/BANI”) based on a dispute concerning a Sale and Purchase Agreement of Ammonia, which binds the Parties. Subsequently, the BANI Award Number 538/IX/ARB-BANI/2013 essentially annuls the Sale and Purchase Agreement and holds the claimant (“Claimant”) liable under breach of contract.

In response, the Claimant subsequently filed a petition for annulment of an arbitral award before the South Jakarta District Court. The Claimant in its petition essentially argued that the BANI Award was rendered as a result of fraud (tipu muslihat) committed by PT Cheil Jedang (“Respondent”). As stated in one of its claims:

“… through various acts of fraud, the Respondent succeeded in influencing the Arbitral Tribunal causing the Arbitral Tribunal concluded that it was actually the Claimant who had committed breach of contract and rendered an award annulling the sale and purchase agreement of ammoniac.”

Read Also: Appealling Decisions on Award Annulment without Memorandum: A Strategic Jurisprudential Analysis

Nonetheless, the petition was rejected at the first level, among other things on the grounds that “based on documentary evidence and expert witnesses, the alleged fraud has not been proven.” Upon such decision, the Claimant was further filed an appeal to the Supreme Court, arguing essentially that:

• The Judex Facti failed to provide proper consideration by disregarding the fact that the BANI Award was based on fraud committed by the Respondent; and
• The Judex Facti neglected its judicial duty by failing to consider that the Arbitral Tribunal rendered its decision without a sufficient evidentiary basis, relying solely on the discretionary power of the Arbitral Tribunal.

It is important to highlight the Judex Juris’ legal consideration over the appeal petition. By reinforcing the Judex Facti’s considerations, the Judex Juris considered:

“Matters that fall under the authority of the Arbitration Body mean the District Court does not have the right or authority to examine and adjudicate the objections filed by the Claimant. This is because the Claimant and the Respondent have chosen the Arbitration forum to adjudicate and resolve the dispute that arises. The same applies to objections relating to evidence concerning the Sale and Purchase Agreement of Ammoniac, which have already been considered by the Arbitration Board.”

Public Court’s Authority in Examining Arbitral Awards

While not elaborated further, the Judex Juris’ consideration was in fact in line with the fundamental principles in regard to the public court’s jurisdiction over arbitration disputes, namely non-intervention. Therefore, when a claimant filed a petition for annulment on the grounds that would require the District Court to re-examine the substance, reasoning, and consideration of the arbitral award, the court should not have the authority to examine such matter under any circumstances.

The existence of these various provisions essentially protects the nature of an arbitral award, which is final and binding. This is important given that, if the public court is still given the authority to examine or even re-adjudicate the substantive matter or considerations of the arbitral award, it would negate the essence of dispute resolution through arbitration, which is supposedly to provide legal certainty for the parties involved.

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Sources:

• Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution.
• Supreme Court Decision Number 48 B/Pdt.Sus-Arbt/2015
• South Jakarta District Court Decision Number 411/Pdt.G.Arb/2014/PN Jkt. Sel.