Indonesia litigation guide
Nira Nazarudin and Nicholas Watts
Soemadipradja & Taher
Tel: +62 21 574 0088 Fax: +62 21 574 0068
Indonesia’s legal system is unique because it reflects its pre-colonial, colonial and post-independence history and multicultural diversity.
As Indonesia continues to attract foreign investment, it is critically important for those doing business in the country to understand the fundamental elements of its legal system. They must also understand the recent political reforms geared towards the greater democratisation and transparency of public institutions.
This overview outlines some of the broader features of the Indonesian legal system that distinguish it as a civil law system from a common law system.
Legal system
Indonesia’s laws can be found in the Civil and Criminal Codes (which are predominantly based on the Dutch Civil Codes) and various laws and regulations as opposed to judge-made case law and the doctrine of binding precedent.
The court system in Indonesia has four main divisions: general courts (in which most civil and criminal cases are handled through the district courts at first instance); religious courts; military courts; and administrative courts – and appeals lie to the High Court and finally to the Supreme Court.
There are also government regulatory bodies that can exercise quasi-judicial functions: for instance, the Anti-Monopoly Committee (known as KPPU). And there are certain regulatory bodies that have broad powers of investigation and prosecution: for instance, the Commission of the Eradication of Criminal Acts of Corruption (known as KPK).
Members of the Judiciary are not appointed from the ranks of practising lawyers but rather are trained independently as specialists by the Supreme Court. Only lawyers who hold a licence as an ‘advokat’ can advise on Indonesian law and have rights of audience in the Indonesian courts.
Civil litigation
Indonesian civil proceedings are not adversarial, do not involve any jury system, and there is no ‘discovery’ of documents.
Generally, civil proceedings in the district courts may take up to six months before an order is obtained. At the early stages of the proceedings (that is before the defendant is required to file a defence or any jurisdictional challenge), the parties are required to mediate with a view to amicably resolving their dispute.
No foreign judgments are recognised or are directly enforceable in Indonesia and the range of remedies and enforcement procedures differs from those found in common law jurisdictions and some civil law jurisdictions.
Arbitration
Alternative Dispute Resolution (ADR) is developing in Indonesia, particularly arbitration. Indonesia has established a national arbitration institution, which is Badan Arbitrase Nasional Indonesia (BANI) (Indonesian National Arbitration Institution).
Indonesia is a party to the New York Convention (subject to certain commercial and reciprocity reservations) and has ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention.
The conduct of arbitration proceedings and enforcement of both domestic and foreign arbitral awards in Indonesia is regulated by the provisions of the Indonesian Arbitration Law, Law 30 of 1999.
Although the provisions of the Arbitration Law are not based on the UNCITRAL Model Law, the Arbitration Law nevertheless provides that district courts have no jurisdiction over disputes where there is a valid arbitration clause.
Foreign arbitration awards are recognised and can be registered in Indonesia provided that such awards:
1. are rendered in a New York Convention country;
2. are rendered in respect of a matter that under Indonesian law would be considered to be within the scope of 'commercial law’;
3. are not manifestly contrary to Indonesia’s legal and social system (i.e. public order); and
4. have obtained an ‘exequatur’ from the relevant court.
A registered arbitration award is enforced as an order of the district court and to the extent that the terms of relief in the award are permissible under the Indonesian Civil Procedural Law.
Issues
There are certain salient features of the Indonesian legal system that foreign parties doing business in Indonesia should be aware of. This is particularly when considering their potential dispute risk profile and appropriate choice of law, forum and arbitration clauses.
Firstly, the range of remedies available from the Indonesian courts are limited to primarily financial compensation for loss or damages that have actually been suffered (in contrast to purely anticipatory losses and damages).
In certain circumstances, a party may obtain mandatory orders requiring the performance of certain specified acts and/or seizure and forfeiture of assets and/or freezing orders over a particular party’s assets. However, there is an absence in Indonesia of any preventative or injunctive relief to prevent a party from breaching its legal obligations under contract or otherwise.
This issue is not confined to parties who are involved in litigation in Indonesia, but also to those seeking to enforce arbitral awards. This is because, upon registration, awards are effectively converted into orders of the District Court and subject to the same limitations.
Secondly, there are certain unique legal rights and obligations that arise under Indonesian law that may be claimed by parties as existing outside the scope of any contractual terms. Most notable of these are the concept of ‘good faith’ under Indonesian law and claims based on ‘unlawful acts’ under Article 1365 of the Indonesian Civil Code.
Finally, and as a corollary of Indonesia’s civil law system, Indonesian judges have broad discretion to determine and resolve substantive and procedural issues without being bound by previous decisions. This makes it difficult for litigants to predict what potential outcome may fall from the courts.
Foreign parties frequently seek to mitigate or at least minimise the impact of these issues by seeking to incorporate appropriate clauses in their contracts.