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Disputes
Dispute resolution
Background
Foreign court judgments are not enforceable in Indonesia
unless a reciprocal enforcement treaty exists between Indonesia and the country
in which the foreign judgment is handed down. No such treaties are currently in
force. Accordingly, a judgment handed down by a foreign court against an
Indonesian company would be enforceable against the Indonesian company only to
the extent that the Indonesian company has assets located in the jurisdiction
of the judgment (against which the judgment may be satisfied).
Indonesian governing
law
The most practical choice of law and jurisdiction in
agreements would be the laws and courts of Indonesia. However, the judicial
process in Indonesia is notoriously slow and expensive, and judges tend to be
unpredictable in their decision making. As an alternative to Indonesian law and
jurisdiction, it is possible to state that:
·the
laws of Indonesia govern the agreement
·disputes are to be referred
exclusively to foreign arbitration and may not be referred to Indonesian courts
for resolution (see below).
If an agreement is governed by Indonesian law, certain
standard provisions need to be included (for example, an express waiver of
certain provisions of the Civil Code 1847 would be required to prevent the need
for a court order to allow early termination of an agreement).
Foreign governing law
While theoretically possible, in practice Indonesian courts
are reluctant to apply foreign law (in the event that an agreement stated it
was governed by a foreign law but disputes were to be referred to Indonesian
courts for resolution). We are aware of some cases where an Indonesian party to
an agreement governed by foreign law has referred a dispute to an Indonesian
court despite the governing law clause, and the judge has accepted jurisdiction
but applied Indonesian law.
Foreign arbitration
In contrast to foreign court judgments which are not
enforceable in Indonesia, Indonesia is a party to the New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards and, accordingly, an
arbitral award handed down overseas may be enforced in Indonesia provided that:
- the country in which the award is handed down is also a party to the New York Convention
- the award does not contravene national order
- the District Court has provided an execution order in relation to the award.
The likelihood of the District Court refusing to provide an
execution order in relation to a foreign arbitral award is reduced where the
agreement in question is governed by Indonesian law. A recent court decision
has raised questions as to how foreign arbitral awards are to be treated in
Indonesia (see below).
Issues with
enforcement
Indonesian judges have indicated a recent tendency to
question foreign arbitral awards in relation to which application has been made
for enforcement through the District Court. In a particularly controversial
recent case, the Central Jakarta District Court overruled the decision of a
Swiss arbitration panel ordering the state-owned oil and gas company Pertamina
to pay US$261 million to the local independent power producer, Karaha Bodas
(which is controlled by American interests). The District Court claimed that
the Swiss arbitration panel had overstepped its authority in ordering Pertamina
to pay compensation. The decision is now being challenged on the basis that
only Swiss courts have the right to annul the ruling.
As a result of this case, the issue of governing law and
dispute resolution to be included in agreements is now a little uncertain. We
usually recommend that, unless a client has strong reasons to the contrary,
such agreements be governed by Indonesian law because of the issues referred to
above.