Arbitration can settle legal disputes

By Stefanus Haryanto

JAKARTA (JP): In a dispute over the termination of the distributorship agreement between plaintiff PT Perusahaan Dagang Tempo and defendant PT Roche Indonesia, the South Jakarta District Court decided it had the jurisdiction to hear the case, notwithstanding the existence of an arbitration clause in the agreement.

This decision is quite controversial, since Article 3 of Law No. 30/1999 on arbitration clearly stipulates that "the court has no jurisdiction to adjudicate a dispute in which the parties are bound by an arbitration agreement".

The court's basic argument claiming jurisdiction to hear the case was that the dispute between the plaintiff and the defendant was a legal dispute, and not one of technical business matters.

Following the issuance of the decision, the defendant's lawyers placed a full-page advertisement in major national newspapers to inform the public of the judge's blatant disregard of the Law on Arbitration.

To counter this advertisement, the plaintiff's lawyer also placed full-page advertisements in major newspapers to "defend" the judge's decision as correct, because the dispute was purely a legal one and not one of technical business issues.

The plaintiff's lawyer cited the opinion of law professor Subekti, who had said, "Submitting a dispute to the arbitration board has benefits in that the dispute will be verified and decided by those who are experts in the disputed case."

The lawyer also cited the opinion of legal expert S.U.T Girang, who wrote in her book, "In arbitration, the judgment of dispute may be referred to anyone who has technical expertise on the disputed issue, of which the judge often does not have.

"Those appointed as arbitrators usually have expertise in a specific trade, by virtue of their own experience over years and therefore the problems which may arise can be properly understood."

By involving the public in their "war" through the advertisements, the lawyers from both sides seemed to be soliciting the public's opinion.

In this writer's opinion, arbitration aims to settle legal disputes. It is logically fallacious to infer that since arbitrators are usually those who are equipped with technical expertise, then arbitration is only able to settle disputes involving technical (business) issues.

Every business dispute that arises from the implementation of a contract is a legal dispute, arising from charges of a breach of contract.

However, technical expertise is needed to determine the guilty party. For example, in a dispute regarding a construction agreement, technical expertise is needed to determine whether the contractor is in breach of the contract when it adopts a "wet system" rather than a "dry system" in the fixing of granite tiles; while in the contract the contractor has agreed to adopt the best technology for the project. To determine whether the "wet system" is better than the "dry system" would require technical expertise.

However, if this case is to be settled by arbitration, this is indeed not a dispute of a technical issue, but a legal one. If the arbitrators find that a "wet system" is better than a "dry system", they will decide that the contractor is not in breach of contract.

However, if they find that the "dry system" is better, than the contractor is in breach of its contractual obligations.

A reading of many books on arbitration and international arbitration by this writer has so far not uncovered any court in the world which has decided that arbitration only aims at settling technical business issues.

The decision of the South Jakarta District Court is almost certainly the only court decision which limits the jurisdiction of an arbitration tribunal to only decide "technical business issues".

In international arbitration, there is a doctrine called kompetenz-kompetenz which means that arbitrators basically have the right to decide, whether based on the arbitration clause or arbitration agreement, if they have the competency to hear the case or not.

If the arbitrators' competency is challenged, then the court has to decide on the issue. However, the decision of the court is based on the wording of the arbitration clause.

If the arbitration clause states that "any disputes which may arise from the implementation of this contract will be finally settled by arbitration", the court will have no choice but to declare that the arbitrators are competent to hear the case.

However, if the wording of the arbitration clause are ambiguous and do not refer to "any dispute", then the court may decide that the arbitrators are not competent to hear the case.

In international business transactions, it is the intention of the parties to choose arbitration as the forum for the final and binding resolution of any dispute that may arise in the implementation of the contract.

Especially in dealing with businesspeople from a country where the legal system and judiciary are not trustworthy, businesspeople are fully dependent on international arbitration tribunals which they trust will provide equitable and fair decisions to both parties.

Therefore, the decision of the South Jakarta District Court will cause foreign investors to lose the only "protection" they have in doing business in Indonesia, because the arbitration clause incorporated in their business contract is meaningless.

In the long run, it will be very difficult for Indonesia to attract foreign investment, and this will indirectly "sabotage" the efforts of President Abdurrahman Wahid, who has traveled around the globe to lure foreign investment to the country.

Moreover, recent developments here raise the concern that people tend to avoid international arbitration in settling their disputes with foreign investors.

From their comments in newspapers, the impression is they think they have no chance to win if the case is heard by an arbitration tribunal.

This impression is wrong because an arbitration tribunal usually consists of three members chosen by both parties. Therefore, the impartiality of the tribunal can be trusted since every party has its own "representatives" on the tribunal.

As long as the lawyers can present their case professionally, there is no reason to avoid an arbitration tribunal.

As it is recognized globally that international arbitration is intended to settle any (legal) dispute, it is very important that the court carefully study the arbitration clause incorporated in the contract before it claims jurisdiction to hear the case.

If the arbitration clause clearly states that "any disputes" shall be referred to arbitration, the court should declare that it has no competence to hear the case, and the case shall be finally settled by an arbitration tribunal.

However, if the arbitration clause is ambiguous and open to interpretation, there would be no objection if the court declared itself competent to hear the case.

By doing so, foreign investors would regain their confidence that Indonesia is still a "civilized" country that honors arbitration clauses previously agreed upon by two parties.

The writer is a lawyer at the law firm of Hanafiah Ponggawa Adnan Bangun Kelana. The opinions expressed here are his own.