What is Choice of Law?
The choice of applicable law (choice of law) and dispute resolution jurisdiction (choice of jurisdiction) in an agreement are crucial elements that affect the effectiveness of the implementation of the rights and obligations of the parties, especially in the event of a dispute in the future. Meanwhile, according to Black’s Law Dictionary as cited by Huala Adolf in his book “Dasar-Dasar, Prinsip & Filosofi Arbitrase”, jurisdiction is understood as the authority of a court to examine and decide a dispute, also known as competent jurisdiction (p. 141).
Is It Really a “Choice”?
Sudargo Gautama in Pengantar Hukum Perdata Internasional Indonesia explains that, in principle, the parties have the freedom to determine the applicable law for the contract they create, as long as the choice does not violate public order and is not intended to circumvent the law (pp. 168–170). In the context of legal relationships involving foreign parties—both individuals and legal entities—the designation of a dispute resolution forum through arbitration often becomes the primary choice. This is due to the limitations on the recognition and enforcement of foreign court decisions in Indonesia. Based on the Reglement op de Rechtvordering (Rv), foreign court decisions generally cannot be executed in Indonesia unless there is a law that explicitly regulates it. The available alternative is to file a new lawsuit in Indonesia using the foreign decision as evidence.
Dispute resolution through arbitration is regulated under Law Number 30 of 1999 concerning Arbitration and Alternative Dispute Resolution (“Law 30/1999”). In this case, arbitration may only be used to resolve disputes in the field of commerce and those related to rights that can legally be fully controlled by the parties. If a dispute cannot legally be resolved through settlement, it also cannot be resolved through arbitration. If the agreement includes an arbitration clause, then the District Court no longer has the authority to adjudicate the case. Arbitration has several advantages, including a closed hearing process, a maximum resolution period of 180 days from the formation of the arbitral tribunal, and the final, binding, and legally enforceable nature of its decisions (final and binding). However, it should be noted that the cost of arbitration is relatively high. These costs include arbitrator fees, travel expenses, witness and/or expert fees, as well as administrative fees determined by the relevant arbitration institution.
The choice of law and jurisdiction in a contract depends entirely on the agreement of the parties. This freedom is a manifestation of the principle of pacta sunt servanda as regulated in the Indonesian Civil Code. Nevertheless, its implementation must still consider the bargaining position of each party in the contract negotiation process.The use of Indonesian law as the choice of law certainly provides ease in terms of interpretation and application, especially due to the availability of legal experts who understand the national legal system. Conversely, if foreign law is used—especially from a country that adopts a different legal system, such as common law—the involvement of foreign legal experts becomes essential to explain its implementation in the contract.
Execution of International Arbitration Awards
In the case of choosing a foreign arbitration jurisdiction, such as the Singapore International Arbitration Centre (SIAC), the resulting decision will be categorized as an international arbitration award. In order to be enforced in Indonesia, the award must meet several conditions, including:
- The existence of a bilateral or multilateral agreement between Indonesia and the country where the award is made regarding the recognition and enforcement of international arbitration awards;
- The award falls within the scope of commercial law under Indonesian law;
- It does not conflict with public order;
- It has obtained an exequatur from the Chief Judge of the Central Jakarta District Court;
- If Indonesia is a party to the dispute, the award may only be enforced after obtaining an exequatur from the Supreme Court of the Republic of Indonesia, which is then delegated to the Central Jakarta District Court.
By considering the above aspects, the choice of law and jurisdiction in an agreement should be carefully and strategically designed to suit business needs, ensure dispute resolution efficiency, and guarantee legal certainty for the parties.