Strengthening the Principle of Territoriality in the Implementation of International Arbitration Following Constitutional Court Decision No. 100/PUU-XXII/2024
Authors
On 3 January 2025, the Constitutional Court (MK) issued Decision No. 100/PUU-XXII/2024, which effectively removes the word ‘deemed’ from Article 1 Point 9 of the Arbitration Law, thereby establishing a definitive distinction between domestic and international arbitration awards. This is due to the Law Number 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (“Arbitration Law”) adopts two distinct concepts in defining an international arbitration award, namely: territoriality and nationality [1], consequently resulting in misinterpretation in terms of practice.
Decision No. 100/PUU-XXII/2024 described a situation where an international arbitration award, which is classified as international arbitration but not recognized by the Indonesian courts, has the following impacts and risks.
- Inconsistencies in the required document and timeframe
Under the Arbitration Law, international arbitration is not subject to a statutory deadline. However, pursuant to Article 67(2), an application for recognition and enforcement must be accompanied by:
- The original or an authenticated copy of the International Arbitration Award, duly certified and officially translated into Indonesian.
- The original or an authenticated copy of the agreement underlying the award, duly certified and officially translated into Indonesian; and
- A statement from the Indonesian diplomatic mission in the country where the award was issued, confirming that the country is bound by a bilateral or multilateral agreement with Indonesia regarding the recognition and enforcement of international arbitration awards.
By contrast, domestic arbitral awards must be registered with the District Court within 30 days of issuance pursuant to Article 59(1) of the Arbitration Law. Unlike international awards, registration requires submission of the original or an authenticated copy of the award by the arbitrator or their authorized representative to the court clerk. This lack of clarity in determining whether an arbitration award is considered “international” leads to uncertainty, as different regulations may apply, resulting in inconsistent legal requirements.
- Annulment issue
Article 70 of the Arbitration Law provides for annulment of domestic arbitral awards only. International awards may be annulled solely in the country of issuance. This creates regulatory gap where an award deemed “international” is rendered in Indonesia, as no procedure exists under Indonesian law for its annulment.
Pursuant to the Constitutional Court’s removal of the phrase “deemed as”, Indonesian arbitration law now adheres to the principle of territoriality, under which awards rendered within the territory of Indonesia are classified as domestic, whereas those rendered abroad are classified as international. This doctrinal clarification eliminates prior ambiguity concerning the applicable provisions of the Arbitration Law.
- Deficiency in legal certainty
The Arbitration Law does not expressly regulate the concept of nationality in arbitration, nor does it provide explanatory guidance on its role as a criterion for classifying an award as international. To date, there is no clear definition or explanation regarding the term “*deemed as*” an international arbitration award within Arbitration Law.
Consequently, unresolved issues persist regarding (i) the authority competent to determine the international character of an award, (ii) the criteria for such classification, and (iii) the governing legal framework. The absence of specific regulation on these points generates legal uncertainty and risks inconsistency in the recognition and enforcement of arbitral awards in Indonesia.
Upon the presented illustration regarding the uncertainty of international arbitration award classification, the Constitutional Court Judges generally are of the view:
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Conceptually, the main differences between domestic and international arbitration awards are regulated in the Arbitration Law, including registration deadlines, place of registration, execution requirements, and grounds for annulment. Under the Arbitration Law, annulment of international arbitration awards can only be sought in the court where the award was rendered. However, without clear regulations delineating domestic and international arbitration, these differences may be exploited by bad-faith parties to annul arbitration awards or merely delay their enforcement, particularly in the case of international arbitration awards.
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Nevertheless, the Constitutional Court’s decision does not preclude the possibility of additional factors being introduced through other statutory provisions. Until further regulations concerning the recognition and enforcement of international arbitration awards beyond the Arbitration Law are established, the guiding principles should remain those outlined in Articles 66 and 67 of the Arbitration Law. Article 66 of the Arbitration Law provides that an international arbitral award may only be recognized and enforced in Indonesia if it meets specific requirements, including treaty reciprocity, commercial scope, consistency with public policy, and exequatur from the Central Jakarta District Court (or the Supreme Court if the Republic of Indonesia is a party). Furthermore Article 67 outlines the enforcement procedure, requiring registration of the award with the Central Jakarta District Court and submission of authenticated documents, the arbitration agreement, and a diplomatic statement confirming treaty obligations. Therefore, the legal framework outline in the Constitutional Court Decision No. 100/PUU-XXII/2024 does not automatically invalidate the nationality concept, which necessitates further regulatory provisions on the parameters for defining international arbitration awards in the future.
- Article 1 Point 9 of the Arbitration Law: an international arbitration award is defined as a ruling made by an arbitration institution or an individual arbitrator outside the jurisdiction of the Republic of Indonesia, or a ruling made by an arbitration institution or an individual arbitrator deemed an international arbitration decision under the provisions of Indonesian law. ↩
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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