A tale of two BANIs – Uncertainties abound as latest court ruling questions legitimacy of Indonesia’s national arbitration centre

Overview

Since its establishment in 1977, BANI (Badan Arbitrase Nasional Indonesia) has been the most active arbitral institution in Indonesia. With offices across the country, its own rules and procedures and over 100 Indonesian and foreign arbitrators on its list, BANI is well-established and has presided over a steady stream of domestic and international disputes. (Other arbitral institutions exist, but with more limited remits such as Islamic or capital markets transactions.)

For all its success, however (and there can be no doubt that BANI has been a positive influence in the development of Indonesian arbitration), BANI has found itself subject to criticism at various points in its history – most recently that it has been unable to keep up with developments and trends in international arbitration, due to the inflexible nature of its constitution.

September 2016 saw the unexpected establishment of BANI Pembaharuan, a new institution set up to deal with domestic and international general commercial arbitrations. Domestic commentary suggests that BANI Pembaharuan was set up with the stated intention of "institutionalising BANI, not creating a new BANI” (although there is a competing narrative that the BANI Pembaharuan was primarily created because of a disagreement between the BANI's board members and one of the members of the Indonesian arbitration community).

BANI quickly issued a statement to the effect that it does not recognise BANI Pembaharuan and that its use of the "BANI" acronym is illegitimate. This was followed by multiple proceedings in the Indonesian courts concerning the new institution's use of the "BANI" name.  Regrettably, this has led to uncertainty as to which institution is rightfully entitled to administer arbitrations where parties have elected to refer to their disputes to “BANI”. Unfortunately, this uncertainty is set to continue for some time, as recent rulings from different courts have been contradictory and are likely to be appealed, prolonging the confusion.

Recent developments

On 29 September 2016 the board members of BANI Pembaharuan commenced an unlawful act action against the governing board members of BANI in the South Jakarta District Court (“District Court”).

BANI responded on 1 December 2016 by filing an administrative lawsuit with the Jakarta State Administrative Court (“Administrative Court”) challenging the establishment and registration of the new institution.

We understand that the Administrative Court rendered its decision in favour of the original BANI.  However, we also understand that the District Court issued its ruling in the first half of last week and found in favour of BANI Pembaharuan, contradicting the effect of the Administrative Court ruling.

To the best of our knowledge, the written judgment of the District Court has not been issued yet. However, based on credible sources within BANI and BANI Pembaharuan, the District Court has issued, amongst others, the following:

• a declaration that the management/administration of BANI by the defendants (i.e. the governing board members of BANI) is unlawful and without legal standing;
• a declaration that the establishment of BANI Pembaharuan under the relevant deed is valid and binding;
• an order directing the defendants to transfer BANI to the plaintiffs (i.e. the board members of BANI Pembaharuan); and
• an order directing the defendants to transfer the premises of BANI to the plaintiffs;

The District Court's decision is not immediately executable pending any appeal or application for a stay unless the District Court orders otherwise.

According to Professor M. Husseyn Umar, BANI's Chairman, BANI is currently considering its options and will be releasing an official statement as soon as possible. We will provide an update as official statements from the two organisations are issued or when the official written judgment is released.

A separate but very much connected litigation has been commenced in the Commercial Court on 8 June 2017, where BANI Pembaharuan is requesting the cancellation of the BANI trademark in the name of the original BANI.

Risks and lessons from CIETAC

It is safe to predict that this dispute will continue for quite some time before we have any clarity.  The losing party in each proceeding is likely to try to exhaust all avenues of appeal, which will take years.  Consequently, and unfortunately, the public and the users of BANI arbitration services are left in limbo given the uncertainty as to the status of the two institutions and the validity of arbitration proceedings and awards arranged and issued by either of them during this period.

Comparisons have cautiously been made to the split within the China International Economic and Trade Arbitration Commission (CIETAC) in 2012, when CIETAC's Shanghai and South China sub-commissions declared independence from CIETAC and established their own separate rules and panel (we covered this in a blog post at the time, here). This caused a great deal of uncertainty, in particular where arbitration agreements pre-dating the split referred disputes to "CIETAC", and parties subject to clauses referring to "CIETAC Shanghai" or "CIETAC South China/Shenzhen" found themselves in a very uncertain situation, unable to predict where disputes would end up and vulnerable to delay tactics by opposing parties wishing to drag proceedings into Chinese courts. These difficulties were compounded by the inconsistent approach of local courts, which differed across regions in recognising (or not recognising) the new institution's validity and jurisdiction.

During that period of uncertainty, we advised our clients to file any request for arbitration with CIETAC in Bejing where the arbitration clause referred only to CIETAC, and to amend any clause referring to CIETAC Shanghai or CIETAC Shenzhen to reflect the new entities or seek specialist legal advice where amendment is not possible.

A cautious approach

A similarly cautious approach should be adopted in Indonesia during this period of uncertainty.

With respect to existing arbitration agreements which refer disputes to “BANI” arbitration, it seems prudent – for the time being – to construe this as reference to the original BANI and not to BANI Pembaharuan.  Until September 2016, BANI was the only arbitral institution in Indonesia for the resolution of general commercial disputes, and certainly the only institution known by that name. Practically, therefore, references to "BANI" in dispute resolution clauses are unlikely to be construed as references to "BANI Pembaharuan" or anything other than the "original" BANI, at least unless there is some additional contextual evidence supporting this (rather unnatural) inference.

Nevertheless, it remains unclear if BANI (following the recent decision of the District Court) can still administer new proceedings or even continue administering existing proceedings, even if the arbitration agreements which gave rise to those proceedings were signed prior to September 2016.

Wherever possible, therefore, we recommend reviewing arbitration agreements prescribing for BANI arbitration and deciding, with the benefit of specialist legal advice, whether there is any scope for amendment to the clause.

As for new arbitration agreements, we recommend seeking specialist advice before deciding whether to refer any arbitration to BANI or BANI Pembaharuan. Additional wording may have to be included in the arbitration agreement, depending on which institution is referred to, in order to maximise the prospect of enforceability of any eventual award.

Alternatively, serious consideration may be given to alternative rules and institutions such as the SIAC, the ICC or UNCITRAL Rules, for arbitrations seated in Indonesia during the pendency of the dispute between BANI and BANI Pembaharuan.  The choice of rules and/or institution for an Indonesian-seated arbitration would depend very much on the specific circumstances of each case.

A missed opportunity?

It is unfortunate that this important development in Indonesian arbitration (the establishment of a new institution) has been overshadowed by the naming dispute, which could have been avoided by the use of a different name.

If BANI Pembaharuan had differentiated itself from BANI, it would not have been mired in this dispute and it could present a new and potentially attractive opportunity for users of arbitration in Indonesia, for example by implementing its own set of rules with different and modernised features. We understand that it has indeed prepared its own set of arbitral rules, with provisions for third-party involvement in proceedings, hybrid procedures such as med-arb, and the interpretation of arbitration agreements. These are commonly found in the rules of other international institutions and would represent a departure from the present BANI rules.

We will monitor the disputes and provide further commentary in due course.  We will also review and report further on BANI Pembaharuan's rules and their acceptance and impact with users and the market.

For further information, please contact Alastair Henderson (Partner, Herbert Smith Freehills), Debby Sulaiman (Partner, Hiswara Bunjamin & Tandjung), Gitta Satryani (Senior Associate,Herbert Smith Freehills), Roni Marpaung (Associate, Hiswara Bunjamin & Tandjung) or your usual contact at Herbert Smith Freehills and Hiswara Bunjamin & Tandjung.

Note:

Herbert Smith Freehills and Hiswara Bunjamin & Tandjung have been formally associated since 2000, and are now the the best and longest established collaboration in the Jakarta legal market.

Our combined team of 35 specialist disputes lawyers operates across Southeast Asia from bases in four main cities (Singapore, Jakarta, Bangkok, Kuala Lumpur), providing sector-focused, client-centric dispute resolution and risk advisory services.  We are Asia Legal Business magazine's Southeast Asia International Arbitration Law Firm of the Year 2017 and we aim to be the regional law firm of choice for complex, sensitive, high value and 'high stakes' matters throughout Southeast Asia, and for major international, regional and local disputes.