Arbitration is a method or process for examining, terminating and resolving disputes that does not use a court of law, but is based on an arbitration agreement made in writing and agreed by the parties of more than one person and the resolution will be based on the evidence submitted by the parties.
According to Law Number 30 of 1999 Article 1 paragraph 1 concerning Arbitration and Alternative Dispute Resolution, arbitration is a method of settling a civil dispute outside the general court based on the Arbitration Agreement which is made in writing by the parties to the dispute.
Arbitration has several terms in common, including arbitration (Indonesian), Arbitrate (Latin), Arbitrage (Dutch), arbitration (English), Arbitrage or schiedspruch (German), arbitrage (French), all of which have the same meaning of power to settle something cases according to wisdom (Subekti, 1992).
The difference between arbitration and court is if the court uses a permanent court, while arbitration uses a tribunal forum, which is a forum formed specifically for the activity of resolving disputes that occur. In arbitration, the arbitrator acts as a judge in the arbitral tribunal, in which the judge’s status is not permanent and its establishment was originally intended only for a temporary period and to handle the event.
The following definition and definition of arbitration from several book sources:
- According to Subekti (1992), arbitration is the settlement or termination of a dispute by a judge or judges based on the agreement that the parties will submit to or obey the decision given by the judge they choose.
- According to Abdurrasyid (1996), arbitration is a process of examining a dispute carried out by the judiciary as by the parties to the dispute, and the resolution will be based on the evidence presented by the parties.
- According to Marwan and Jimmy (2009), arbitration is a way to settle civil disputes outside the general court based only on an arbitration agreement that is written in writing by the parties to the dispute.
- According to Harahap (1991), arbitration is a binding agreement between the parties, that they will settle disputes arising from the agreement by the arbitration body. The parties agree not to submit disputes that occur to the judiciary.
Types of Arbitration
According to Emirzon (2011), based on the existence and authority to examine and decide disputes that occur between parties to a dispute, there are two types of arbitration, namely institutional arbitration and adhoc arbitration. The explanations of the two types of arbitration are as follows:
a. Institutional Arbitration (Permanent)
Institutional Arbitration is an institution or arbitration body that is permanent, so it is also called a permanent arbitral body, which is in addition to being managed and organized permanently, its existence is also continuous for an unlimited period of time. Whether there is a dispute or not, the institution will remain standing and will not disperse, even after the dispute in charge has been resolved. The establishment of this arbitration with the aim of providing alternative means of dispute resolution outside the court. Institutional arbitration is generally chosen by the parties before the dispute occurs, as outlined in the arbitration agreement.
b. Adhoc Arbitration (Volunteer)
Adhoc or Volunteer Arbitration is an alternative form of institutional arbitration. Adhoc Arbitration is arbitration that is not carried out or not through a particular arbitration body or institution (institutional arbitration). This arbitration is carried out by arbitration teams that are temporary and are only formed insurely for any dispute that occurs. The parties can regulate the manner in which the arbitrators will be chosen, the arbitration procedure framework and the administrative apparatus of the arbitration.
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According to Harahap (2001), there are two types of arbitration agreements, namely pactum de compromittendo and comparisons deed. The explanation of the two arbitration agreements is as follows:
a. Pactum De Compromittendo
Pactum de compromittendo means the agreement agrees with the arbitrator’s decision. The explanation for Pactum de compromittendo is regulated in Article 2 of Law Number 30 of 1999, namely: this law regulates the settlement of disputes or differences of opinion between the parties in a particular legal relationship that has entered into an arbitration agreement which expressly states that all disputes or differences of opinion arising from the legal relationship will be resolved by arbitration or through alternative dispute resolution.
b. Compromise Deed
A compromise deed is an arbitration agreement made after a dispute arises between the parties or in other words an agreement is not held in an arbitration agreement. Furthermore, the compromise deed is regulated in Article 9 of Law Number 30 of 1999, which is as follows:
- In the event that the parties choose to settle the dispute through arbitration after the dispute has occurred, the agreement on the matter must be made in a written agreement signed by the parties.
- In the event that the parties cannot sign the written agreement referred to in paragraph (1), the written agreement must be made in the form of a notarial deed.
- The written agreement referred to must contain the following: a) Disputed issues; b) Full names and places of residence of the parties; c) The full name and place of residence of the arbitrator or panel of arbitrators; d) Where the arbitrator or arbitral tribunal will make a decision; e) The full name of the secretary; f) Time period for dispute resolution; g) Statement of willingness from the arbitrator; and h) Statement of willingness of the disputing parties to bear all costs required for the resolution of the dispute through arbitration;
- Written agreements that do not include the matters referred to in paragraph (3) are null and void.
Sources of Arbitration Law
a. Law Number 48 of 2009 concerning Judicial Power
Based on Law No. 48 of 2009 concerning Judicial Power, the principle is held that judicial power is exercised by a Supreme Court and the judiciary bodies that are subordinate to it in the general court, religious court, military court, state administrative court, and by a Constitutional Court. However, in Article 58 of Law No. 48 of 2009 concerning Judicial Power is emphasized, efforts to resolve civil disputes can be carried out outside the state court through arbitration or alternative dispute resolution. These provisions indicate the existence of legality and the role of arbitration in the Indonesian legal system.
b. Law Number 30 of 1999 concerning Arbitration and Alternative Dispute Resolution
Arbitration regulated in Law No. 30 of 1999 is a way to settle a dispute outside the general court based on a written agreement from the disputing party. Disputes that can be resolved through arbitration are only disputes regarding rights which are according to law fully controlled by the parties to the dispute based on an agreement.
c. Law Number 5 of 1968 concerning Settlement of Disputes Between State and Foreign Citizens Regarding Investment
Law Number 5 of 1968 is the Agreement on the Convention on the Settlement of Disputes between States and Foreign Citizens Regarding Investment ( Convention on the Settlement of Investment Disputes between States and National of Other States ). The purpose of establishing approval for ratification of the convention is to encourage and foster the development of foreign investment or joint ventures in Indonesia. With recognition and approval of the Convention, Indonesia placed itself subject to the provisions of the International Center for the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) which gave birth to the ICSID Arbitration Council.
d. Presidential Decree No. 34 of 1981 concerning Ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Award
Another regulation which is the source of law for the enforcement of arbitration in Indonesia is Presidential Decree (Keppres) No. 34 of 1981 which was set on August 5, 1981. This provision aims to include the Convention on the Recognition and the Enforcement of Foreign Arbitral Award or commonly called the New York Convention 1958, into the Indonesian legal system.
e. Supreme Court Regulation No. 1 of 1990 concerning Procedures for Implementing Foreign Arbitration Award
Supreme Court Regulation (Perma) No. 1 of 1990 dated 1 March 1990, which aims to anticipate obstacles or problems in the recognition and execution of foreign arbitration awards. The reason for issuing Perma No. 1 of 1990 is that the provisions of Indonesian civil procedure law as regulated in the HIR or the Updated Indonesian Regulations and the Regulations op de Rechtsvordering (Rv) do not contain provisions regarding the implementation of foreign arbitral awards .
f. UNCITRAL Arbitration Rules
Another source of arbitration law that has been incorporated into Indonesia’s national legal system is the UNCITRAL Arbitration Rules. UNCITRAL was born as a UN General Assembly Resolution on 15 December 1976 (Resolution 31/98 Adopted by the General Assembly in 15 December 1976). The purpose of the United Nations to give birth to UNCITRAL is to globalize and internationalize the values and procedures of arbitration in resolving disputes that occur in international trade relations.
Advantages and Weaknesses of Arbitration
Arbitration is considered to have several advantages compared to litigation. Therefore, in the practice of business people and the business world, there is a tendency to choose dispute resolution through arbitration. The advantages of dispute resolution through arbitration are compared to the process of resolution through the Judiciary as follows:
- The parties in the Arbitration can choose the Judges they want, so that they are seen to be able to guarantee the neutrality and expertise needed in resolving disputes.
- The parties can also determine which law will be applied in the examination of disputes, and through this can be suppressed by fear, anxiety and uncertainty about the law of the substance of the state.
- Confidentiality in the settlement process through Arbitration will protect the parties from public disclosure of anything that could be detrimental. In addition, the Arbitration settlement process is often seen as a more efficient dispute resolution in terms of cost and time of implementation, when compared to the settlement through the General Court.
- Arbitrators in general have the wisdom in examining disputes, resolving and applying legal principles and legal considerations.
- Settlement through Arbitration is considered faster if dispute resolution through the General Judiciary, because settlement through Arbitration is given a maximum time limit of 180 (one hundred and eighty) days since the Arbitration was formed.
Although arbitration is considered to have various strengths, in practice it has weaknesses, including the following (Basarah, 2011):
- That to bring together the will of the parties to the dispute to arbitration is not easy, because both parties must agree in advance even though sometimes it is difficult to reach agreement or agreement.
- In arbitration there is no legal precedent or attachment to previous arbitral awards. Then it is logical that the possibility of conflicting decisions arise.
- Arbitration does not provide a definitive answer to all legal disputes.
- The arbitrator’s decision always depends on how to issue a decision that satisfies the wishes of the parties. Because this also arises a popular statement about arbitration, namely: an arbitration is a good as arbitrators .
- Arbitration can last for a long time and therefore has a high cost, especially in the case of foreign arbitration.