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Arbitration has become one of the dispute resolution forums that interest business people, in addition to court institutions which are generally the place or forum for dispute resolution. This article will discuss the definition and legal consequences of an arbitration clause in an agreement.

Definition

Article 1.1 of Law No. 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (Arbitration Law No. 30/1999) has defined that arbitration is an agreement agreeing on a way to settle disputes outside the court. Outside the court dispute settlement methods are based on an arbitration agreement known as an Arbitration Clause which is agreed that disputes do not proceed to the District Court but will be filed and settled by an arbitration institution. Arbitration agreements must be made in writing and must not be oral.

Article 1.1. Arbitration Law No. 30/1999 states:

“Arbitration means a method of settling civil disputes outside the general courts, based on an arbitration agreement made in writing by the parties to the dispute.”

Based on the definition formulated in Article 1.1 of the Arbitration Law No.30 / 1999 above, if the parties in an agreement agree on the Arbitration Clause, then it means that the parties agree that the way to settle disputes arising from the agreement is settled outside the court (out of court) through Arbitration.

Legal Consequences

The legal consequences arising from the Arbitration Clause are regulated and affirmed in Article 3 jo. Article 11 of the Arbitration Law No.30 / 1999, which can be explained as follows:

Arbitration results in the fall or loss of authority of the District Court to adjudicate disputes arising from the agreement. Therefore, the first legal consequence arising from the Arbitration Clause is that the District Court has no authority to adjudicate cases/disputes arising from the relevant agreement. This means that disputes/cases arising from the agreement:

  • Has totally or absolutely become the jurisdiction or absolute competence of the chosen arbitration institution, and
  • The District Court totally or absolutely has no more jurisdiction or competence to adjudicate it.

Article 3 of the Arbitration Law No. 30/1999 affirms the previous articles by stating:

“The District Court has no jurisdiction to try disputes between parties bound by an arbitration agreement.”

The application of this provision was confirmed among others in the Supreme Court Decision No.175 K / Pdt / 2005 dated December 12, 2006, which states:

“In accordance with the permanent jurisprudence of the Supreme Court, a legal rule has been outlined that the Arbitration Clause in the agreement is included as the absolute authority of the Arbitration Institution, so in facing this matter the General Court Judge, because of his/her position, must declare himself/herself not authorized to adjudicate the case. Arbitration as Extra Judicial that was born from the Arbitration Clause of an agreement has a legal effect in giving absolute authority to the Arbitration Institution to resolve disputes arising from agreements based on pacta sun servanda.”[1]

Thus the main legal consequences arising from the Arbitration Clause.

2 The next legal consequences arising from the Arbitration Clause are regulated in Article 11 of the Arbitration Law No. 30/1999 which states:

i) Eliminating the right of the parties to file a lawsuit or settle the disputes arising from the agreement to the District Court.

This is determined in Article 11 Paragraph (1), which states:

“The existence of a written arbitration agreement waives the right of the parties to submit a dispute resolution or dissent which is included in the agreement to the District Court”

From the Indonesian perspective, according to the Indonesian Language Dictionary (WJS Poerwadaminta, Balai Pustaka, 1976, p. 1067), the meaning of the word waive is to abolish or revoke.

Thus, if the provision of Article 11 Paragraph (1) is linked to the meaning of language, it means that the right of the parties to file a dispute settlement which arises from the agreement which agrees on the Arbitration Clause has disappeared or is lost or revoked. Therefore, according to law, the disputes/lawsuits filed to the District Court is made by the parties that are unauthorized.

ii)  The second legal consequence affirmed in Article 11 Paragraph (2) is that the District Court is obliged to refuse or not interfere in the resolution of disputes arising from the agreement agreeing on the Arbitration Clause. Article 11 Paragraph (2) of the Arbitration Law No.30 / 1999 states:

“The District Court must refuse to and must not interfere in any dispute settlement which has been determined by arbitration, ….”

The provision of Article 11 Paragraph (2) is imperative or mandatory (dwingendrecht, mandatory law) because the formulation of the article contains the word must, namely: The District Court must refuse to and must not interfere in any dispute settlement. Therefore, there is no other way for the District Court aside from being obliged to reject the lawsuit submitted to them, if it turns out that the dispute submitted arising from an agreement/contract that agrees on the Arbitration Clause.

Thus the explanation relating to the understanding and legal consequences arising from the Arbitration Clause according to the provisions of Article 3 jo. Article 11 of the Arbitration Law No. 30/1999.

In addition to the description above, law enforcement that removes or waives the jurisdiction or competence of the District Court to adjudicate disputes or cases that agree on the Arbitration Clause has produce jurisprudence that is of a stare decisis or permanent jurisprudence in the practice of justice, among others:

1) Decision of the Supreme Court No.225 K / Sip / 1976 dated September 20th, 1983, between GAPKI TRADING Co. Ltd vs WONG HECK GOUNG, states:

“… because in the Joint Venture Agreement dated November 25th, 1969, it was agreed that the Arbitration Clause which caused a dispute between them would be resolved by the Arbitration Council. Pursuant to the agreement in this Agreement, the Central Jakarta District Court because of its position must declare that the District Court is not authorized to adjudicate the case, without depending on the existence of an Absolute Competency filed by the Defendant “[2]

2) Decision of the Supreme Court No.3179K / Pdt / 1984 dated May 4th, 1988, between PT ARPENI PRATAMA OCEAN LINE vs. PT SHORA MAS, which states:

“The District Court has no authority to examine and adjudicate a civil lawsuit regarding an agreement which includes an Arbitration Clause, both in the claim and counter claim.”[3]

Hope this is useful,

FREDRIK J. PINAKUNARY LAW OFFICES


[1] M. Ali Boediarto, SH., Compilation of MA Decision Law Procedures, Civil Procedure Law, Swara Justitia, 2005, Jakarta page 130

[2] Ibid, M. Ali Boediarto, SH., page 122

[3] Ibid, M. Ali Boediarto, SH., page. 123


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