EXECUTION FOR ARBITRATION AWARD AND INSOLVENCY PROCEEDINGS BETWEEN INDONESIA AND HONG KONG COMPANY

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1 EXECUTION FOR ARBITRATION AWARD AND INSOLVENCY PROCEEDINGS BETWEEN INDONESIA AND HONG KONG COMPANY Contributor by AMO Lawyers Written & Drafted by Reviewed by : Wulan Prameswari, S.H and Marco Kumar, S.H : Noverizky Tri Putra, S.H., LLM (Adv) I. Background Indonesia is one of the biggest developing country in the world and now focus to make policies which give huge opportunity for foreign investor to invest their money in Indonesia, however this situation has created a new challenging problem like law issues between Indonesia and foreign company specifically related business dispute. Related with such one of the most interesting legal concern in terms of business dispute is arbitration regarding such Indonesia already provide a law system which is consider as an alternative dispute resolution under Arbitration and Alternative Dispute Resolution Act No 30/1999 (ADR Law) Arbitration has lot a advantages compared to the litigation common practice. this include, undisclosed process, shorter process time, and final award without appeal. These are the reason why investor prefered to choose arbitration process rather than litigation process to solve their legal matter especially for business law dispute.

2 The Definition of International arbitration based on article 1 number 9 in Arbitration and Alternative Dispute Resolution Indonesia Act No 30/1999 is a verdict which imposed by an arbitration institution or personal arbiter outside Indonesia Law territory, or a award imposed by arbitration institution or personal arbiter which under Indonesia law is considered as an International Arbitration Award. In this article, we will discuss about 3 common issues on implementation of international arbitration in Indonesia and the impact for foreign company towards the final Arbitration Award. II. Legal Issue A. Execution of The Arbitration Award for Indonesia company againts foreign company (Hong Kong); B. Foreign company who does not comply with arbitration award; C. action related Insolvency to foreign company with Arbitrationn. (Hong Kong) III. Legal Basis A. New York Convention 1958; B. Arbitration Law no. 30 of 1999; C. Arbitration Ordinance No. 17 of IV. Introduction to Indonesia & Hong Kong Arbitration System Indonesia has ratified the 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards (New York Convention), the law governing enforcement of foreign awards Arbitration Law, Law no. 30 of 1999 (ADR Law). In a move to promote efficiency, the ADR Law vest the District Court of Central Jakarta (Pengadilan Negeri Jakarta Pusat) with jurisdiction to issue orders of executor to

3 enforce international arbitration awards in Indonesia. These executors related to award execution in Indonesia either from Indonesia Arbitration institution or abroad. The ADR Law provides for the refusal of enforcement on the grounds of public order ( ketertiban umum or public policy ). However, the term of public order was not defined under ADR Law, leaving it open to wide judicial interpretation. Public policy and public policy in this case according to some experts is rules of life of a society, which includes moral awareness, law and religion, and can be interpreted as a value related to culture, sense of propriety and justice of a nation. 1 Arbitration process in Indonesia can be conducted through the Indoensian National Arbitration Board (BANI). Based on Article 5 Paragraph (1) of ADR Law stated that Only disputes of a commercial nature, or those concerning rights which, under the law and regulations, fall within the full legal authority of the disputing parties, may be settled through arbitration. According to the UNCITRAL Model Law on International Commercial Arbitration Chapter 1 Article 1 stated that This Law applies to international commercial arbitration, subject to any agreement in force between this State and any other State or States. The article provides an explanation that The term "commercial" should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road. The Awards issued by BANI are final and binding. After going through the stages enclosed in the BANI rules and procedures, the final phase in the settlement of disputes 1 M. Yahya Harahap, Arbitrase, cet III Sinar Grafika, Jakarta 2004, Hal. 38

4 through arbitration is the enforcement of the awards. Arbitration award must be registered to the clerk of the Central Jakarta District Court ADR Law State that having jurisdiction over the respondent 2, within 30 days the party shall registered the awards in to Central Jakarta District Court 3. Failure to register within the amount of time given, will create the award unenforceable. The enforcement procedure for domestic awards allows the appropriate District Court to issue an order of execution directly if the losing party does not, after being duly summoned and so requested by the court, accept or comply the award. Although the District Court of Central Jakarta may not review the reasoning the award itself 4, the award may only executed if both the nature of the dispute and the agreement to arbitrate meet the requirements set out in the ADR Law 5 (the dispute must be commercial in nature and within the authority of the parties to settle, and the arbitration clause must be contained in a signed writing) and if the award is not in conflict with public morality and order 6. There is no recourse against rejection by the court of execution 7. Hong Kong Hong Kong was one of the first jurisdictions to adopt the UNCITRAL Model Law on International Commercial Arbitration (Model Law). Hong Kong s arbitration legislation, the Arbitration Ordinance of 2010 (Ordinance Law) 8. 2 Article 1 (4) ADR Law 3 Article 59 (1) ADR Law 4 Article 62 (4) ADR Law 5 Article 4 and 5 ADR Law 6 Article 62 (2) ADR Law 7 Article 63 (3) ADR Law 8 Laina Chan, International Disputes, the Execution of Foreign Arbitral Awards in the Asia Pacific and Two Case Studies, 2015.

5 Hong Kong is a signatory to the New York Convention by virtue of China's accession. Thus, the Hong Kong laws that govern the recognition and enforcement of international awards reflect the articles contained in the New York Convention. This allows the enforcement of arbitral awards from the other signatories to the New York Convention. The Ordinance Law reflects the fact that that Hong Kong, by virtue of China s accession, is a signatory to the New York Convention as an international award under the Ordinance, and is presumed to be enforceable unless one of the reasons for refusal outlined in the Ordinance applies. If the respondent is unable to establish a ground for refusal, then the arbitral award is enforceable in the same manner as a judgment of the court that has the same effect.. If the losing party has no assets in Hong Kong but does in another jurisdiction, an arbitration award may be more valuable than a court judgment, if the country where the assets of the losing party are situated has no reciprocal judgment enforcement arrangement with Hong Kong, but is a signatory to the New York Convention. Notably, such countries include the United Kingdom, the United States of America and Japan, Hong Kong s three major trading partners. The award has not yet become binding on the parties or has been set aside or suspended by a competent authority in the jurisdiction where the arbitration was conducted. The dispute between the parties was not capable of settlement by arbitration under the laws of Hong Kong; or to enforce the award would be contrary to public policy. V. Analysis A. Execution of The Arbitration Award For Indonesia Company againts Foreign Company (Hongkong).

6 After the Arbitration Award stating that the Respondent (in this case Foreign Company) has an obligation to pay compensation to the Applicant (in this case Indonesia Company), Afterwards it that can be done by the Applicant is to request for the execution addressed to The Court where the Hong Kong Company located or having domicile. under section 84 of the Arbitration Ordinance stated that an arbitral award, whether made in or outside Hong Kong, in arbitral proceedings by an arbitral tribunal is enforceable in the same manner as a judgment of the Court that has the same effect, but only with the leave of the Court. Mentioned in Section 85 of the Arbitration Ordinance that, a party seeking enforcement of a domestic or international arbitral awards as defined in the Ordinance Act must meet the following requirements before it can be enforceable: (a) the duly authenticated original award or a duly certified copy of it; (b) the original arbitration agreement or a duly certified copy of it; and (c) if the award or agreement is in a language or languages other than either or both of the official languages, a translation of it in either of the official languages certified by an official or sworn translator or by a diplomatic or consular agent. Thus, in the event where a Foreign Company is entitled to pay compensation for Indonesian Company based on arbitral award, then the Applicant (Indonesian party) may request for its execution throught Court located in Hong Kong, enclosing the above mentioned requirements/documents. B. Foreign Company Who Does Not Comply with The Arbitration Award After the Arbitration Award, the losing party shall fulfill the obligation to pay the damages incurred by the Arbitration Award. An attempt that can be done by the winning Applicant to get the rights is to file an attempt for execution. This may be a difficult for Indonesia Company when the losing party is a Foreign Company, since

7 the execution is outside of Indonesia jurisdiction, wich need to be coordinated with the Hong Kong Court to be able to carry out the Arbitration Award. However, based on Arbitration Ordinance Article 86 state that,. Enforcement of an award referred may be refused if the person against whom it is invoked proves: 9 (a) That a party to the arbitration agreement was (under the law applicable to that party) under some incapacity; (b) That the arbitration agreement was not valid: (i) Under the law to which the parties subjected it; or (ii) (if there was no indication of the law to which the arbitration agreement was subjected) under the law of the country where the award was made; (c) That the person: (i) Was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings; or (ii) Was otherwise unable to present the person s case; (d ) Subject to subsection (3), that the award (i) (ii) Deals with a difference not contemplated by or not falling within the terms of the submission to arbitration; or Contains decisions on matters beyond the scope of the submission to arbitration; (e) That the composition of the arbitral authority or the arbitral procedure was not in accordance with: (i) The agreement of the parties; or (ii) (if there was no agreement) the law of the country where the arbitration took place; or 9 Article 86 Arbitration Ordinance

8 (f) That the award: (i) Has not yet become binding on the parties; or ARBITRATION ORDINANCE A697 Ord. No. 17 of 2010 (ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made. (ii) Has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made. (2) Enforcement of an award referred to in section 85 may also be refused if: (a) the award is in respect of a matter which is not capable of settlement by arbitration under the law of Hong Kong; (b) it would be contrary to public policy to enforce the award; or (c) for any other reason, the court considers it just to do so. (3) An award referred to in section 85 which contains decisions on matters not submitted to arbitration may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those on matters not so submitted. (4) If an application for the setting aside or suspension of an award referred to in section 85 has been made to a competent authority as mentioned in subsection (1)(f), the court before which enforcement of the award is sought: (a) may, if it thinks fit, adjourn the proceedings for the enforcement of the award; and (b) may, on the application of the party seeking to enforce the award, order the person against whom the enforcement is invoked to give security.

9 (5) A decision or order of the court under subsection (4) is not subject to appeal. In addition to the Arbitration Ordinance, the matter of refusal of the Arbitration Award is also governed by the New York Convention. The New York Convention also stipulated the reason for refusal for international award with the different outline as mark as the Arbitration Ordinance. The grounds for refusing to enforce arbitral awards is outlined under Article V of the New York Convention these are as follows 10 : A party was under some incapacity at the time of the relevant arbitration agreement was made. The arbitration agreement was invalid. A party was not given proper notice of appointment of the arbitrator or of the arbitration proceedings. The award was made outside the jurisdiction of the arbitral tribunal. The composition of the tribunal or of the arbitral procedure was not in accordance with the parties' arbitration agreement or the laws where the arbitration was conducted. ADR Law does not stipulate the refusal of the Arbitration Award. However, since Indonesia has ratified the New York Convention, the refusal of the Arbitration Award may apply in Indonesia. Both foreign and international arbitral awards are presumed to be enforceable. Unless one of the reasons for refusal applies. If the respondent is unable to establish a ground for refusal, then the arbitral award is enforceable in the same manner as a judgment of the court that has the same effect. Therefore, generally New York Convention on the Recognition and Enforcement of Arbitration Awards

10 international arbitral awards is enforceable, unless they met one of the ground of refusal above. C. Insolvency Attempt to Foreign Company With Arbitration Arbitration Award about Cross border insolvency is possible to be executed through bilateral agreement between countries. In this case, between Indonesia s Company and Hongkong s Company. Both Hongkong International Arbitration Centre (HKIAC) and Indonesia National Arbitration Association (BANI) are bound under The Convention on The Settlement of Investment Disputes Between States and National or other States (ISCID) and Convention on the Recognition and Enforcement of Foreign Arbitral Awards or New York Convention However, Hong Kong has not yet to ratified the UNCITRAL Model Law on Cross-Border Insolvency. This has cost difficulty to insolvency issue, it harder for foreign company to bankrupt a Company that have assets in Hong Kong. Notwithstanding with the above International Arbitration award still can be executed in Hong Kong but first the parties who already won their dispute on international arbitration required to register the Award in to Hong Kong s court. Court in Hong Kong can grant the award but also can give a refusal with peculiar terms. one of terms Its cannot be enforced by execution in the country of the original court. Furthermore, insolvency give right to Company who won arbitration award to execute other company s asset and to shut registered company (Hong Kong) and it is necessary the winning parties to have connection with Hong Kong jurisdiction. If company is already being wound up in the jurisdiction of its incorporation, The Hong Kong courts may order that the Hong Kong liquidator be

11 treated as ancillary for the main liquidation and He or She shall powers and functions To conduct accordingly: collect the Hong Kong assets and finalize a list of Hong Kong creditors for provision to the main liquidator In most jurisdictions, a liquidator's powers are defined by statute. Certain powers are generally exercisable without the requirement of any approvals; others may require sanction, either by the court, by an extraordinary resolution (in a members' voluntary winding up) or the liquidation committee or a meeting of the company's creditors (in a creditors' voluntary winding-up) 11. Hong Kong courts use principles of private international law 12 the appointment of a liquidator whose authority is recognised by the laws of the place of incorporation (in this case the liquidator is from Indonesia) should be automatically recognised in Hong Kong 13. These decisions further establish that the liquidator s powers should also be recognised. This recognition of power only applies to the extent that the foreign liquidator can request documents and information from Hong Kong entities with arbitral award as a basis: to obtain property title of the foreign company in Hong Kong, a foreign liquidator will still need a court order Foreign Company can enforce arbitration award for insolvency in Hong Kong, with register the arbitration award on Hong Kong Court that state the won parties can execute losing party assets and having jurisdiction connection with Hong Kong Regulation with appoint foreign liquidator or contact a recognizable liquidator that already registered in Hong Kong to execute. Being that said we can take several conclusions related with the above as follow: the rules set out in Dicey, Morris and Collins, The Conflict of Laws, 15th edn (Sweet & Maxwell, 2012) g 13 The joint Official Liquidators of a Company v B and Another [2014] 4 HKLRD 374

12 1. the capacity of foreign liquidator extensively reaches foreign court to the extend request document and information (when the said arbitration party both under New York convention and Arbitration Ordinance) 2. the foreign liquidator shall have restriction of obtaining the title of property of foreign company by being bestowed by the court 3. There is no need for the winning party (Not Hong Kong Company) to appointed local liquidator as if required under the domestic law, this exclusion only apply when the winning party appoint the local liquidator from its place incorporation.

THE STATUTES OF THE REPUBLIC OF SINGAPORE INTERNATIONAL ARBITRATION ACT (CHAPTER 143A)

THE STATUTES OF THE REPUBLIC OF SINGAPORE INTERNATIONAL ARBITRATION ACT (CHAPTER 143A) (Original Enactment: Act 23 of 1994) REVISED EDITION 2002 (31st December 2002) Prepared and Published by THE LAW REVISION