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Procedures of Dispute Resolution Through Arbitration That You Must Know

“Besides its numerous advantages of dispute resolution in arbitration, we believe that the arbitrator who is competent and an expert in the field of dispute is also an advantage.”
The procedure of arbitration is different from handling civil cases in the district court. Arbitration is preceded by submitting a petition for arbitration, followed by request for appointing arbitrator(s) chosen by the parties to handle the matter in dispute. The parties also required to submit evidences to support their claims in their petition (statement of claim).

Arbitration as a method of alternative dispute resolution may impose a final and binding award. Ideally, the parties who resolve their dispute through arbitration will not bring the aforesaid dispute to the court, either for an enforcement or setting aside the arbitral award.

Although arbitration is only a quasi judicial institution, it is more effective to resolve business disputes, as long as it is done voluntarily and in a good faith. This is because the parties choose to resolve their dispute through arbitration to avoid the court. One of the reasons is that they can ensure the confidentiality of their dispute. Because a publication of their dispute is bad for business.

What is interesting for arbitration, before the hearing begins, the parties have already known each others’ position as stated in the petition of arbitration and the answer of the application. Even more, the parties may submit their list of evidences to support their claim. Hence, at the time of hearing, both parties may pass their arguments and submit additional evidences. Besides, the arbitral tribunal has known the dispute and examined the submitted evidences.

It is much different from the trial in the district court, where sometimes they only exchange their documents. Even in evidentiary hearing, there is only exchange of documents if there is no witness to be presented in the trial.

Furthermore, the petition of arbitration is regulated in Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution (hereinafter Law No. 30/1999). As a reference, we will review the stages and procedures of conducting arbitration in Indonesia National Board of Arbitration (BANI).

    1. Application of Arbitration

Procedure of arbitration is started by registering and filing the petition of arbitration and its notification to the Secretariat of BANI.

In the petition, the claimant must explain the arbitration clause, how the claimant’s position is associated with the arbitration agreement, the authority of arbitration (BANI, in casu) to resolve the dispute, and any matter they have taken before submitting their dispute to arbitration.

Dispute resolution in arbitration may be done based on both parties’ agreement. Such agreement may be made before the dispute arises (Pactum De Compromittendo) or after the dispute arises (akta van compromis).

Before registering to BANI Secretariat, the claimant must firstly give the respondent notification that should the dispute arises between them, the claimant shall resolve the dispute through BANI.

In accordance with Article 8 paragraph (1) and (2) of Law No. 30/1999, aforesaid notification must clearly states:

      1. the names and addresses of the parties;
      2. reference to the applicable arbitration clause or agreement;
      3. the agreement or problem in dispute;
      4. the basis for the claim and the amount claimed, if any;
      5. the method of resolution desired; and
      6. the agreement entered into by the parties concerning the number of arbitrators, or if no such agreement has been entered into, the claimant may submit a proposal about the odd number of arbitrators desired.

Upon completing the application, documents, and registration fee required, BANI Secretariat shall register the dispute in BANI register.
The Board of BANI shall examine the application to decide if the arbitration agreement or clause within the underlying contract has adequate grounds to authorize BANI to resolve the dispute.

    1. Appointment of Arbitrator(s)

Basically, the parties may decide whether arbitration will be commenced by a sole arbitrator or arbitral tribunal.
In case of sole arbitrator, the claimant must propose to the respondent by writing the name of a person to be appointed as sole arbitrator. If within 14 days after the respondent receives the claimant’s proposal, the parties do not succeed in agreeing on the sole arbitrator, the Chairman of the District Court, at the request of one of the parties, may appoint the sole arbitrator.

In case of arbitral tribunal, each party will appoint one arbitrator. The appointment of two arbitrators by the parties gives the two arbitrators the authority to choose and appoint a third arbitrator (as the chair of arbitral tribunal). Law No. 30/1999 states that, if within 14 days after the last arbitrator was appointed, the two arbitrators appointed by the parties do not succeed in appointing the third arbitrator, the Chairman of the District Court at the request of one of the parties, may appoint the third arbitrator. No attempt may be made to nullify the appointment of an arbitrator by the Chairman of the District Court. (Article 15 paragraph (4)). Moreover, in paragraph (3), if within 30 days after notification is received by the respondent, one of the parties fails to appoint someone to be a member of the arbitration panel, the arbitrator chosen by the other party will act as sole arbitrator and the award will bind both parties.

The appointment of arbitration will be different if it is commenced under BANI. Article 6 paragraph (2) of BANI Rules & Procedures states, in the petition for arbitration, the claimant and the respondent’s reply on the petition may designate an arbitrator or hand over the designation to the BANI Chairman. The appointment is usually made on the separated document, handed together with the petition for arbitration.

    1. Response of the Respondent

If the Board determines that BANI is authorized to adjudicate the dispute, then after registration of the Petition, one or more Secretaries of the Tribunal must be designated to assist in the administration of the arbitration case.

BANI Secretariat shall give a copy of the petition for arbitration and the attached documents to the respondent, and request the Respondent to submit its written response within a period of not longer than 30 days.

Within a period no longer than 30 days after receiving the petition for arbitration, the respondent are obliged to submit its reply. The respondent may designate an arbitrator, or if the respondent does not designate an arbitrator, it shall be considered that the designation has absolutely been handed over to the BANI Chairman.

The BANI Chairman shall be authorized, at the request of the respondent, to extend the period for submission of reply and or the designation of an arbitrator by the respondent with legitimate reasons, on the condition that the extension of period may not exceed 14 days.

    1. Counterclaim

If the respondent wishes to make a counterclaim against the claimant in relation to the claimant’s claim, the respondent may submit the counterclaim together with its statement of defence as latest as the first hearing.

Separate fees shall be assessed for the counterclaim in the same manner as for the primary claim. If those additional fees have been paid by the parties, the counterclaim will be heard, considered, and decided jointly with the original claim.

As the same with the petition of arbitration, the claimant and respondent have the same obligation. However, if the claimant refused to pay such additional fees, then the respondent shall pay the aforesaid fees. If not, the arbitral tribunal shall not examine the counterclaim.

Nevertheless, delay or failure of the parties to pay the aforesaid fees for counterclaim will not prevent nor delay the continuation of the hearing the main claim as long as the fees and costs of the main claim have been paid. The hearing shall proceed as though no counterclaim had been asserted.

Response of the Counterclaim

If the respondent has submitted a counterclaim, the claimant shall, in a period of thirty days or other time limit as the tribunal may deem appropriate, submit the answer of the counterclaim.

    1. Arbitration Proceedings

All proceedings conducted by arbitrator or arbitral tribunal shall be closed to the public, conducted in Indonesian language, unless the tribunal or the parties agreed to use another language. The parties to the dispute may be represented by their proxy with a power of attorney.

Third parties outside the arbitration agreement may participate and join the arbitration proceedings only if there is related interest and their participation is agreed by the parties and arbitrator or arbitral tribunal.

By request of one party, the Tribunal may make any provisional award or other interlocutory decision to regulate the manner of running the dispute, including decreeing a security attachment.

The hearing must be conducted in written form, unless agreed otherwise by the parties or it is deemed appropriate by the arbitrator or arbitral tribunal. The arbitrator or arbitral tribunal may summon witnesses, if it is considered necessary, outside the venue of hearing.

Witnesses and expert witnesses must be examined before the arbitrator or arbitral tribunal in accordance with the provisions in civil procedural law.
The arbitrator or arbitral tribunal may conduct on the spot hearings on the goods in dispute or other matters connected with the dispute being examined. If it is considered necessary, the parties will be lawfully summoned, so that they may also be present at the examination.

Examination of the dispute must be completed within 180 days from the appointment of the arbitrator or the formation of the arbitration panel. It may be extended if required in case of:

      1. An application is made by one of the parties in special circumstances;
      2. It is extended as a result of a provisional award or other interlocutory decisions being made; or
      3. It is deemed necessary by the arbitrator or arbitral tribunal in the interests of the examination.

If the parties appear on the determined day, the arbitrator or arbitral tribunal must first attempt to bring about an amicable settlement between the parties in dispute. If it succeeds, the arbitrator or arbitral tribunal will make a deed of amicable settlement, which will be final and binding on the parties, and will order the parties to comply with the terms of the amicable settlement.

If on the day determined, the respondent fails to appear for no valid reason, although the respondent has been duly summoned, the arbitrator or arbitral tribunal must immediately summons the respondent again.

If within 10 days after the respondent receives the second summons, the respondent still fails to appear at the hearing for no valid reason, the proceedings will be continued without the respondent, and the claimant’s claim will be entirely accepted, unless the claim is groundless or is not based on law.

The arbitrator or arbitral tribunal shall render the award within 30 (thirty) days after the examination is closed, unless it is deemed necessary to extend the period of time. Besides the final award, the arbitrator or arbitral tribunal have the authority to make preliminary, interlocutory or partial award.

(Read also: How To Apply For Annulment Of Arbitration Award?)

    1. Fees

The petition of arbitration must be accompanied by payment of the registration fee and the administrative fee in accordance with the BANI regulation. The administrative fee is including the administrative fee of the Secretariat, proceedings expenses and arbitrators fee.

This fee is based on the claim stated in the petition of arbitration, both material and immaterial claim. Hence, the claimant shall be wiser in determining the value of a claim. However, the registration fee is assessed based on the percentage of the claim, and the arbitral tribunal will only grant the claim which can be proven.
Please refer to the BANI table of fee.

If a third party beyond the arbitration agreement participates and joins the arbitration proceedings as referred by Article 30 of Law No. 30/1999, the third party shall be obliged to pay the administrative fee and other fees in connection with the participation.

If the respondent does not respond, then the claimant shall pay for the respondent’s administrative fee. Examination of arbitration case shall not be commenced before the administrative fee has been settled by the parties.

Advantages of Arbitration

Besides its numerous advantages of dispute resolution in arbitration, we believe that the arbitrator who is competent and an expert in the field of dispute is also an advantage. Thus, the arbitrator has more understanding of the business or industry itself. Even more, in our experience, there has never been any collusion done by arbitrators or illegal fees imposed by officials in BANI Secretariat.

This is certainly another advantage that makes you more comfortable to resolve the dispute through arbitration rather than through court, with the presence of judicial mafia.
Hopefully this article is useful for you.

BP Lawyers can assist you
We can assist you in resolving disputes through arbitration effectively.

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1 Comment

  1. […] arbitration proceedings are more confidential than the trial. The hearings and dispute settlement in arbitration are through a private procedure, enabling the whole process to remain secret (not open to the […]

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