Indonesia - Market Insights

A more hard-edged line between domestic and international arbitration

Arbitration has long been a central mechanism for resolving commercial and cross-border disputes in Indonesia. Yet for years, practitioners and clients have grappled with a basic definitional problem: when is an arbitral award “international”? Article 1(9) of the Arbitration Law contained the phrase “deemed to be”, which created a pathway for certain awards rendered in Indonesia to be treated as international awards. This drafting choice generated uncertainty in enforcement proceedings and invited jurisdictional manoeuvring by parties seeking to characterise an award in the way most advantageous to them.

For businesses, the concern was straightforward. If an award rendered in Indonesia might, in some circumstances, be treated as international, enforcement risk became harder to price. Some parties deliberately drafted arbitration clauses to sit in this grey area in the hope of exploiting the ambiguity later; others found themselves taken by surprise when an ostensibly domestic award became the subject of classification challenges at the enforcement stage.

This ambiguity has now been squarely addressed. In January 2025, the Constitutional Court issued Decision No. 100/PUU-XXII/2024, striking out the “deemed to be” wording in Article 1(9). The court affirmed a territorial approach: an arbitral award is international only if it is rendered outside Indonesia. Conversely, awards rendered within Indonesian territory are domestic awards, irrespective of the parties’ nationality or the governing law of the underlying contract.

The practical consequences for clients are significant. First, there is greater clarity in drafting arbitration clauses: only awards seated abroad will be regarded as international, and parties can plan their enforcement strategies on that basis. Second, there is reduced flexibility: users lose the option of treating certain Indonesian-seated awards as international, limiting creative structuring but promoting consistency and predictability. Third, the decision brings closer alignment with global practice, particularly under the 1958 New York Convention, and should reduce potential conflicts with foreign courts asked to recognise or enforce awards connected with Indonesia.

In this new landscape, businesses entering into cross-border contracts should revisit their existing arbitration clauses and ensure that the chosen seat of arbitration genuinely reflects their enforcement objectives. The Constitutional Court’s ruling is expected to reduce satellite litigation over the classification of awards and, at the same time, reinforces the strategic importance of choosing a foreign arbitral seat where cross-border enforcement is anticipated.

BANI’s new rules: modernising Indonesia’s arbitral toolbox

The Indonesian National Arbitration Board (Badan Arbitrase Nasional Indonesia or BANI) has long been the country’s most prominent arbitration institution. For years, however, its procedural framework lagged behind that of regional peers such as the Singapore and Hong Kong International Arbitration Centres (SIAC and HKIAC) and the International Chamber of Commerce (ICC). Users frequently criticised BANI for its limited procedural tools and uneven efficiency, and many cross-border contracts quietly shifted towards offshore institutions. In April 2025, BANI responded with a new set of arbitration rules that seek to close this gap and reposition Indonesia in the regional arbitration market.

At the heart of the reforms are three innovations that fundamentally change how complex commercial disputes can be managed in Indonesia:

• Emergency arbitration. Parties may now seek urgent interim relief before a tribunal is fully constituted, with strict timelines for appointing an emergency arbitrator and issuing a decision. This brings BANI into line with leading arbitral centres and offers a practical tool where immediate protection of assets or evidence is critical.
• Multiparty and multicontract arbitration. The rules expressly accommodate consolidated proceedings involving multiple contracts or parties. Given that Indonesian infrastructure, energy and financing projects are typically structured through webs of interrelated agreements, this mechanism reduces the risk of parallel proceedings and inconsistent awards.
• Mandatory Indonesian co-counsel. Any party represented by foreign counsel must now also appoint Indonesian co-counsel, regardless of the governing law of the contract. The aim is to embed local expertise into proceedings and to bolster the perceived legitimacy and enforceability of awards before Indonesian courts.

For multinational companies and investors, these changes present a mix of opportunities and challenges:

• Emergency arbitration enhances the ability to protect rights and assets in fast-moving disputes.
• Consolidation rules promise lower overall costs and greater procedural efficiency in multi-party projects.
• The co-counsel requirement adds a layer of compliance cost, but it also gives parties access to local insight that can be decisive at the enforcement and annulment stages.

The sector-specific implications are particularly noteworthy:

• Infrastructure and construction. Contractors, subcontractors and financiers commonly find themselves embroiled in related disputes arising from the same project. Multiparty arbitration under the new rules will help avoid contradictory results across those disputes.
• Financial services. Banks and investors may rely on emergency arbitrators to secure interim measures over collateral, especially where delay could render a final award meaningless.
• Energy and resources. Joint ventures and production-sharing contracts often involve overlapping parties and obligations. Consolidation can simplify the resolution of multi-layered disputes and provide a single, coherent forum for allocating responsibility.

That said, the success of these reforms will depend on how they operate in practice. Emergency arbitration will only be as effective as the judicial co-operation that backs it up. Courts will increasingly be asked to recognise and support emergency measures — such as freezing orders or orders to preserve evidence — and the speed and consistency of their responses will shape users’ confidence.

Similarly, the consolidation provisions have far-reaching consequences in public–private partnership structures, where disputes may span concession agreements, financing documents and construction subcontracts. The ability to bring these into a single arbitration can save substantial time and cost, but it also increases procedural complexity and raises the stakes of each case. In this environment, early contract mapping and the use of consistent dispute-resolution clauses across related contracts become critical risk-management tools.

Overall, the new BANI rules mark a decisive step toward making Indonesia a more credible and competitive arbitration hub. They signal a willingness to align with international best practices while tailoring the framework to Indonesia’s legal and commercial realities. For businesses and counsel, the message is clear: BANI is modernising, but successful use of the institution will require careful planning, swift action in emergencies and close coordination with Indonesian co-counsel from the outset of any significant dispute.