Defining International Arbitral Awards: Constitutional Court Decision No. 100/PUU-XXII/2024

Defining International Arbitral Awards: Constitutional Court Decision No. 100/PUU-XXII/2024

 The recent Constitutional Court Decision No. 100/PUU-XXII/2024 (“Constitutional Court Decision”) addresses a critical ambiguity in the definition of international arbitral award under Article 1 point 9 of Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (“AADR Law”). This decision represents the much-needed clarity to the Indonesia arbitration legal framework, particularly concerning the cross-border transaction, disputes and enforcement of arbitral award.

BACKGROUND AND ISSUE

The Constitutional Court Decision mainly focuses in Article 1 point 9 of AADR Law as the petitioner argued that the said phrase is unclear, ambiguous, and lacks standard criteria, which leads to legal uncertainty, contradicting the principle of legal certainty. Article 1 point 9 of AADR Law reads as follows:

“International Arbitral Award refers to an award which is rendered by an arbitral institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or an award which is rendered by an arbitral institution or individual arbitrator, of which, according to legal provisions of the Republic of Indonesia is considered as an international arbitral award.”

The petitioner contended that the law does not clearly establish what constitutes an international arbitral award. Even though, the law provides that an international arbitral award may be determined by the territorial approach, the law also allows for the interpretation of awards based on Indonesian legislation. The law’s definition of international arbitration is based on two core ideas:

1. Territorial Factor: Defined by the location where the award is made or issued, meaning that any arbitral award issued outside the jurisdiction of Indonesia qualifies as international arbitration.

2. Legal Regulations Factor: Defined by whether the award, is considered as international arbitration award (or a non-domestic international arbitral award) under Indonesian legal framework.

 Although the provision under Article 1 point 9 of the AADR Law is not unusual and can be found in similar laws in other countries, such as Singapore and Malaysia. However, the uncertainty arises from the lack of criteria for defining a non-domestic international arbitral award. Such uncertainty often leads to subjective interpretations and multi-interpretation in determining the status of an arbitral award, which could be exploited by certain parties to delay, hamper or disputing the enforcement of an arbitral award, especially in cases involving international aspects.

The absence of regulations to define a non-domestic international arbitration award leaves the interpretation to the court, which multi-interpretation and inconsistent rulings may establish legal uncertainty to the enforcement and recognition of the arbitral awards.

The Constitutional Court Decision

The Constitutional Court recognized that the debate surrounding the definition of international arbitration has been ongoing since the formulation of the New York Convention, which recognized the territorial-based and nationality-based concepts left to the member countries to decide while the Convention did not provide further definitions of domestic arbitration awards.

The Supreme Court Regulation No. 1 of 1990 on the Procedure for Enforcement of Foreign Arbitral Awards previously attempted to define international arbitration awards. However, over time, even the Supreme Court acknowledged the insufficiency of legislation in clarifying the phrase “considered as an international arbitral award”. Although the AADR Law differentiates between domestic and international arbitration awards in respect of the registration deadlines, locations, grounds for annulment, and enforcement procedures, the criteria of the award itself remain ambiguous.

The Constitutional Court Decision eventually concluded that the term “considered” should be removed from Article 1 point 9 of the AADR Law as it is contravened with the Constitution of the Republic of Indonesia of 1945 and does not have binding legal force, reads as follows:

The main consideration is that the term “considered,” which is derived from the Indonesian word “anggap” (to suppose or to assume) invites multiple interpretations, eroding the principle of legal certainty, as the legal drafting must prioritize clarity to prevent misuse, ensure fairness, and uphold consistent application. Such amendment aims to eliminate uncertainty and foster a more precise legal framework.

In light of the above, upon the pronouncement of the Constitutional Court Decision, Article 1 point 9 of AADR Law is reads as follows:

“International Arbitral Award refers to an award which is rendered by an arbitral institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or an award which is rendered by an arbitral institution or individual arbitrator, of which, according to legal provisions of the Republic of Indonesia as an international arbitral award.

While such a Constitutional Court Decision simplifies the current legal landscape, it also may require future and further advancements to the Indonesian arbitration legal framework due to the urgency of clear and certain provisions concerning the criteria to differentiate the international arbitral award under the nationality-based international award approach.

REMARKS

The Constitutional Court Decision to remove the phrase “considered” from Article 1 point 9 of the AADR Law significantly enhances legal clarity regarding international arbitral awards. This amendment mitigates confusion around the classification of non-domestic international arbitration awards by ensuring that such awards should be assessed based on explicit, unambiguous regulations, given the previous lack of clear guidelines. The Constitutional Court also emphasized the need for legislator to bring Indonesia’s arbitration framework in line with international standards and urged that international arbitration award be interpreted in accordance with Articles 66 and 67 of AADR Law.

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For further guidance or to understand how these changes may impact your arbitration agreements or ongoing cases, please contact us at info@tnklaw.id or (021) – 2528636.