Dispute Resolution in Indonesia

Foreign plaintiffs often have a perception that they lose cases in Indonesia due to inappropriate conduct by the courts, while, in fact, the reasons are usually more closely linked to a lack of understanding of the Indonesian legal system and insufficient documentary preparation.  Over the last 4-5 years corruption has been almost entirely eradicated from the Indonesian court system, so the parties can now be assured that disputes will be determined on the respective merits. Consequently, any consideration in the past to declare Indonesia a “non convenient” forum based on such concerns, should therefore no longer apply in our experience.  As such, it is increasingly important for foreign plaintiffs to understand the Indonesian dispute resolution process rather than attempting to import western legal concepts that are often not recognized by the Indonesian legal system.

Court Process

The dispute resolution process in Indonesian civil proceedings follows the Dutch civil law tradition.  There are no discovery proceedings and the principle of “stare decisis” does not apply.  The principle is that both the winning and the losing party have to bear their own legal costs except if otherwise contractually agreed by the disputing parties.  Actual court fees are nominal.  Injunctive measures are possible but, except for so-called security attachments, extremely rate.

The court of first instance is always the respective District Court with jurisdiction over the matter.  Judgments of the District Court are subject to optional appeal with the High Court and optional cassation to the Supreme Court.  During appeal and cassation proceedings, any judgment by the lower court would not yet become enforceable until the appeal and cassation remedies have been exhausted or remain unused. Additional so-called Civil Review proceedings to challenge a Supreme Court judgment rendered at the cassation stage are available as an extraordinary remedy, but would in principle not defer enforcement of a Supreme Court judgment at the cassation level.

For the entire process through three levels from District Court (first instance), High Court (second instance) and Supreme Court (third and last instance) approximately 3 years should be budgeted.  There are no particular legal obstacles to go through the full three instances of court proceedings, enabling the losing party either to appeal or apply for cassation by the Supreme Court, and this is therefore almost the rule in commercial disputes.

Indonesian courts, especially district courts, in the past have faced a negative reputation caused by corruption and an insufficient sophistication of the judges.  Whilst the Government through the Corruption Eradication Committee (KPK) and related agencies (Judicial Commission) is putting an end to these practices, the sophistication of judges has increased generally and is traditionally higher at the High Court and Supreme Court level.  It is therefore common and it must be anticipated by disputing parties that an appeal or cassation might be necessary to derive to a reasoned decision on the merits. There is no reliable track-record, and it is also not our experience, that foreign plaintiffs or defendants are disadvantaged in Indonesian courts.

Court Specialization

There are so-called Commercial Courts within the District Courts, which are among others charged with bankruptcy matters.  The district courts are now also charged with the challenge of decisions issued by the Indonesian Antitrust Supervisory Commission (KPPU). Decisions of the district courts relating to antitrust proceedings can be further challenged with the Supreme Court through cassation and in addition through Civil Review. District Courts are also charged with the enforcement of foreign arbitral awards.  Indonesia also has a special Administrative Court tailored after the Dutch/French system pursuant to which both foreign and domestic plaintiffs can challenge administrative decisions of an Indonesian government instrumentality.

Mandatory Mediation

Pure civil disputes (i.e. except for antitrust, trademark, labour, and certain other disputes) are subject to a mandatory round of mediation proceedings supervised by the court. Proceedings on the merits will only commence once the mandatory round of mediation has failed. In practice, however, the mandatory mediation stage has in many cases resulted in amicable settlements.

In most cases efforts to come to an amicable settlement will precede any submission of formal litigation to the courts.  Consequently, formal complaints will in most cases only be submitted where amicable out-of-court settlement efforts have failed.

As such, the mandatory mediation stage, with professional/licensed mediators conducting the mediation process under the supervision of the court, will reopen the possibility that an amicable settlement can be reached even though prior attempts have failed.

Alternative Dispute Resolution

Whilst each civil litigation case is subject to a mandatory round of mediation proceedings supervised by the court, Indonesia has a special arbitration act that enables arbitration proceedings and mediated settlements to be enforced through Indonesian District Courts.  In our experience, the increased number of formal arbitrations and mediations is not caused by a lack of confidence in the court system, but an assumption that arbitration proceedings are faster than ordinary court proceedings (which has globally not always been proven true) and an increase of confidence that in case of breach of an arbitration award and mediated settlement, remedies are now enforceable through Indonesian courts which in the past remained a crucial question mark.

Advantages of ADR

In formal court litigation the parties have no control over the appointment of the judges who will hear the case or the applicable civil procedure law.  In arbitration the parties can determine the applicable procedures and can, to a certain extent, control the appointment of the arbitrator(s) who will handle the proceedings.

While in both formal court and arbitration proceedings only one party wins, while the other party must lose, appeal proceedings are possible in case of court proceedings, whilst arbitration awards are in principle final.

In mediation proceedings a win-win outcome is possible. Mediation appears to be the quickest and most time efficient dispute resolution mechanism, but requires that the disputing parties are in principle willing to settle in the first place.

Recent Dispute Resolution Trends

The increase of disputes that are submitted to courts is attributable to an increased confidence in the court system.  In the past out of court settlements have been the rule, which is partly a cultural factor that has now changed and partly caused by increased credibility of the court system itself.

There has been, in our direct experience, a significant number of mediated settlements that are enforceable though court assistance.  This is also attributable to the increased number of licensed (and therefore trained) mediators. In order for mediated settlements to be eligible for direct court enforcement, an Indonesian licensed mediator must have conducted the mediation.

Prevailing in Indonesian Courts

Due to the differences of legal systems and legal realities, foreign clients need to have a close and intense working relationship with their Indonesian attorneys to better understand any legal impact and options available under Indonesian law (which might not be similar to the impact and options in their own jurisdictions in the same situation), so that results and options can be realistically analysed and also commercially “translated” at each stage of the proceedings.

The client needs to look for a firm with solid experience in the litigation sector.  They also need to make a realistic analysis of the legal position and how Indonesian courts would decide the relevant legal issues, which can be best provided by an experienced litigation firm that is also experienced in commercial transactions.

Finally, the client needs to ensure that they will be involved, and obtain reports, on all stages and developments of the proceedings in order to issue instructions as and when needed. The traditional approach adopted by Indonesian litigation firms was, and more often than not still is, that once the lawyer has been instructed, reports are very rare and the lawyer will act as he deems necessary based on his own discretion, and might as a result commit clients to legal liabilities without further, or confirming, instructions.

Dr. Ganie, born 1955 in Amsterdam, is the Managing Partner of Lubis, Ganie Surowidjojo, one of Indonesia's largest law firms, established in 1984. He has held this position for over a decade. He graduated from the Faculty of Law of the University of Indonesia and holds a Phd in Shipping Law from the University of Hamburg. Dr. Ganie is on the panel of arbitrators of the Singapore International Arbitration Centre (SIAC), a Fellow of the Singapore Institute of Arbitrators and Chairman of the Association of Indonesian Antitrust Lawyers. Dr. Ganie is admitted to the Indonesian Bar since 1984 and a licensed Indonesian Capital Market lawyer and Chairman of the Indonesian Sports Arbitration Body.  Dr. Ganie can be contacted on +62 21831 5005 or by email at ganie@lgslaw.co.id