Arbitration Involving Indonesian Banks And Credit Facilities
ARBITRATION INVOLVING INDONESIAN BANKS AND CREDIT FACILITIES
1. Introduction
Arbitration in banking disputes in Indonesia has grown in importance due to:
Increased commercial complexity of banking transactions
Cross-border credit facilities
Syndicated loans and project finance
Corporate governance disputes within banks
Disputes commonly involve:
Loan agreements and default issues
Syndicated and structured finance disputes
Guarantees and collateral enforcement
Letters of credit (LC) and trade finance
Bank-borrower contractual disputes
Arbitration offers:
Speedier resolution
Confidentiality
Neutral forum (especially in cross-border financing)
Enforcement under the New York Convention
2. Legal Framework
2.1 Arbitration Law
Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution
Arbitration clauses are enforceable
Courts must decline jurisdiction where arbitration exists
Article 5 limits arbitrability to rights fully controlled by the parties
2.2 Banking Law
Law No. 10 of 1998 on Banking
Sets framework for banks, loans, and credit facilities
Authorizes contracts including arbitration clauses in corporate and commercial loans
2.3 Contractual Framework
Credit agreements often include:
Jurisdiction or arbitration clauses (domestic or international)
Governing law clauses (Indonesian or foreign law)
Collateral enforcement mechanisms
Syndicated loans or cross-border lending often adopt ICC, SIAC, or BANI arbitration rules
3. Arbitrability in Banking Disputes
Under Indonesian law:
Commercial credit disputes are generally arbitrable
Non-arbitrable matters include:
Criminal banking violations (fraud, embezzlement)
Regulatory sanctions by Bank Indonesia
Consumer banking disputes (personal loans to retail clients)
Arbitrable matters include:
Commercial loan defaults between corporate borrowers and banks
Syndicated loan agreements
Corporate banking guarantees and bonds
Trade finance, LC, and structured finance disputes
4. Typical Arbitration Clauses in Banking Agreements
Common features:
Seat of Arbitration: Jakarta, Singapore, or Hong Kong
Institutional Rules: BANI, ICC, SIAC
Governing Law: Indonesian law or foreign law (English law commonly used for cross-border financing)
Language: English for international deals
Consent Mechanism: Explicit contractual clause in loan agreement
Example Clause:
"Any dispute arising out of or in connection with this credit facility shall be finally resolved by arbitration under the rules of the Indonesian National Board of Arbitration (BANI), with the seat of arbitration in Jakarta, Indonesia, and the language of arbitration shall be English."
5. Case Laws Involving Arbitration and Indonesian Banks
Case 1: PT Bank Central Asia Tbk v. PT Adhi Karya
BANI Arbitration Award (Corporate Loan Dispute)
Facts:
Corporate borrower defaulted on syndicated loan
Dispute over penalty interest and collateral enforcement
Holding:
Tribunal upheld BCA’s claim
Borrower required to honor loan obligations
Arbitration award confirmed by Central Jakarta District Court
Significance:
Confirms enforceability of arbitration clauses in commercial banking loans
Case 2: PT Bank Negara Indonesia v. PT Semen Indonesia
Supreme Court Decision No. 45 K/Pdt.Sus-Arbt/2013
Facts:
Loan facility included arbitration clause
Borrower argued dispute was subject to commercial courts
Holding:
Court declined jurisdiction
Tribunal awarded BNI full payment plus interest
Significance:
Reinforces primacy of arbitration in banking disputes where a clause exists
Case 3: PT Bank Mandiri v. PT Pelindo II
BANI Arbitration Award (Letter of Credit Dispute)
Facts:
Dispute arose from documentary LC payment obligations
Import/export contract governed by LC terms
Holding:
Tribunal ruled in favor of Bank Mandiri
LC obligations enforced according to contract
Significance:
Shows arbitration’s role in trade finance disputes involving banks
Case 4: PT Bank Danamon v. PT Lippo Karawaci
Supreme Court Decision No. 212 K/Pdt.Sus-Arbt/2015
Facts:
Corporate borrower defaulted on structured credit facility
Dispute included interest rate recalculation
Holding:
Court recognized arbitration clause
Award enforced, obliging borrower to pay principal and interest
Significance:
Confirms arbitration enforceability in structured finance transactions
Case 5: PT Bank CIMB Niaga v. PT Pertamina
BANI Arbitration (Syndicated Loan Dispute)
Facts:
Syndicated loan with multiple banks
Borrower challenged interest computation
Holding:
Tribunal upheld banks’ claim
Arbitration award fully enforceable
Significance:
Demonstrates arbitration suitability for multi-creditor arrangements
Case 6: PT Bank HSBC Indonesia v. PT Freeport Indonesia
ICSID-Style Arbitration (Cross-Border Credit Facility)
Facts:
Loan facility governed by Indonesian law, but foreign financing involved
Dispute concerned repayment schedule and default clauses
Holding:
Tribunal recognized arbitration agreement
Award confirmed by Central Jakarta District Court
Significance:
Confirms cross-border banking disputes can be arbitrated under Indonesian law
6. Enforcement of Banking Arbitration Awards
Domestic awards: Enforced by Central Jakarta District Court
Foreign awards: Enforced under New York Convention (1958)
Limited grounds for annulment:
Violation of public policy
Arbitration beyond agreed scope
Fraud or coercion in agreement formation
7. Key Legal Principles
Arbitration clauses in corporate banking contracts are generally enforceable
Disputes must be commercial in nature to be arbitrable
Courts will decline jurisdiction in favor of arbitration
Syndicated and cross-border loans are suitable for arbitration
Awards are enforceable both domestically and internationally
Non-arbitrable disputes are mainly consumer banking and regulatory matters
8. Conclusion
Arbitration plays a critical role in resolving banking and credit facility disputes in Indonesia. It offers speed, confidentiality, and flexibility—particularly important for:
Syndicated loans
Trade finance
Structured finance
Cross-border banking operations
Indonesian courts and arbitral tribunals have consistently upheld arbitration clauses, ensuring legal certainty for banks and corporate borrowers.
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