Constitutional Court Decision No. 100/PUU-XXII/2024: A Key Update on the Definition of International Arbitration in Indonesia
Constitutional Court Decision No. 100/PUU-XXII/2024 (“Constitutional Court Decision 100/2024“) redefines the term “International Arbitration Award” under Law Number 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (“Arbitration Law“). This decision appears to get the Arbitration Law more aligned with the 1958 New York Convention by removing the word “considered” in Article 1 Point 9 of Arbitration Law, which previously allowed broad discretion in determining the international status of an award. The decision could address the long-standing concern of many businesses and practitioners, could provide greater legal certainty and simplify the enforcement process, and eventually, could strengthen Indonesia’s appeal in international arbitration. While this change provides greater legal clarity, the revised provision retains two interpretations of International Arbitral Award (i) one rendered outside Indonesia’s jurisdiction, or (ii) one recognized as an international arbitration award under Indonesian law.
On January 3, 2025, the Indonesian Constitutional Court (Mahkamah Konstitusi) handed down the decision following a request for review of Article 1 point 9 of the Arbitration Law filed by the applicants—a professor, a lawyer, and an arbitrator—who argued that the definition of an international arbitral award under the Article was ambiguous and created legal uncertainty. The article defines an International Arbitration Award as an award rendered by an arbitration institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia or by an arbitration institution or individual arbitrator that is considered an international arbitration award under Indonesian law.
The article above has been criticized for combining two different approaches: a narrow territorial concept, under which an award is deemed ‘international’ based on the location where the award is rendered, and a broad territorial approach, which provides more interpretative space under Indonesian law. This ambiguity has created challenges for businesses and legal professionals seeking clarity on enforcing international arbitration awards in Indonesia.
A. International Arbitration Awards Post-Constitutional Court Decision 100/2024: Greater Legal Certainty
The court emphasized that legal certainty is a cornerstone of the national legal system, including in international arbitration. The court viewed the phrase “that is considered an international arbitration award under Indonesian law” as the primary source of ambiguity. This broad formulation left the door open for multiple interpretations. 1
The court noted the mixed territorial approach between the narrow and broad territorial concepts applied by the Arbitration Law. The narrow territorial concept, which defines the international nature of an award based on the location where the award is rendered, is seen as aligned with international standards—specifically, Article I (1) of the 1958 New York Convention. 2 . On the other hand, the broad territorial concept, which grants enforcement authorities the power to determine whether an award is deemed international or not without clear indicators, is deemed to create legal uncertainty.
The court also highlighted that these mixed approaches—narrow territorial and broad territorial—often led to disputes at the judicial level, as seen in the case of PT Pertamina vs PT Lirik Petroleum.3 In this case, differing interpretations of Article 1 Point 9 of the Arbitration Law led to conflicts regarding the international status of the arbitration award.4 This demonstrates how the multi-interpretation of the norm can create legal uncertainty that hinders the enforcement of international arbitration awards in Indonesia.
Regarding the contested phrase, the court ruled that it violated the 1945 Constitution due to its lack of norm clarity, legal predictability (prospectivity), and consistency of application (constancy).5 Therefore, the court removed the word ‘considered‘ from Article 1 Point 9 of the Arbitration Law, as it had caused legal uncertainty and was therefore deemed unconstitutional and non-binding.6
By removing the word “considered”, the court sought to eliminate ambiguity in defining international arbitration awards. However, post-decision, the definition of an international arbitration award still retains two possible interpretations (i) an award rendered outside Indonesia’s jurisdiction and (ii) an award recognized as an international arbitration award under Indonesian law. This means that while the decision clarifies the definition—now somewhat sharpened based on the narrow territorial concept—some room for interpretation remains within Indonesian law. Article 1, Point 9 of the Arbitration Law should now read:
“International Arbitral Award is an award rendered by an arbitration institution or individual arbitrator outside the jurisdiction of the Republic of Indonesia, or an award of an arbitration institution or individual arbitrator which according to the statutes of the Republic of Indonesia is an international arbitral award.”
B. Impact of the Constitutional Court’s Decision on Business Actors and Arbitration Practices in Indonesia
- More clarity and Legal Certainty
The modified version of Article 1 Point 9 of the Arbitration Law somewhat brings more clarity and legal certainty although it retains the two-way interpretation: an award is international based on not only the location where it is rendered, but also the provisions of Indonesian laws. This means that while the definition is now clearer, there is still room for different interpretations under the Indonesian law. - Alignment with International Standards
In a large part, the court’s decision harmonizes Indonesian law more with the 1958 New York Convention, which Indonesia adopted through Presidential Decree No. 34 of 1981. Under the convention7 , an international arbitration award is defined as an award rendered in another country or not considered a domestic award under the country’s laws where recognition is sought. - Simplification of the Exequatur Process
The new version of the second interpretation of the Article which now refers to what the law provides could reduce the potential complexity in determining the international status of an award, and is expected to simplify the exequatur process, reducing delays and costs. - Reducing the Room for Multiple Interpretations
While the decision minimizes inconsistencies in interpretation, courts may still assess the status of an award under Indonesian law. In light of this, businesses and legal practitioners may find it prudent to take this into account when drafting arbitration agreements and structuring enforcement strategies.
Ultimately, Constitutional Court Decision 100/2024 has upheld the principle of legal certainty and has further aligned national law with international standards although the modified version of the second interpretation may still open up differing views. Businesses and legal practitioners should monitor how courts apply this revised definition and whether further regulatory changes will be introduced.
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