“In an attempt to accommodate specific needs of contracting parties, Indonesian law provides multiple methods of dispute resolution to ensure maximum effectivity and welfare.”
In Indonesia, the methods of dispute resolution can be divided into two categories based on the forum, which is in or outside the court of justice. Subsequently, throughout this article, the method of dispute resolution carried out within the court of justice shall be referred to as litigation. In contrast, the means of dispute resolution carried out outside of the court of justice shall be further divided into two subcategories, namely arbitration and alternative dispute resolutions (“ADR”).
According to such categorization, general matters of arbitration and ADR are governed under the same regulation, namely the Law of the Republic of Indonesia No. 30 of 1999 concerning Arbitration and ADR (“Regulation 30/1999”). Under Regulation 30/1999, ADR refers to multiple methods of settlement outside of the court, such as negotiation, mediation, and conciliation, which will be explained respectively throughout this article.
Litigation
In Indonesia, the method of litigation applies to all and every type of dispute, i.e. public disputes and private disputes. When it comes to the public interest, Indonesian law only allows for litigation to resolve such disputes, because they are prohibited from being settled amicably. On the other hand, private disputes are encouraged by the law to be settled amicably. In the event the amicable settlement cannot be reached, litigation shall serve as the default method of resolution. Unless agreed otherwise by the disputing parties, litigation shall be the appropriate forum to resolve private disputes.
Within the method of litigation, the disputing parties seek a settlement in the audience of a tribunal of judges or a sole judge, which shall be empowered by the law to impose a decision upon hearing the dispute, known as a court decision. In general, dispute settlement by litigation can extend up to three stages, which are before the District Court, the High Court, and the Supreme Court, in such specific order. However, in the event, both parties approve of the court decision at the stage of District Court or High Court, such decision shall be considered final and binding upon both parties.
Arbitration
According to Article 1 (1) of Regulation 30/1999, arbitration can only apply to private disputes, i.e. disputes of commercial nature, or those concerning rights which are fully controlled by the disputing parties. Naturally, it is closer to litigation than to ADR, as it adheres to a specific set of procedural rules.
However, it must be regarded that the main core of arbitration and its proceedings are the mutual consent of the parties. The extreme flexibility of arbitration allows for the parties to determine every and all aspects of the proceedings, from the venue of arbitration, appointment of arbitrators, to the governing law and/or rules.
Similar to the role of judges in litigation, arbitrators are entitled to impose a decision (arbitral award) upon the disputing parties. However, unlike litigation in general, Article 60 of Regulation 30/1999 stipulates that arbitral awards shall be final and binding upon the parties with a permanent legal force. Therefore, arbitration is far less time-consuming than litigation as there can only be one arbitral award.
However, Article 70 of Regulation 30/1999 allows for both parties to submit an annulment petition of the arbitral award by stipulating bases for such annulment. Before the year 2014, such bases must first be deemed existent by a court decision. However, following the Decision of Constitutional Court No. 15/PUU-XII/2014, either party may submit an annulment petition only on a conjecture of existence of a basis for annulment.
Negotiation
As has been mentioned previously, private disputes are encouraged by Indonesian law to be settled amicably. Although it is not expressly stated, Article 6 of Regulation 30/1999 defines negotiation as a direct meeting of the disputing parties for the objective of reaching a mutual agreement.
In the event of success, negotiation shall result in a written agreement between the disputing parties. Following the principle of pacta sund servanda (wherein agreements must be regarded as law by the contracting parties), such resolution is binding upon both parties and thus must be deemed final. This is in line with Article 6 (8) of Regulation 30/1999, which states that the written agreement for the settlement of the dispute is final and binding for both parties to be executed in good faith.
Mediation
Under Article 6 of Regulation 30/1999, mediation is governed to take place in the event the disputing parties fail to reach an agreement through negotiation. However, Regulation 30/1999 does not provide sufficient regulation concerning the method of mediation as a dispute resolution. Therefore, this article shall refer to the Regulation of the Supreme Court No. 1 of 2016 concerning Procedure of Mediation in the Court of Justice (“Regulation 1/2016”). Although Regulation 1/2016 governs the procedure of mediation within the scope of a court of justice, the provisions contained therein are based upon the same, universal principles of mediation as a dispute resolution within or outside of the courts of justice alike.
Under Article 14 of the Regulation 1/2016, the main idea of mediation is that the disputing parties are to settle the dispute through a neutral party known as a mediator. However, it must be regarded that the mediator, as a neutral third party, shall have no power to impose a decision on the parties. Furthermore, the mediator shall not be expected to persuade the disputing parties into reaching an agreement, as it does not bear an active part in the resolution. The mediator is only expected to accommodate the disputing parties in settling the dispute outside of the courts of justice.
Similar to negotiation, a successful mediation shall result in a written agreement between both parties, thus making such resolution final and binding. In the event of a failure to reach such agreement, the disputing parties are allowed to seek settlement elsewhere, either by litigation or arbitration.
Conciliation
In general, the main idea of conciliation is similar with the one of mediation, in which the disputing parties convene to resolve the dispute in the presence of a neutral third party following a failure of negotiation. However, the third party in conciliation, known as the conciliator, must take an active part in persuading the parties into reaching a mutual agreement. In implementing such a part, the conciliator is expected to provide opinions as well as advice based on the circumstances of the dispute.
Considering how Regulation 30/1999 only provides limited provision concerning conciliation, this article shall refer to Law No. 2 of 2004 concerning Industrial Relation Dispute Resolution (“Regulation 2/2004”). Within Article 21 of Regulation 2/2004, a conciliator is entitled to summon witnesses or expert witnesses to be present at the conciliation hearing. In conclusion, the conciliator bears a more significant role in reaching an agreement compared to a mediator.
Similar to negotiation and mediation, successful conciliation results in a written agreement which is deemed final and binding to the disputing parties. However, in the event of a failure of conciliation, the conciliator must issue a written recommendation which is subject to approval or rejection by the disputing parties. Rejection of such written recommendation shall cause both parties to seek settlement by another forum.
Author: Yohana Veronica Tanjung
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include Dispute Resolution.
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