Arrest of Ship in Indonesia: An Overview

I.Introduction

Indonesia, as an archipelagic state, had ratified the International Convention on Maritime Liens and Mortgages 1993. As a continuance, it also ratifies the International Convention on Arrest of Ships 1999 (“Arrest of Ships Convention”). The purposes of such ratifications are to harmonize and to converge Indonesian Shipping Laws with the other Asian countries’ laws. Such harmonization will also automatically encourage creditors in providing fund for ship procurement.

The ratification of the two international instruments brings a consequences that there shall be national legislation which conform those conventions. Indonesia subsequently enacted the Law Number 17 of 2008 regarding Maritime (“Indonesian Maritime Law”). This law serves as harmonization of the two international conventions as well as a gate to the new era of Maritime Law in Indonesia.

This writing will focuses itself on the arrest of ship in Indonesia. This paper will be divided into 3 (three) parts. Part I will concentrate on Indonesian Maritime Law, specifically on provisions governing the arrest of ship. This part will also describe the requirements and mechanisms set forth in Indonesian Maritime Law to arrest ship/s. Part II will give the reader general overview of the Arrest of Ships Convention. An overview is deemed important to predict future regulation concerning arrest of ship in practice. This is since the Indonesian Government has not yet issued any enforcement regulation of Indonesian Maritime Law. Part III is the conclusion that can be derived from previous parts.

II. The Arrest of Ship on Indonesian Maritime Law

Indonesian Maritime Law provides that arrest of ship shall be conducted through Court-mechanism. Such mechanism is conducted without filing a lawsuit against the owner of ship. Accordingly, based on Article 222 of Indonesian Maritime Law, Port master can only arrests ship based on written Court order. Such order can be issued based on 2 (two) reasons:

a. The ship is connected with criminal matter; or

b. The ship is connected with civil matter.

In the event that the ship is connected with civil matter, a Court order is made based on a claim known as Maritime Claim. Such claim is conducted without file a lawsuit against the ship. The law also specifically mentions several conditions in which a Maritime Claim may arise. Maritime Claim is defined as a claim arising out of one or more of the following:

(a) loss or damage caused by the operation of the ship;

(b) loss of life or personal injury occurring, whether on land or on water, in direct connection with the operation of the ship;

(c) salvage operations or any salvage agreement, including, if applicable, special compensation relating to salvage operations in respect of a ship which by itself or its cargo threatened damage to the environment;

(d) damage or threat of damage caused by the ship to the environment, coastline or related interests; measures taken to prevent, minimize, or remove such damage; compensation for such damage; costs of reasonable measures of reinstatement of the environment actually undertaken or to be undertaken; loss incurred or likely to be incurred by third parties in connection with such damage; and damage, costs, or loss of a similar nature to those identified in this subparagraph (d);

(e) costs or expenses relating to the raising, removal, recovery, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship, and costs or expenses relating to the preservation of an abandoned ship and maintenance of its crew;

(f) any agreement relating to the use or hire of the ship, whether contained in a charter party or otherwise;

(g) any agreement relating to the carriage of goods or passengers on board the ship, whether contained in a charter party or otherwise;

(h) loss of or damage to or in connection with goods (including luggage) carried on board the ship;

(i) general average;

(j) towage;

(k) pilotage;

(l) goods, materials, provisions, bunkers, equipment (including containers) supplied or services rendered to the ship for its operation, management, preservation or maintenance;

(m) construction, reconstruction, repair, converting or equipping of the ship;

(n) port, canal, dock, harbour and other waterway dues and charges;

(o) wages and other sums due to the master, officers and other members of the ship's complement in respect of their employment on the ship, including costs of repatriation and social insurance contributions payable on their behalf;

(p) disbursements incurred on behalf of the ship or its owners;

(q) insurance premiums (including mutual insurance calls) in respect of the ship, payable by or on behalf of the ship owner or demise charterer;

(r) any commissions, brokerages or agency fees payable in respect of the ship by or on behalf of the ship owner or demise charterer;

(s) any dispute as to ownership or possession of the ship;

(t) any dispute between co-owners of the ship as to the employment or earnings of the ship;

(u) a mortgage or a "hypothèque" or a charge of the same nature on the ship;

(v) any dispute arising out of a contract for the sale of the ship.

In relation with these conditions, Indonesian Maritime Law provides that further mechanism regarding arrest of ship will be further regulated by a Minister Regulation. Unfortunately, until the present time, such regulation has not been issued by relevant authorities. As a form of compliance, the regulation will be made in accordance with the Arrest of Ships Convention. Therefore, it is necessary to conduct an overview towards the stated Convention.

III. General Overview on Arrest of Ships Convention

The Convention defines arrest as any detention or restriction on removal of a ship by order of a Court to secure a Maritime Claim. However, this does not include the seizure of a ship in execution or satisfaction of a judgment or other enforceable instrument. A ship may only be arrested in respect of a Maritime Claim. This means that there exists no other claim against the ship.

A ship may be arrested or released from arrest only under the authority of a Court of State in which the arrest is effected. Arrest may be conducted for the purpose of obtaining security. In this vein, Arrest of Ships Convention provides flexibilities. Arrest can be made regardless the existence of a jurisdiction clause or arbitration clause in any relevant contract. The arrest can also be made even if such arrest is to be adjudicated in a State other than the State where the arrest is effected, or is to be arbitrated, or is to be adjudicated subject to the law of another State.

Release from Arrest

When it comes to the question of how a ship which is arrested can be released, Arrest of Ships Convention expressly provided that a ship shall be released when sufficient security has been provided in a satisfactory form. Nevertheless, this may not be applied in cases of dispute regarding ownership or possession of the ship and dispute between co-owners of the ship as to the employment or earnings of the ship. In these cases, the Court may permit the person in possession of the ship to continue trading the ship, upon such person providing sufficient security, or may otherwise deal with the operation of the ship during the period of the arrest.

Satisfactory form means that there shall be an agreement or settlement proposal agreed by both parties. In the absence of such agreement, the Court has authority to determine the nature and the amount of satisfactory form. Nonetheless, such nature and amount shall not exceed the value of the arrested ship. Once the person responsible for the ship has provided sufficient security in satisfactory form, such person may at any time apply to the Court to have that security reduced, modified, or cancelled.

Right of Re-arrest and Multiple Arrest

Basically, a ship cannot be arrested subsequent to sufficient security given by the person responsible to secure same Maritime Claim. Nonetheless, this is not applicable in several situations. First, the nature or amount of security is inadequate; or second, the person who has already provided the security is not, or is unlikely to be, able to fulfill its obligations; or third, the arrested ship or the security provided was released upon the consent of the Claimant (person who raise Maritime Claim) acting on reasonable grounds; or because the Claimant cannot, by taking reasonable steps, prevent the release.

Protection of Owners and Demise Charterers of the Arrested Ships

To arrest a ship, one shall be careful in examining the grounds. This is since the Arrest of Ships Convention provides obligation for Claimant, who (1) have been conducting wrongful or unjustified arrest; or (2) excessive security actually have been demanded or provided, to provide security for any loss or damage arisen as a result of the arrest. The amount of such security shall be imposed and determined by the Court who issues the arrest. The Court also empowered to determine the amount of compensation for the loss or damage arisen from the above two conditions.

Enforcement of Foreign Arbitral Award in Indonesia

Applicable Law

· Article 66 (c) of Indonesian Law Number 30 Year 1999 regarding Arbitration and Alternative Dispute Resolutions (“Indonesian Law Number 30 Year 1999”)

“ The execution of foreign arbitral award can only be conducted with an exequatur issued by the Chairman of Central jakarta District Court.”

· The Indonesian Supreme Court Regulation Number 1 Year 1999 regarding the Procedures on the Enforcement of Foreign Arbitral Awards; (“PERMA 1/1999”)

· Presidental Decree Number 34 Year 1981 regarding Indonesia’s accesion to the 1958 New York Convention;(“KEPPRES 34/1991”)

· The 1958 New York Convention on Recognition and Enforcement of International Arbitral Award (“The 1958 New York Convention”).

Analysis

Indonesia’s accesion to the 1958 New York Convention is accomodated through KEPPRES 34/1991. Subsequent to this accession, Indonesian Supreme Court issued PERMA 1/1999 concerning the procedures on the enforcement of foreign arbitral awards. The reason of this issuance is that the existing civil procedural law is deemed insufficient to regulate the matter of execution of foreign arbitral awards.

As a development, Indonesia then enacted the Law Number 30 Year 1999 regarding Arbitration and Alternative Dispute Resolution to govern all substantial and procedural matters concerning arbitration and alternative dispute resolutions. This law basically adopts the previous rules and regulations with a few modifications. These adoptions and modifications are, inter alia :

a. in article 3 (4) of PERMA 1/1999, the award can be enforced if there is an exequatur from the Supreme Court. This is different with the regime of Indonesian Law Number 30 Year 1999 which regulate that the exequatur shall be issued by the Chief of Central Jakarta District Court unless the Republic of Indonesia is involved in the award then exequatur shall be issued only by the Supreme Court.

b. Article 66 of the Indonesian Law Number 30 Year 1999 compiles all registration requirements contained in Article 3 and 4 of PERMA 1/1999.

c. PERMA 1/1999 never specify who should register the award to the Chief of Central Jakarta District Court. This is later regulated by Indonesian Law Number 30 Year 1999 which stated that the registration shall be conducted by arbiter or his/her representative/s.

The execution of arbitral award in Indonesia shall be conducted in 2 (two) steps of Court-mechanisms. Those steps are Registration and Execution.

1. Registration

Every arbitral award shall be registered by the arbiter or its representative/s in the District Court of Central Jakarta as the authorized court according to the law (Article 65 of Indonesian Law Number 30 Year 1999). Since there is no specific rule regarding the time limit for registration of foreign arbitral award, one can conclude that the time limit is similar with the registration of national arbitral award which is 30 (thirty) days subsequent to the declaration of the award. (Article 59 (1) of Indonesian Law Number 30 Year 1999)

The registration shall be made by providing required documents as follows: (Article 67 (2) of Indonesian Law Number 30 Year 1999)

a. an authentic documents of foreign arbitral award or its authentic copy with its official translation into Bahasa Indonesia;

b. authentic documents of the agreement which the award was based or its authentic copy with its official translation into Bahasa Indonesia;

c. a notification from diplomatic representative of the Republic of Indonesia where the award was made. This notification shall confirm that the State where the award was made is bound by a treaty, both bilateral or multilateral, along with the Republic of Indonesia regarding the recognition and enforcement of foreign arbitral award.

2. Execution

After registration, the Chief of Central Jakarta District Court will examine whether the award can be recognized and enforced or not. There are several considerations in this examination, namely: (Article 66 of Indonesian Law Number 30 Year 1999)

a. The Foreign Arbitral Award was adjudged by an arbiter or arbitration board in a State which bound by treaties, both bilateral or multilateral, with the Republic of Indonesia regarding the Recognition and Execution of International Arbitral Award (The 1958 New York Convention);

b. The award is, according to Indonesian law, considered to be within the scope of business law. The term “within the scope of business law” means other activities in the field of trading, banking, finance, investment, industry and intellectual property. (Explanation of Article 66 (b) of Indonesian Law Number 30 Year 1999)

c. The award shall be in conformity with public order.

A mere recognition is not sufficient to enforce the award. Subsequent to the award’s recognition by the Chief of Central Jakarta District Court, he/she will issue an exequatur to grant the execution of the award in Indonesia. (Article 66 (d) of Indonesian Law Number 30 Year 1999) In short, exequatur means an execution order or a title of execution attached to the arbitral award. An exequatur issued by the Chief of Central Jakarta District Court is considered as final and binding. There is no further legal action can be invoked against this exequatur. (Article 68 (1) of Indonesian Law Number 30 Year 1999) However in the event that the Chief of Central Jakarta District Court refuses to issue an exequatur, a party can submit the refusal to the Indonesian Supreme Court for cassation. (Article 68 (2) of Indonesian Law Number 30 Year 1999)

Basically, a further legal action can be brought against the decision of Supreme Court. (Article 23 of the Indonesian Law Number 4 Year 2004 regarding the Judicial Power) However, in the realm of recognition and enforcement of foreign arbital award, there is no further legal action can be invoked against the refusal delivered by Indonesian Supreme Court. This is since the Supreme Court in this stage only examines the formalities of the award, not substantial. In other words, in this stage the Supreme Court does not examine the legal facts (judex factie) but it only examines the formalities set forth in Article 66 of Indonesian Law Number 30 Year 1999. This is in line with article 60 of Indonesian Law Number 30 Year 1999 which recognized that an arbital award is deemed final and binding. Consequently, there is no substantial examination can be conducted towards foreign arbitral award.

Case

The matter of execution of foreign arbitral awards in Indonesia ever occurred in a dispute between Bankers Trust Company and Bankers Trust International PLC (together BT) vs. PT Mayora Indah Tbk. (Mayora). This case is regarding the currency and interest rate swap transactions based on the International Swaps and Derivatives Association (ISDA) Master Agreement dated 25 April 1997. The dispute was adjudged by arbitrators from London in 1999 according to the Rules of the London Court of International Arbitration (“LCIA”). In this dispute, the award rules in favor of BT and further obliges PT. Mayora to pay some amount of money to BT.

Subsequently, PT. Mayora brought this dispute to South Jakarta District Court. The judgment of South Jakarta District Court No. 46/Pdt.G/1999 dated 9 Desember 1999 further rules in favor of PT. Mayora. In the meantime, BT request an exequatur for the award. Nonetheless, The Chief of Central Jakarta District Court refuses to issue an exequatur. (Decree No.001 and 002/Pdt/Arb.Int/1999/PN.JKT.PST juncto 02/Pdt.P/2000/PNJKT.PST, dated 3 February 2000) The reason is since both BT and PT Mayora has an ongoing process of similar dispute in South Jakarta District Court. The Chief stated that in court proceeding, the execution of an award (in this vein, foreign arbitral award) shall be postponed until the judgement by South Jakarta District Court is considered as final and binding. Otherwise, it will be in contravention with civil procedural law.

After this judgment, BT then submitted the refusal of the Chief of Central Jakarta District Court to the Supreme Court for cassation. In this level, the Supreme Court further strengthen the refusal to execution of the award. (The Decision of Supreme Court No. 02K/Ex’r/Arb.Int/Pdt/2000 dated 5 September 2000) The rationale for this refusal is basically similar with the reason declared by the Chief of Central Jakarta District Court that the enforcement of foreign arbitral awards shall be postponed until the judgement by South Jakarta District Court is considered as final and binding. The Supreme Court stated that if otherwise, it will be in contravention with civil procedural law and therefore it also contravenes public order. If the award contravenes the public order, thus an exequatur shall not be issued. (Article 66 (c) of Indonesian Law Number 30 Year 1999) Following the decision of the Supreme Court, which is final and binding, BT has no further legal action can be brought against this refusal.

Conclusion

The procedures of foreign arbitral award’s execution are regulated under civil procedural law. (Article 69 (3) of Indonesian Law Number 30 Year 1999) Under this law, following the issuance of exequatur, the execution of Foreign Arbitral Award subsequently will be transferred to the Chief of any District Court who is relatively authorized to conduct it. (Article 69 (1) of Indonesian Law Number 30 Year 1999; Article 3777 of Het Herziene Indonesisch Reglement (“HIR”); Article 705 of Reglemen voor Buiten gewesten(“RBg”)) For example, the Defendant’s asset is located in North Jakarta therefore the Chief of North Jakarta District Court is authorized to conduct and control the execution. The authorized Chief of District Court will summon a warning (aanmaning) to the defendant and ordering it to voluntarily fulfill its obligation in 8 (eight) days. (Article 196 of HIR/Indonesian Civil Procedural Code; Article 207 of RBg) If subsequent to the time limit the Defendant still has not fulfill its obligation, the Chief of the District Court will order the Defendant’s assets to be confiscated. Bearing in mind that the exequatur also empowers the party to confiscate Defendant’s assets. (Article 69 (2) of Indonesian Law Number 30 Year 1999) This confiscation shall be conducted by a registrar and confiscator supervised by the Chief of the District Court. (Article 60 and 65 the Law Number 2 Year 1986 regarding the General Court; Article 195 (1) of HIR/Indonesian Civil Procedural Code; Article 206 (1) of RBg)