Arbitration can settle legal disputes

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.