Indonesia: Indonesia Supreme Court Regulation Number 3 Of 2023: An Overview

After more than two decades, an implementing regulation of Law Number 30 of 1999 on Arbitration and Alternative Dispute Settlement (AADR Law) is finally introduced. The Supreme Court issued a new 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.

Two Types of First-Level Courts

SCR 3/2023 authorises two types of first-level courts to manage arbitration-related applications: District Courts and Religious Courts.¹ District Courts handle the enforcement and annulment of conventional arbitral awards, whilst Religious Courts deal with Sharia-based arbitral awards.² International conventional and sharia awards are also subject to specific trade categories³ for enforcement and annulment. Non-compliance with these categories could lead to the rejection of applications.

Appointment of Arbitrators and Rights of Recusal

When arbitration parties cannot mutually agree on an arbitrator, they can request the District Court to appoint one.⁴ This appointment must be made within 14 days to resolve the impasse promptly.⁵ Additionally, the regulation allows parties to exercise a right of recusal against the court-appointed arbitrator.⁶ This right can be invoked on grounds such as perceived bias or conflicts of interest,⁷ thereby maintaining the integrity and impartiality of the arbitration process.

If a recusal request is disputed and the arbitrator does not step down voluntarily, parties may file a formal request with the District Court Chairman.⁸ The Chairman must then decide on this request within 14 days.⁹ Once this decision is made, no further legal action can be taken regarding the arbitrator's appointment.¹⁰

Registration of Arbitral Awards

Arbitrators or their representatives are obliged to register national and Sharia-based national arbitral awards with the District Court's Registrar within 30 days of the award announcement.¹¹ This registration, including those by arbitration or sharia arbitration institutions, must be completed by the Registrar within 3 days of receipt.¹² Delayed registration beyond these timeframes disqualifies the award from court registration.¹³

International and Sharia-based international awards are similarly registered at the Central Jakarta District or Religious Courts.¹⁴ The Registrar finalises these registrations within 14 days of receiving all required documentation.¹⁵ Registration can be processed electronically via the Court Information System (CIS).¹⁶

Enforcement of Arbitral Awards

The enforcement of arbitral awards under SCR 3/2023 distinguishes domestic and international awards enforcement procedures.

Domestic Awards

The enforcement process for domestic arbitral awards under SCR 3/2023 follows a systematic approach, beginning with the mandatory award registration, as previously mentioned.

Following registration, the enforcement of the award initially relies on voluntary compliance by the parties. If voluntary compliance is not achieved, involuntary enforcement can be initiated. In such cases, the disputing party may request the Chairman of the District Court to issue an enforcement order,¹⁷ contingent on the award meeting the criteria set out in the AADR Law specifically Articles 4 and 5, and not contravening public morals or order.¹⁸

The enforcement request can be submitted electronically through the CIS.¹⁹ Once the request is registered, the court provides an order to the parties within 30 days.²⁰ The enforcement of the award follows the procedures for implementing civil procedures.²¹ When requests for the annulment and enforcement of an award are filed simultaneously, the enforcement is deferred until the issuance of a first-instance decision on the annulment application.²²

International Awards

The process for enforcing international arbitral awards under SCR 3/2023 is delineated into distinct stages, starting with the mandatory award registration, as mentioned above.

Following registration, the enforcement process involves obtaining an exequatur from the court. The SCR 3/2023 states that this step can be taken if parties cannot achieve voluntary compliance with the award;²³ however, this is different from Art. 66 of AADR Law that puts exequatur as a requirement for the award's enforceability in Indonesia.²⁴ The SCR 3/2023 also mandates that the Chairman of the respective court examines the exequatur application within 14 days,²⁵ ensuring the award's compliance with the AADR Law and its alignment with public order. Should the Chairman reject the exequatur for recognising and implementing the International or Sharia arbitral award, the decision can be escalated to the Supreme Court.²⁶

When the State of the Republic of Indonesia is a disputing party, the Supreme Court grants the mandatory exequatur, which involves additional documentation and verification steps.²⁷

Legal Avenue to Challenge the Enforcement of International Arbitral Awards

The decisions to recognise and enforce international or Sharia arbitral award are final and not subject to further legal recourse.²⁸ In the instance where parties attempt to challenge, the court clerk issues a formal statement declaring the inadmissibility of the appeal, and the Chairman of the Court consequently issues a ruling to that effect.²⁹

Decisions refusing to recognise and execute an international or sharia arbitral award can be appealed through cassation.³⁰ Such decisions, whether for enforcement or refusal, are issued within 30 days of the enforcement application's registration.³¹ Once an award is recognised, its execution adheres to standard civil procedures.³²

Annulment of Domestic Arbitral Awards

SCR 3/2023 lays out more detailed procedures for the annulment of domestic arbitral award,³³ bringing clarity to the implementation of Article 70 of the AADR Law.³⁴ These procedures include conducting court hearings and examining evidence, providing a structured and fair approach for challenging an award.

Parties seeking annulment must submit their request to the court within 30 days of the award's registration, with the provision for electronic submissions.³⁵ The grounds for annulment are strictly limited to specific criteria,³⁶ which are, if post-judgment evidence reveals that a document used in the arbitration is recognised as fraudulent, crucial documents concealed by the opposing party are discovered, or the award is based on deceit perpetrated during the dispute resolution process.

The arbitrator or the arbitration body is not considered a party in these annulment proceedings³⁷ and appeals against annulment rulings are permissible, with specific guidelines for submission and review within set timeframes SCR 3/2023 addresses the execution of confiscation orders issued by arbitrators during the arbitration process.³⁹ Whilst arbitrators under the AADR Law have the authority to order asset confiscations as security during arbitration, SCR 3/2023 clarifies the practical aspects of this process.⁴⁰

Legal Avenue to Challenge the Annulment of Arbitral Awards

Parties may appeal to the Supreme Court if the court grants an annulment.⁴¹ This appeal, which is both the first and final level of recourse,⁴² must be filed within 14 days of the court's decision.⁴³ Appeals can be submitted directly or electronically.⁴⁴ This provision underscores the finality of such decisions and aligns with the principles of judicial efficiency and finality in arbitration matters.

The Supreme Court, upon receiving an appeal, is required to deliberate and issue its decision within 30 days.⁴⁵ This final ruling concludes the legal process concerning the annulment of arbitral awards.⁴⁶

IMPLICATION

This regulation enhances the clarity of arbitration processes and award enforcement in Indonesia. It fills out a few gaps found in the umbrella law, the Indonesian AADR Law. Legal practitioners and businesses involved in arbitration must take this SCR into consideration when proceeding an arbitration case and enforcing award within the jurisdiction.

CONCLUSION

SCR 3/2023 represents a critical development in Indonesia's arbitration laws, offering more detailed guidelines and enhancing legal certainty, such as, procedures for appointing arbitrators, rights of recusal, and the nuanced handling of both conventional and Sharia-based arbitral awards. This regulation distinguishes between domestic and international awards and further clarifies the contentious Art. 70 of the AADR Law on the grounds of annulment of arbitral awards and the implementation of confiscation.

It necessitates a thorough understanding and adaptation to these procedures for legal practitioners, ultimately enhancing the efficiency and predictability of arbitration in Indonesia. Its implementation marks a key progression in aligning Indonesia's arbitration practices with international standards, reinforcing its standing as a reliable jurisdiction for dispute resolution.

Footnotes

1. Art. 2 of SCR 3/2023.

2. Ibid.

3. Art. 10 number 10 of SCR 3/2023 defines the scope of trade encompasses activities including, but not limited to, business, banking, finance, investment, industry, and intellectual property rights, including those based on Sharia principles.

4. Art. 4 para. (1) of SCR 3/2023.

5. Art. 4 para. (3) of SCR 3/2023.

6. Art. 4 para. (4) of SCR 3/2023.

7. Conflict of interest for challenging an Arbitrator arises when there is evidence of a familial, financial, or professional relationship with either of the parties involved or their representatives, see, Art. 4 para. (5) of SCR 3/2023.

8. Art. 5 para. (1) of SCR 3/2023.

9. Art. 5 para. (3) of SCR 3/2023.

10. Art. 5 para. (4) of SCR 3/2023.

11. Art. 6 para. (1) of SCR 3/2023.

12. Art. 6 para. (4) of SCR 3/2023.

13. Art. 6 para. (7) of SCR 3/2023.

14. Art. 7 para. (1) of SCR 3/2023.

15. Art. 7 para. (4) of SCR 3/2023.

16. Art. 6 para. (3) of SCR 3/2023; Art. 7 para. (5) of SCR 3/2023.

17. Art. 8 para. (1) of SCR 3/2023.

18. Art. 9 of SCR 3/2023.

19. Art. 8 para. (3) of SCR 3/2023.

20. Art. 13 of SCR 3/2023.

21. Art. 14 of SCR 3/2023.

22. Art. 15 of SCR 3/2023.

23. Art. 16 para. (1) of SCR 3/2023.

24. Article 66 letter d specifies that for an International Arbitral Decision to be implemented in Indonesia, it must first obtain an exequatur from the Chairman of the Central Jakarta District Court.

25. Art. 16 para. (4) of SCR 3/2023.

26. Art. 16 para. (6) of SCR 3/2023.

27. Art. 18 para. (1) of SCR 3/2023.

28. Art. 20 para. (1) of SCR 3/2023.

29. Art. 20 para. (2) of SCR 3/2023.

30. Art. 21 of SCR 3/2023.

31. Art. 22 of SCR 3/2023.

32. Art. 23 of SCR 3/2023.

33. Chapter VI Annulment of Arbitral Awards Request.

34. The phrase “among others” in the General Elucidation of the AADR Law that refers to stipulation of the Art. 70 of AADR Law introduces ambiguity by suggesting an open-ended list of grounds for annulment. This has led to inconsistent legal interpretations. SCR 3/2023 addresses this by strictly limiting the grounds for annulment to specific criteria.

35. Art. 24 para. (1) of SCR 3/2023.

36. Art. 24 para. (4) of SCR 3/2023.

37. Art. 24 para. (6) of SCR 3/2023.

38. Chapter VII Examination of the Request for Annulment of Arbitral Award or Sharia Arbitral Award.

39. Chapter VIII on Confiscation.

40. The AADR Law, in Article 69, outlines provisions for execution orders and provisional decisions by arbitrators, including asset confiscation and enforcement procedures. However, SCR 3/2023 further clarifies this by stipulating that confiscation orders must be court-registered and allows for the application to the Court for their enforcement. This new regulation mandates that the Court must notify the arbitrator or arbitration institution of the procedure and costs involved in the confiscation, aligning with existing civil procedural laws.

41. Art. 27 para. (1) of SCR 3/2023.

42. Ibid.

43. Art. 27 para. (4) of SCR 3/2023.

44. Art. 27 para. (2) of SCR 3/2023.

45. Art. 28 para. (1) of SCR 3/2023.

46. Art. 28 para. (2) of SCR 3/2023.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.