Grounds for the Annulment of Domestic Arbitration Awards in Indonesia (Recent Development)

A. Introduction

Under the Arbitration Law (Law No. 30 of 1999), a domestic arbitration award that has been registered by the arbitrator(s) or its proxy with the court can be annulled. The annulment request must be made in writing and submitted to the relevant district court within 30 days of the submission and registration date of the award in the registrar’s office of the relevant district court.

Under Article 70 of the Arbitration Law, the following are the limited reasons underlying the request for the annulment:

a. After the award has been rendered, the letters or documents submitted for the examination are admitted or declared as false/forged.

b. After the award has been rendered, important decisive documents, which were previously concealed by the opponent, are revealed.

c. The award is rendered on the basis of a fraud committed by either of the disputing parties.

Before the Constitutional Court issued Ruling No. 15/PUU-XII/2014 on 11 November 2014 (“2014 Constitutional Court Ruling”) and in accordance with the elucidation of Article 70 of the Arbitration Law, the above reasons for the request for annulment must be proven by a court decision. However, following the issuance of the 2014 Constitutional Court Ruling, the existence of a court decision proving the reasons for the request for annulment was no longer required. As a consequence, any party who disagrees with the arbitration award can try to file the request for annulment with the relevant district court.

B. Sample of Cases

In recent years, the request for the annulment over domestic arbitration awards has become a trend in Indonesia. Nevertheless, we found that the Indonesian courts (which do not apply the stare decisis principle) do not have the same view on the applicability of the limited reasons under Article 70 of the Arbitration Law. From the available court decisions, below are some of the Indonesian courts’ views and considerations regarding the request for annulment:

(1) Ruling No. 45/Pdt.G.Arbit/2019/PN.Jkt.Pst. dated 16 May 2019

- The Disputing Parties: Sekretaris Kementerian Perencanaan Pembangunan
NASIONAL / Sekretaris Utama Badan Perencanaan Pembangunan Nasional (as the Claimant) v. PT Carbon Tropic (as Respondent I), PT Agrotropic Nusantara (as Respondent II), PT Energy Tropic (as Respondent III), and the BANI Arbitral Tribunal (as the Co-Respondent).

- The Claimant’s arguments: The Claimant basically argued that:

a) after the BANI Arbitration Award was rendered, there were decisive documents concealed by Respondent I (as per Article 70 point (b) of the Arbitration Law), namely when the parties entered into the agreement (containing the arbitration clause), Respondent I was not represented by the authorized president director and Respondent I never informed or provided the document related to the change of Respondent I’s president director (the Shareholders Circular Resolutions and its notification from the Ministry of Law and Human Rights).

b) Therefore, the agreement (including the arbitration clause) does not bind the parties and could not be used as the basis for Respondent I to file a request for arbitration to BANI. As a consequence, the BANI Arbitration Award was not valid because it was issued by the Arbitral Tribunal which was not authorized to examine and try the request for arbitration filed by Respondent I.

- Respondent I’s arguments: Respondent I basically argued that:

a) Respondent I never concealed the document related to the change of Respondent
I’s president director (the Shareholders Circular Resolutions and its notification from the Ministry of Law and Human Rights) and Respondent already informed the Claimant; and

b) in any case, the document related to the change of Respondent I’s president director (the Shareholders Circular Resolutions and its notification from the Ministry of Law and Human Rights) is not a decisive document that can change the ruling under the BANI Arbitration Award because there is no dissenting opinion amongst the BANI Arbitral Tribunal (including from the arbitrator nominated by the Claimant).

- District Court’s considerations: The District Court’s Panel of Judges annulled the BANI Arbitration Award for the following considerations:

a) Respondent I was not represented by the authorized president director when they entered into the agreement with the other parties (including the Claimant), and therefore the agreement does not meet the requirements for a valid agreement under Article 1320 of the Indonesian Civil Code. As such, the agreement can be declared null and void.

b) from the District Court’s Panel of Judges’ view, the document related to the change of Respondent I’s president director (the Shareholders Circular Resolutions and its notification from the Ministry of Law and Human Rights) is a decisive document concealed by Respondent I as described under Article 70 point (b) of the Arbitration Law. During the court proceedings, Respondent I failed to prove that Respondent I had informed or notified the Claimant about the existence of the document related to the change of Respondent I’s president director (the Shareholders Circular Resolutions and its notification from the Ministry of Law and Human Rights).

(2) Ruling No. 327 B/Pdt.Sus-Arbt/2021 dated 15 March 2021 jo. Ruling No. 699/Pdt.G/2019/PN.Jkt.Pst. dated 19 May 2020

- The Disputing Parties: PT Juhdi Sakti Engineering (as the Claimant) v. PT Borneo Citra Kaltim Mandiri (as the Respondent), PT India Oil Tank IOT Sangata (as CoRespondent I) and the BANI Arbitral Tribunal (as Co-Respondent II).

- The Claimant’s arguments: The Claimant basically argued that during the arbitration proceedings at BANI, the Respondent submitted documents containing false
statement or forged documents as follows:

a) the Respondent’s false statement related to the amount of the additional works; and

b) the Respondent submitted a forged document by fabricating the Audit Report.

- Respondent I’s arguments: The Respondent basically argued that:

a) the amount of the additional works was granted by the Arbitral Tribunal based on the Audit Report; and

b) the amount of the additional works should not be disputed anymore by the Claimant because it was based on reconciliation between the parties and the
parties already had a clarification meeting.

- District Court’s considerations: The District Court’s Panel of Judges annulled the BANI Arbitration Award for the following considerations:

a) during the court proceedings, the Panel of Judges found that there were 2 versions of the Audit Report submitted as evidence by the Claimant and the Respondent, respectively,

b) from the Claimant’s version of the Audit Report, it was found that there was no audit on the additional works, while from the Respondent’s version of the Audit Report, there was an audit on the additional works (which was used by the Arbitral Tribunal to grant the request on the amount of the additional works),

c) the Claimant submitted evidence from the party who conducted the audit and issued the audit report, a clarification letter stating that the audit by the auditor was only related to the Respondent’s receivables against the Claimant. As such, there is no audit on the additional works, and

d) from the expert statement presented by the Claimant. The phrase “after the award has been rendered, the letters or documents submitted for the examination are admitted or declared as false/forged” under Article 70 point (a) of the Arbitration Law means that after the dispute in the arbitration proceedings is decided, a party may become aware that the letter or document submitted as evidence was false or forged. There is then a statement from a competent party stating that the letter or document submitted as evidence is a false or forged document.

- Supreme Court’s considerations: The Supreme Court’s justices uphold the District Court by re-emphasizing that, from the statement letter, the auditor never conducted an audit over the additional works and therefore it was proven that there was a forged document added to the audit report.

Click here for more.

Authors:

Rudy A. Sitorus
Senior Associate
rudy.sitorus@makarim.com

Rahayu Ningsih Hoed
Partner
rahayu.hoed@makarim.com