2024 has brought significant changes to Indonesia. Other than being a significant political year with the election and inauguration of Prabowo Subianto as president and the holding of local executive elections, Indonesia has also seen developments in the dispute resolution and investigations space. Various stakeholders, including the Indonesian judiciary, government, parliament, and the business community have introduced reforms throughout the year and further improvements are expected to set in in the coming years.
Judiciary
In 2023, the judiciary saw a productive year, demonstrating a generally positive outlook. Based on the Supreme Court’s annual report issued in February 2024, District Courts, High Courts, and the Supreme Court have a case completion rate of more than 90% in 2023, meaning that 90% of cases are decided within the same year that they are filed. Based on the Supreme Court’s statistics, the Supreme Court’s case completion rates have seen gradual improvements over the years. Case completion rate was at 52.09% in 2012 and reached 99.47% in 2023. While the 2024 statistics are not yet published, we are expecting the 2024 case completion rate to follow the rate in 2023.
One of the significant reforms by the Supreme Court was the issuance of Supreme Court Regulation No. 3 of 2023 aimed at revamping the Indonesian arbitration regime. The Supreme Court Regulation consolidates many previously existing rules and provides clearer deadlines for arbitration and arbitration-related procedures. This is a welcomed development in the arbitration space by practitioners and businesses alike. One noteworthy development in the Supreme Court Regulation is that it provides a new registration procedure for attachment orders by the arbitrator or tribunal. The Supreme Court Regulation, however, does not provide detailed provisions on the procedures for the enforcement, but instead refers to the procedures set out in the prevailing Indonesian civil procedural law. So how these rules are implemented in practice remains to be seen. The Supreme Court Regulation also introduces a new and broader definition of “public policy.”
The Supreme Court Regulation provides that arbitrators and arbitral institutions should not be joined as parties in annulment proceedings. Previous practices have seen annulment applications being addressed to arbitrators and arbitral institutions in addition to the party that prevailed in the arbitration. There is still inconsistency in the application of this rule. However, in a case we handled, the District Court cited this rule and declared an annulment application inadmissible for including the arbitral institution as a respondent. In our experience, courts also strictly comply with the statutory deadline set in the Supreme Court Regulation for annulment proceedings, while in the past completion of annulment cases may take an extended period.
A point worth mentioning is the judiciary’s support of arbitration in Indonesia. The judiciary recognizes arbitration’s virtues especially in alleviating bottlenecking at the court. During the 2022 ICC Indonesia Arbitration Day, during the opening speech by the Supreme Court’s representative, it was explained that between 2019 and 2022, more than 60 petitions for annulment of domestic awards were received, close to three quarters of which were rejected. Furthermore, during the same timeframe, close to 30 leave of enforcement of international awards were received, the majority of which have been granted leave.
On 29 December 2023, the Supreme Court also issued Supreme Court Circular Letter No. 3 of 2023. The Supreme Court Circular Letter stipulates that if a contract involving Indonesian and foreign parties is executed in a foreign language only, the absence of an Indonesian translation cannot by itself serve as a basis to annul that contract. There is, however, one exception to this rule – i.e., if it is proven that the absence of an Indonesian translation is due to the bad faith of one of the parties. In such a case, the contract may be annulled. While ambiguity as to what constitutes bad faith remains, it is hoped that the Supreme Court Circular Letter will reduce the number of contracts being annulled due to the absence of an Indonesian translation.
Government and Parliament
The Indonesian government and parliament have also taken a part in improving the dispute resolution landscape in Indonesia. In 2017, there was a plan to revise the Arbitration Law. Even though it has not been in effect and there were no further discussions in the following years, it shows awareness on the need to revise and renew these laws. In 2019, the Indonesian government proposed the Civil Procedure Bill to parliament, which will replace the existing colonial-era civil procedure codes. The bill’s Academic Paper prepared by the National Legal Development Agency of the Ministry of Law and Human Rights highlights the importance of codifying procedural rules that are now governed under separate regulations and improving the compatibility of domestic rules with the relevant international conventions.
The Civil Procedure Bill has entered the parliament’s Priority National Legislations Program for 2021-2024. Discussions at parliament have involved stakeholders, including bar and notaries’ associations, which have been invited to parliamentary hearings to give their feedback on the bill’s proposed reforms. The bill is also included in the Priority National Legislations Program for 2025-2029 and the government is pushing for the bill to be passed in 2025. The Bankruptcy Law is also set to be revised, although it has not been included in the parliament’s Priority National Legislations Program for 2025.
The academic paper underlying the drafting of the Civil Procedure Bill outlines key issues in Indonesia’s existing legislations and practices that the bill aims to resolve. These include the procedure for enforcing court judgments which in reality could take an extended period of time, the principle of “passive judge” in civil procedure which may limit the authority of judges in providing guidance to parties in disputes, and the unreasonable build-up of caseload in the Supreme Court.
Bank Indonesia (BI), the central bank, also enacted BI Regulation No. 3 of 2024 which introduced the Financial Sector Alternative Dispute Resolution Institution (Lembaga Penyelesaian Sektor Keuangan / LAPS-SK), an institution aimed at providing integrated ADR services for disputes involving institutions under the auspices of BI. LAPS-SK has not been incorporated at the time of this article. One of the key requirements for incorporating the institution is to obtain approval from both BI and Financial Services Authority (Otoritas Jasa Keuangan / OJK). Currently the only existing institution that has obtained OJK’s approval is the Financial Services Sector Alternative Dispute Resolution Institution (Lembaga Alternatif Penyelesaian Sengketa Sektor Jasa Keuangan / LAPS-SJK). It may be the case that LAPS-SJK will be the institution designated to assume LAPS-SK’s mandate under the BI Regulation as they have obtained approval from the OJK and would only seek approval from BI.
Business Community
Aside from the judiciary and the government, the market has also played a part in revamping Indonesia’s dispute resolution regime. At the beginning of 2024, Indonesia saw the formation of a new arbitration institution – the Indonesian Energy Disputes Arbitration Institution (Badan Arbitrase Sengketa Energi Indonesia/BASE). BASE was formed with the support of a number of business associations in the oil and gas, energy, geothermal, electricity, and mining industries.
Currently, the main arbitration institution in Indonesia remains BANI Arbitration Center, which was formed almost 50 years ago. And it is likely to remain so for the foreseeable future. However, while it remains to be seen how popular BASE will be and how effective it will be in resolving energy disputes, its formation is an indication of the needs of the market.
The Indonesian Chamber of Commerce and Industry (KADIN) has recently established the Business Dispute Mediation Agency Service, which may indicate a growing preference for mediation as a method of resolving disputes. This may be targeted towards micro, small and medium enterprises (which are growing in some sectors and industries) which may not prefer litigation due to perceived procedural complexities nor arbitration due to cost considerations.
