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Indonesia – Arbitrating In Country: What Have You Signed Up For?

31 July, 2014

 

Legal News & Analysis – Asia Pacific – Indonesia – Dispute Resolution

 

Concerns over the perceived unpredictability of decisions from the Indonesian Courts have led to an upsurge in the use of arbitration to resolve disputes arising out of Indonesia-related projects and transactions. At the same time, foreign investors are often under commercial pressure to agree that any such arbitrations should be seated in Indonesia. However, as explained here, arbitration in Indonesia has a number of features which may surprise those used to more “international” norms.


Generally speaking, arbitral procedure anywhere will be dictated by matters such as the laws of the “seat” (or legal place), any arbitration rules selected by the parties, and the preferences of the parties and the tribunal. We consider below how these factors impact arbitrations seated in Indonesia, and outline some practical tips for those considering selecting Indonesia as a seat of arbitration.


The Arbitration Law


In Indonesia, the relevant legislation is the Law Concerning Arbitration and Alternative Dispute Resolution, Law No. 30 of 1999 (the Arbitration Law).While many countries have chosen to adopt legislation which reflects the provisions of the United Nations Commission on International Trade Law (UNCITRAL)Model Law, Indonesia has not done so. Foreign parties are often surprised to encounter differences which include the following:

 

  • Language: unless the parties agree otherwise, the language of an arbitration will be Indonesian regardless of the language of the underlying documents;
  • Hearings: the default position under the Arbitration Law is that the case will be decided on the documents unless the parties or the tribunal wish to have hearings;
  • Time-frame: under the Arbitration Law, the tribunal is to complete its “examination of disputes” within 180 days of its constitution, with an award required within 30 days thereafter (these time-frames can be extended); and
  • Annulment: the grounds for annulment of awards are limited broadly to fraud, forgery and concealment of documents.


Arbitral Institutions


The Arbitration Law makes it clear that parties may select an institution of their choice to administer the arbitration. The most commonly used Indonesian arbitral institution is the Badan Arbitrase Nasional Indonesia (BANI), however alternatives are available,such as the Capital Market Arbitration Board (BAPMI). Ad hoc arbitrations (such as those under the UNCITRAL Rules) are not uncommon, and international arbitral institutions such as the International Chamber of Commerce (ICC) will also administer arbitrations seated in Indonesia.


Foreign parties should be aware that the rules of Indonesian arbitral institutes, such as BANI, lack the “bells and whistles” that have become commonplace in the rules of more internationally focused organisations, such as emergency arbitrator provisions and expedited procedures.


In any arbitral institution, practices can vary over time.We recommend that a party considering arbitration administered by an Indonesian arbitral institution should check current, unwritten practices with its legal advisors. For example, we are aware of recent instances where BANI has elected not to give effect to the agreement of the parties as to language where other than Indonesian. For some foreign parties, this might be an important consideration in deciding whether to select BANI-administered arbitration.


Conduct Of Arbitrations In Indonesia


While the Arbitration Law sets out certain requirements for arbitrators, these do not relate to nationality or residence. Therefore, parties are not restricted by law to choosing Indonesian arbitrators should they wish to consider alternatives.

 

In practice, however, the pool of available foreign arbitrators may be limited. For example, the BANI panel consists primarily (although not exclusively) of Indonesian nationals and, while parties can apply for the appointment of an arbitrator from outside the panel, that requires convincing the Chairman of BANI that this person has skills or expertise not possessed by any of BANI’s panel members (Article 9 of the BANI Rules). Our experience is that most Indonesia-seated arbitrations are conducted before tribunals where at least a majority of members are Indonesian nationals or resident in Indonesia.


There is, of course, nothing inherently wrong with that outcome. Nevertheless, the result is a tendency for Indonesia-seated arbitrations to be run along the lines of Indonesian civil litigation. For example, Indonesian litigation does not have the formal discovery processes of common law systems, and this tends to be mirrored in arbitration proceedings. While on occasion tribunals may order disclosure of certain documents, foreign parties expecting to have extensive access to documents held by the other side may find themselves disappointed.


The Role Of The Courts


By selecting Indonesia as the seat of arbitration, the parties are at the same time agreeing that the Indonesian Courts will have supervisory jurisdiction. Parties contemplating Indonesian-seated arbitration should be mindful that the powers of the Indonesian Courts to act in support of arbitration are limited when compared with the powers of the Courts in jurisdictions such as Singapore. Normally, only final and binding awards can be enforced in Indonesia and there are, therefore, serious doubts as to whether the Indonesian Courts would enforce interim awards such as those relating to interim measures of protection or to the conduct of the proceedings.


Practical Tips


Commercial pressures can often lead parties to agree to seat arbitrations in Indonesia without proper consideration of the consequences. It may be that there are good reasons for doing so but, in general, parties should carry out proper due diligence before providing for Indonesian-seated arbitration in a contract. This might include:

 

  • considering whether there is likely to be a need for urgent pre-constitution or interim relief, or extensive document disclosure (all of which will be difficult to obtain in Indonesian arbitration);
  • reviewing the panel of arbitrators of any arbitral institution under consideration to determine whether it contains individuals who would be suitable to arbitrate the types of disputes likely to arise; 
  • discussing with legal advisors recent developments and unwritten practices that may impact this choice; and
  • if, for whatever reason, Indonesia-seated arbitration is not suitable, considering whether it would be a suitable compromise to seat the arbitration offshore but to hold hearings in Indonesia.

 

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For further information, please contact:

 

Rob Palmer, Partner, Ashurst
rob.palmer@ashurst.com


Baldev Bhinder, Ashurst
baldev.bhinder@ashurst.com

 

Dispute Resolution Law Firms in Indonesia

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