Commercial parties intending to resolve their disputes through arbitral institutions in Indonesia have reached a potentially tricky juncture. Badan Arbitrase Nasional Indonesia (“BANI”) has been the go-to arbitration institution in Indonesia since it was established in 1977 and has enjoyed international recognition. However, on 8 September 2016, a new institution was launched, confusingly calling itself BANI Pembaharuan or the “Renewed BANI”. So where does this leave parties with arbitration clauses referring disputes to BANI or parties intending to provide for BANI arbitration in their contracts?

Recent events

This need for “renewal” seemingly arose out of a governance crisis at BANI. A law granting only the original founders of BANI the power to appoint its governing board reached an unfortunate impasse last year, by which point none of the three original founders were still alive. Clearly change was necessary and the circumstances fuelled the need for a reconstitution or renewal of BANI. A separate institution, the Renewed BANI emerged in September this year. However, the individuals behind the Renewed BANI claim that it did not come into existence as a direct rival to BANI, but rather was intended to modernise and revitalise BANI eventually by way of a merger with the original institution in order to ensure its continuing success. We understand that the offer to merge has been made but that so far, it has not been accepted and all efforts at unifying these two institutions have failed. Indeed, the board of BANI confirmed in a statement one week after the Renewed BANI’s launch that it does not recognise the Renewed BANI and insists that it is using its name illegitimately.

Uncertainty for commercial parties

This situation potentially raises a considerable degree of uncertainty. It creates an unworkable position for commercial parties who will find themselves in limbo if they have existing agreements referring disputes to BANI arbitration. Given that both institutions have adopted the name BANI, there is a question over which institution will have jurisdiction over the dispute where only the BANI acronym has been used in an arbitration agreement. This offers significant opportunity for mischief and delay on the part of Respondent parties in addition to the possible involvement of the Indonesian courts (the avoidance of which may have been a factor in the parties opting to have their disputes resolved by arbitration in the first place). Of course, it may be the case that sophisticated commercial parties explicitly select one particular institution by reference to its full name, rather than the acronym ‘BANI’, thereby ensuring clarity and avoiding any confusion.

The current situation will also impact commercial actors currently negotiating agreements which contemplate institutional arbitration in Indonesia or with plans to negotiate such agreements in the future. Such clients will understandably be left unsure as to how to draft an effective arbitration clause which ensures disputes will be determined under the auspices of the arbitration centre of their choice with such uncertainty existing over the unification – or otherwise - of the two institutions. Worse still, if the split persists, absent intervention from the courts or the legislature, parties could indefinitely be left in an ambiguous position.

Despite the uncertainty, there are at the time being a number of options open to parties which may find themselves in such a position albeit that clients are well advised to obtain robust legal advice before choosing how to deal with the arbitration clause in any Indonesia related deals. It is likely that assessment on a case by case basis will be needed: in some circumstances, it may be advisable to avoid BANI altogether and opt for another forum such as SIAC, in others parties may feel comfortable with referring to the full name of their chosen institution rather than using the (currently) ambiguous acronym and in yet further instances, parties may require a bespoke solution which, for example, perhaps provides for dealing with the eventuality where one institution is selected but then dissolves or merges into the other.

If unification does not happen and both institutions continue without judicial or governmental intervention or guidance, it is also likely to take some time for parties to properly assess which institution is best placed to serve their needs. Although BANI enjoys recognition and respect, its rigid governance may present issues for efficient dispute resolution, while the Renewed BANI is new and untested territory.

Is there a solution in sight?

Events in the not too distant past surrounding the China International Economic and Trade Arbitration Commission (“CIETAC”) may allay the fears of commercial parties that a solution may be found to the current state of affairs afflicting BANI arbitration. Whilst the circumstances of the split in China were slightly different, the uncertainty imposed on affected parties was similar, and equally uncomfortable.

In August 2012, the Shanghai and Shenzhen sub-commissions of Beijing-based CIETAC branched off and became independent entities, later to become known by their acronyms SHIAC and SCIA from 8 April 2013 and 22 October 2012 respectively. Inevitably, this caused some confusion over arbitral clauses that made explicit reference to the sub-commissions of CIETAC in Shanghai (known as CIETAC Shanghai) and Shenzhen (referred to as CIETAC South China) because after the split, it appeared that they no longer existed. As may yet happen in Indonesia, the question therefore arose as to which arbitral entity had jurisdiction over a dispute.

After a great deal of legal wrangling and debate - including CIETAC in Beijing stating that the sub-commissions had no authority to declare themselves independent whilst at the same time confirming (arguably against the wishes of the parties involved who had identified CIETAC Shanghai or CIETAC South China in their arbitration agreements) that it would administer cases referred to the sub-commissions from Beijing and the sub-commissions laying claim to the same cases whilst arguing that they had always been independent from CIETAC Beijing - the Supreme People’s Court in China (the “SPC”) made a ruling by way of a Notice to give some much needed clarity. It was decided that where parties had entered into an agreement designating either “CIETAC South China Sub-Commission” or “CIETAC Shanghai Sub-Commission” as the administering institution:

  1. at any time before the name changes, SHIAC or SCIA will have jurisdiction;
  2. on the date of or after the name change but before the effective date of the SPC Notice (17 July 2015), CIETAC will have jurisdiction. The reasoning for this was arguably that by this date sophisticated commercial parties should have been aware of the split and subsequent name change; and
  3. on or after the date of the SPC Notice, CIETAC will have jurisdiction.

Where do we go from here?

Infighting of the sort currently seen in Indonesia is not unprecedented and commercial parties can look to China as evidence that solutions can be found where there appeared to be none. Sadly, the experience of China is that the period of uncertainty for users of arbitration can be prolonged and that if differences cannot be settled at the institutional level, judicial intervention may be required. In the case of Indonesia, given that BANI’s power to appoint its governing board derives from statute, it could be considered more likely that executive assistance may be required to resolve the impasse as opposed to direction from the courts.

As such, in this period of uncertainty, parties should consider their options carefully and obtain advice when contemplating BANI arbitration clauses in existing or future contracts (where, in relation to the latter, unless an alternative approach altogether is taken it will be advisable for the desired administering institution to be referred to in full in arbitration clauses rather than the currently inherently risky and uncertain acronym ‘BANI’). At the same time, affected parties should hope that the storm passes soon and that BANI and the Renewed BANI unify, or that the courts or, more likely, the government make a swift intervention.

Prepared with the assistance of Ben Rosen, trainee.