Using International Arbitration in Indonesia (BANI vs SIAC): A Practical Guide for U.S. Businesses and Foreign Investors

Table of Contents

Introduction

For U.S. companies and foreign investors doing business in Indonesia, dispute resolution is not a theoretical concern—it is a commercial survival issue. Contracts may look solid on paper, but when disputes arise, where and how you resolve them often determines whether you recover your money or write off the loss.

International arbitration is widely promoted as the “safe” alternative to Indonesian courts. However, not all arbitration choices are equal. Choosing between BANI (Indonesia’s national arbitration institution) and SIAC (Singapore International Arbitration Centre) has real legal and financial consequences.

This article explains—clearly, practically, and without academic jargon—how international arbitration works in Indonesia, the legal differences between BANI and SIAC, and which option is safer for foreign parties.

The Main Legal Question

Can foreign businesses safely use international arbitration to resolve disputes involving Indonesian parties, and should they choose BANI or SIAC?

Short answer: Yes, international arbitration is legally recognized and enforceable in Indonesia, but SIAC is generally safer for foreign parties, while BANI may expose foreign investors to higher enforcement and neutrality risks, depending on the contract structure and seat of arbitration.

Legal Explanation

Why Arbitration Matters in Indonesia

Indonesia follows a civil law system, not common law. Court proceedings are formal, slow, and heavily procedural. For foreign businesses, litigation in Indonesian courts often raises concerns about:

• Language barriers
• Local procedural complexity
• Long timelines
• Limited familiarity with international commercial practices

Arbitration offers:

• Party autonomy
• Confidentiality
• Neutral decision-makers
• Final and binding awards

However, arbitration only works if the award can be enforced.

What Is International Arbitration?

International arbitration is a private dispute resolution process where parties agree to submit disputes to arbitrators instead of courts. The decision (the arbitral award) is final and binding.

In Indonesia, arbitration is governed primarily by Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution.

Article 1(1) of Law No. 30 of 1999 defines arbitration as a method of dispute resolution outside the courts based on a written arbitration agreement.

Practical meaning: Indonesian courts must respect arbitration clauses and decline jurisdiction where a valid arbitration agreement exists.

BANI vs SIAC: The Core Difference

• BANI (Badan Arbitrase Nasional Indonesia) Indonesia’s domestic arbitration institution. Often chosen in local contracts.
• SIAC (Singapore International Arbitration Centre) A leading international arbitration institution, frequently used in cross-border contracts involving Indonesian parties.

The difference is not prestige—it is risk allocation.

Legal Basis

1. Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution

This is the cornerstone arbitration law in Indonesia.

• Article 3

Courts have no authority to examine disputes subject to arbitration.
Practical meaning: Judges must dismiss lawsuits where a valid arbitration clause exists.

• Article 11

Arbitration agreements are binding and exclude court jurisdiction.
Practical meaning: Arbitration clauses are enforceable if properly drafted.

• Articles 65–69

Govern enforcement of foreign arbitral awards.
Practical meaning: Foreign awards require court recognition (exequatur) before enforcement.

2. Presidential Decree No. 34 of 1981 (New York Convention)

Indonesia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards through Presidential Decree No. 34 of 1981.

Practical meaning:
Awards issued in other Convention countries (including Singapore) are enforceable in Indonesia, subject to procedural requirements.

3. Supreme Court Regulation No. 1 of 1990

This regulation governs the exequatur process for foreign arbitral awards.

Practical meaning:
Foreign arbitral awards must be registered with the Central Jakarta District Court and receive Supreme Court approval before enforcement.

4. Law No. 48 of 2009 on Judicial Power

• Article 59

Courts must respect arbitration agreements and awards.
Practical meaning: Judges are legally required to defer to arbitration, although practice may vary.

BANI Arbitration Explained

Advantages of BANI

• Lower administrative costs
• Familiarity with Indonesian law
• Faster for purely domestic disputes

Key Risks for Foreign Parties

• Arbitrators often apply Indonesian law strictly
• Proceedings conducted largely in Indonesian
• Perceived lack of neutrality in disputes involving local parties
• Enforcement still occurs through Indonesian courts

Important: A BANI award is a domestic arbitral award, not a foreign one, even if one party is foreign.

SIAC Arbitration Explained

Advantages of SIAC

• Neutral venue (Singapore)
• English-language proceedings
• International arbitrators
• Strong procedural efficiency

Enforcement in Indonesia

SIAC awards are foreign arbitral awards and enforced under:

• Law No. 30 of 1999
• Presidential Decree No. 34 of 1981

Practical meaning:
While enforcement still requires Indonesian court approval, courts generally treat SIAC awards more predictably due to New York Convention obligations.

Risks and Legal Consequences

1. Poorly Drafted Arbitration Clauses
Invalid or ambiguous clauses may lead to court litigation instead of arbitration.

2. Seat of Arbitration Mistakes
Choosing Indonesia as the seat while using SIAC rules can create jurisdictional confusion.

3. Public Order Challenges
Under Article 66 of Law No. 30 of 1999, enforcement may be refused if the award violates Indonesian public order.

4. Enforcement Delays
Even valid awards can face delays during exequatur proceedings.

Case Examples

Case 1: BANI Clause in a Joint Venture

A U.S. investor used a BANI clause with Indonesian law. The dispute was decided quickly, but enforcement favored the local partner due to strict statutory interpretation.

Case 2: SIAC Clause in a Distribution Agreement

A U.S. manufacturer used SIAC arbitration seated in Singapore. The award was enforced in Indonesia after exequatur, with fewer procedural objections.

What Can Be Done

1. Choose SIAC for Cross-Border Deals

SIAC provides neutrality and predictability.

2. Draft Clear Arbitration Clauses

Specify:

• Institution
• Seat
• Governing law
• Language

3. Align Governing Law and Arbitration Seat

Avoid mixing Indonesian seat with foreign rules unless advised.

4. Obtain Local Legal Review

Always review arbitration clauses with Indonesian counsel before signing.

Conclusion

International arbitration does work in Indonesia, but only when structured correctly. For U.S. businesses and foreign investors, SIAC arbitration seated in Singapore generally offers the safest balance of neutrality, enforceability, and commercial certainty.

BANI may be suitable for purely domestic or Indonesian-centric disputes, but foreign parties should understand the risks before agreeing.

If you are negotiating contracts, facing a dispute, or reviewing enforcement options, professional legal advice is essential. You are encouraged to consult an advocate through the contact information available in this website’s navigation menu.

FAQ: Using International Arbitration in Indonesia (BANI vs SIAC)

Is arbitration legally enforceable in Indonesia?
Yes, under Law No. 30 of 1999 and the New York Convention.

Is SIAC better than BANI for foreign investors?
Generally yes, due to neutrality and international enforcement standards.

Can Indonesian courts refuse enforcement of arbitral awards?
Yes, but only on limited grounds such as public order under Article 66 of Law No. 30 of 1999.

Do SIAC awards require court approval in Indonesia?
Yes, through the exequatur process at the Central Jakarta District Court.

Should I avoid Indonesian courts entirely?
For high-value cross-border contracts, arbitration is usually safer.