Arbitrable Versus Non-Arbitrable Sectors Under Indonesian Laws
1. Legal Framework for Arbitrability in Indonesia
a. Governing Law
Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (Arbitration Law)
Articles 2, 4, 5, 50–60 govern arbitrable disputes.
Arbitrability requires a dispute to be commercial or civil in nature.
Civil Code (Kitab Undang-Undang Hukum Perdata - KUHPer)
Provides substantive law on contractual obligations.
Tort or personal claims may be arbitrable if not involving public order or government functions.
Constitution & Public Policy
Disputes violating public interest, government regulations, or sovereign functions are non-arbitrable.
Sector-Specific Laws
Banking, capital markets, insurance, SOEs, and intellectual property law may restrict arbitration in certain areas.
b. General Principles
Arbitrable Disputes
Commercial contracts (supply, construction, energy, infrastructure).
Corporate disputes (shareholder agreements, joint ventures).
Insurance, banking, and financial instrument disputes unless law prohibits arbitration.
Employment disputes can be arbitrated if labor law permits.
Non-Arbitrable Disputes
Criminal matters.
Family law (marriage, inheritance, child custody).
Public law disputes (taxation, government regulatory enforcement).
Disputes involving SOEs in sovereign functions.
Land and property disputes involving state assets unless statutory exemptions exist.
Public Policy Exception (Ketertiban Umum)
Indonesian courts refuse arbitration/enforcement if the dispute affects public order or violates mandatory laws.
2. Arbitrable Sectors
| Sector | Example of Arbitrable Dispute |
|---|---|
| Construction & Infrastructure | Delay penalties, cost escalation, defective work claims |
| Energy & Mining | Joint venture disputes, EPC contract claims |
| Trade & Commercial Contracts | Breach of supply, distribution, or sales contracts |
| Financial & Banking | Loan agreements, derivative contracts (unless prohibited) |
| SOE Commercial Contracts | PPP contracts, supply agreements |
| Intellectual Property | Licensing agreements and royalty disputes |
3. Non-Arbitrable Sectors
| Sector | Example of Non-Arbitrable Dispute |
|---|---|
| Criminal Law | Fraud, embezzlement, bribery |
| Family Law | Divorce, child custody, inheritance rights |
| Tax & Customs | Tax assessment objections |
| SOE Sovereign Functions | Regulatory approvals, governmental decision disputes |
| Land/Public Property | Disputes over state land ownership |
| Employment (mandatory statutory claims) | Termination claims under labor law requiring court adjudication |
4. Key Case Laws Illustrating Arbitrability and Non-Arbitrability
Case Law 1 — Supreme Court Decision No. 48 K/Pdt.Sus-Arbt/2008
Dispute over construction contract arbitration.
Court held the dispute arbitrable, as it was a commercial matter.
Confirms general principle that commercial contract disputes can go to arbitration.
Case Law 2 — Supreme Court Decision No. 219 B/Pdt.Sus-Arbt/2016
Foreign arbitration award enforcement case involving joint venture.
Court confirmed arbitration enforceability for commercial claims but refused award if public order or sovereignty conflicted.
Case Law 3 — PT PLN (Persero) v. PT Adhi Karya (Persero) Tbk, BANI 2015
Dispute over power plant project delays.
Arbitrable because it was commercial in nature, even though involving an SOE.
**Case Law 4 — Supreme Court Decision No. 01 K/Pdt.Sus/2010 (Astro Nusantara)
SIAC award enforcement refused on public order grounds.
Demonstrates non-arbitrable aspect when foreign awards conflict with national interests or public policy.
**Case Law 5 — Supreme Court Decision No. 631 K/Pdt.Sus/2012 (Harvey Nichols & Co v PT Mitra Adiperkasa)
Commercial contract arbitration enforced.
Highlights that domestic commercial agreements are fully arbitrable.
Case Law 6 — Constitutional Court Decision No. 100/PUU-XXII/2024
Clarified definition of “foreign arbitral award” and arbitrable disputes.
Reaffirmed that criminal, family law, tax, and sovereign-related disputes are non-arbitrable.
5. Summary Table of Arbitrable vs Non-Arbitrable Sectors
| Criteria | Arbitrable | Non-Arbitrable |
|---|---|---|
| Nature of dispute | Commercial/civil | Criminal, family, public law |
| Involving SOE | Commercial activities | Sovereign functions or regulatory decisions |
| Enforcement | Courts enforce arbitration awards | Courts refuse enforcement; require statutory litigation |
| Public Policy | Must comply | Violates public order or mandatory law |
| Examples | Construction, PPPs, joint ventures, trade | Divorce, inheritance, tax disputes, criminal acts |
6. Practical Implications
Always check statutory restrictions in sector-specific laws before drafting arbitration clauses.
Foreign arbitration awards can be enforced in Indonesia if the dispute is arbitrable and does not violate public policy.
Courts may refuse enforcement of awards or arbitration clauses in non-arbitrable sectors.
Legal counsel should clearly identify whether a dispute falls under commercial, civil, or public law before proceeding with arbitration.
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