“ Arbitration as an alternative dispute settlement forum has unique characters that consider more beneficial to the business actor than dispute settlement in the court.”
In Indonesia, legal disputes can be settled in or outside the court. The process of dispute settlement in court is usually referred to as litigation, while the process of dispute settlement outside the court is commonly grouped as alternative dispute settlement or alternative dispute resolution (“ADR”).
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Pursuant to the prevailing laws, all disputes related to the public interest, such as criminal law, can only be resolved by litigation. By contrast, some disputes under the private law scope, such as corporate or contracts, can be settled through ADR. Furthermore, considering how matters related to the capital market are within the scope of private law, disputes arising out of capital market matters can be settled through ADR.
There are several forums of ADR in Indonesia. Governed by Law No. 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (“AADR Law”), forums of ADR include the following:
- Arbitration;
- Consultation;
- Negotiation;
- Mediation;
- Conciliation; and
- Expert Evaluation.
From now on, this article shall only discuss ADR in the form of Arbitration and how the forum is acknowledged as one of the ADRs to settle disputes related to the capital market.
Overview of Arbitration as Alternative Dispute Settlement Forum
Universally, Arbitration is accepted as a process by which parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute by neutral, adjudicatory procedures allowing each party to present its case (Gary B. Born, 2012).
Similarly, under the AADR Law, Arbitration is defined as a method for civil dispute settlement outside of the general judiciary, which is based on an arbitration agreement made in writing by both disputing parties.
Arbitration is akin to the nature of litigation, in which the disputing parties present their respective case to the decision-makers, either panel or individual, who are referred to as arbitrators.
The Arbitration institution empowers the arbitrators to act likely as judges in litigation. However, Arbitration is distinctly marked by its flexibility by which the disputing parties are allowed to determine most aspects of the proceedings, such as Arbitration venue, appointment of arbitrators, and governing law and/or rules.
Therefore, while it holds certain similarities to litigation, Arbitration is generally accepted as an ADR that provides the disputing parties with far more liberty.
Aside from the flexibility, the vital aspect of Arbitration is that it can only be deemed the appropriate ADR if the disputing parties have consented to such. This consent must then be recorded in a written agreement between the parties, either in a separate Arbitration agreement or Arbitration clause in the agreement there between.
Authorized Institution for Arbitration in Financial Sector
Arbitration proceedings for disputes related to the financial sector can be settled by the Alternative Institution for Dispute Resolution in the Financial Services Sector (Lembaga Alternatif Penyelesaian Sengketa Sektor Jasa Keuanganor “LAPS SJK”).
The incorporation of LAPS SJK and its appointment as the authorized institution for Arbitration in the financial sector are established by Indonesian law. Pursuant to Law No. 21 of 2011 concerning Financial Services Authority, the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) is empowered to regulate and supervise activities related to financial services.
One of the responsibilities under OJK’s supervising activities is the facilitation customer complaint settlement, which is implemented by the incorporation of ADR forums with specific authorities.
Particularly for Arbitration in the financial sector, OJK incorporates and appoints LAPS SJK as the authorized institution through the OJK Regulation No. 61/POJK.07/2020 on Alternative Institution for Dispute Resolution in the Financial Services Sector (“OJK Reg. 61/2020”). However, as of now LAPS SJK have only 3 (three) Dispute settlement services which are:
- Mediation: LAPS SJK Mediation is a way of resolving disputes through a negotiation process between the Parties assisted by a LAPS SJK Mediator, in order to reach a win-win-solution peace agreement.
- Arbitration: LAPS SJK arbitration is a method of resolving civil disputes outside the general court which is based on an Arbitration Agreement made in writing by the parties to the dispute, through an examination carried out by a Sole Arbitrator/Arbitration Panel to provide an Arbitration Award in accordance with the procedural procedures determined by LAPS SJK.
- Binding Opinion: It is a service for resolving differences of opinion between Parties regarding agreements through the provision of Binding Opinions by LAPS SJK.
Types of Disputes under the Scope of LAPS SJK
As has been established earlier in this article, matters related to the financial sector are within the scope of private matters. Based on Article 2 LAPS SJK Regulation No. 02 on Arbitration Rules and Procedures (“LAPS SJK Arbitration Regulation”), Disputes that can be submitted for resolution to LAPS SJK Arbitration are disputes between parties that meet the following provisions::
- Efforts have been made to resolve the matter through deliberation to reach a consensus between the Parties themselves (Internal Dispute Resolution).
- Based on the existence of an Arbitration Agreement between the Parties and the submission of a Request for Arbitration registration by one of the Parties or both Parties; and
- Any disputes arising from or in connection with the agreements/transactions in the financial industry mentioned below, both conventional and sharia, which are:
- Banking;
- Capital Market;
- Insurance;
- Pension Fund;
- Pledge (Gadai);
- Financing;
- Venture Capital;
- Credit Guarantee;
- Financial Technology;
- Payment System;
- Any Hybrid Product Between One Financial Product and the Other;
- Any Derivative Products from The Financial Products Above;
- Other Products/Transactions That Are Designated As Financial Products/Transactions According To Applicable Laws And Regulations;
- Other products/transactions that are under the supervisory authority of the OJK and/or Bank Indonesia;
- Other transactions and activities carried out by Parties in the financial services sector, include: PUJK restructuring, company and securities ratings and Repo transactions for debt and equity securities.
Moreover, under Article 32 Paragraph (1) OJK Reg. 61/2020, the dispute criteria that can be submitted to LAPS SJK are as follows
- Complaints have been attempted to be resolved by Financial Services Business Actors but have been rejected by consumers or consumers have not received a complaint response as regulated in OJK regulations regarding consumer complaint services in the financial services sector;
- The dispute submitted is not a dispute that is currently in process or has been decided by a judicial institution, arbitration or other alternative dispute resolution institution; and
- Disputes are civil in nature.
Meanwhile, under OJK Regulation No. 31/POJK.07/2020 on Providing Consumer and Community Services in the Financial Services Sector by OJK, OJK has provided two types of complaint services submitted by consumers to Financial Services Business Actors, namely:
- Complaints that indicate a dispute are an expression of consumer dissatisfaction caused by material, natural and direct losses and/or potential losses to consumers because Financial Services Business Actors do not fulfill agreed agreements and/or financial transaction documents; and/or
- Complaints that indicate violations are expressions expressed by consumers and/or the public regarding indications of violations of statutory provisions in the financial services sector carried out by Financial Services Institutions which are alleged to have occurred due to the intention or negligence of the Financial Services Institutions.
Advantages of Arbitration as Alternative Dispute Settlement Forum
Compared to litigation as the default dispute settlement forum, Arbitration is commonly sought by parties as to the preferable ADR for multiple advantages it provides. Generally, such advantages include the following:
- FlexibilityAs has been elaborated above, Arbitration is known for its flexibility, which allows the disputing parties to decide the aspects of the proceedings. This is proven to be advantageous because the parties can utilize their liberty to maximize their own chances to obtain the desired settlement.
- Fast-track Proceeding
- Under the AADR Law and LAPS SJK Arbitration Regulation, the maximum period of arbitrators’ appointment to the conclusion of the Arbitration proceeding is limited to 180 (one hundred eighty) days (can be extended if needed). This is far less time than the usual period of litigation proceeding, which can be up to 7 – 9 (seven to nine) months.
- Efficience Aside from the short period of proceeding, Arbitration is also far more efficient than litigation proceeding because the awards rendered by arbitrators are final and binding. Therefore, upon the settlement of the dispute, the parties are precluded from taking further legal action such as appeal or cassation.
Author: Yohana Veronica Tanjung
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas e.g. Capital Market & Financial Services.
For further queries and information, contact us:
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