What is arbitration?

Arbitration is a form of alternative dispute resolution. It is used as a way of settling disputes between contract parties outside of court. The court will have no jurisdiction over a dispute in case the contract parties include a clause in their agreement which explicitly states that the parties choose arbitration for resolving their disputes.

Why Choose Arbitration Instead of Court?

The main reasons for parties to choose arbitration instead of Indonesian Courts are:

1. Time: a court process could take multiple years, whereas a dispute in Indonesian arbitration must be completed within 180 days as of the appointment of the arbitrator (in the event of one arbitrator) or formation of the arbitrary panel (in the event of three arbitrators).

2. Costs: even though the initial arbitrator costs and filing fees are higher than Court fees, due to the rapid arbitration process legal service fees can be held under control. Moreover the arbitrator can decide in its decision to allocate all or part of the costs to the losing party.

3. Governing law and place of hearing: international court decisions are not enforceable in Indonesia. On the other hand arbitration allows contract parties to use any law to govern the agreement and to determine any place for the hearings, even outside of Indonesia.

4. Expertise: especially in complex, high technical cases judges often lack expertise. In arbitration the contract parties may choose an experienced arbitrator/arbitrator panel out of a large pool of arbitrators.

5. Reputation: Indonesian Courts in Indonesia face in general a negative reputation caused by corruption and an insufficient sophistication of courts. Therefore institutions such as BANI are generally preferable to the Indonesian Courts for overseas investors.

Due to the higher initial costs of arbitration, it is only a viable solution for medium to high value contracts.

This column is provided by PNB Law Firm Jakarta