Contracting with Indonesian corporates

Consider due diligence such as background checks.  The corporate and litigation registries are rather opaque and should not be considered as the final word.  

Get personal undertaking from the individual controllers - Something to consider when signing up with an Indonesian corporation. Even if arbitration clause is applied, an overseas arbitral award will still need to "follow the money" into Indonesia to be enforced and in most cases these corporations have little or no assets and the execution process can be opaque. You may wish to consider getting indemnity agreement from the individual controllers with arbitration clause as dispute resolution. It is not uncommon for these individual controllers to park their assets overseas such as neighbouring Singapore.   An arbitration award will yield better result if enforced in Singapore against their personal assets. Also, the counter party is likely to be in stronger bargaining position in negotiation when issue arises since these individuals running the company will be affected by their personal exposure.

Licensing - Competition Law issue with grantback

A clause with the purport to assign IP over improvements back to Discloser is likely to be considered as anti-competitive in the light of:

 

Business Competition Supervisory Commission's guidelines (Regulation of Business Competition Supervisory Commission No. 2 of 2009 Concerning Guidelines for the Exemption of the Application of Law No. 5 of 2009 Concerning Prohibition of Monopolistic Practices and Unfair Business Competition against Intellectual Property Rights Related Agreements; relevant guidelines as follows: Grant back is one of provisions in a license agreement in which the licensee is required to always open and transfer information to the licensor on all improvements and developments made to the licensed product, including know-how related to the development. In analyzing if the clause concerning grant back is anti competitive nature, each party should consider such measures is preventing the licensee to advance in technology possession and contains unfair element because it legitimizes the licensor to always have the right of intellectual works which is not produced by itself. Therefore, a clause in license agreement which is containing grant back obligation, must be seen as an obvious anti-competitive clause.

Suggested alternative to grant back:

The Recipient acknowledges that any intellectual property developed as a result of the Business Collaboration shall be licensed to Discloser; and Recipient shall not disclose information relating to such intellectual property without Discloser's written consent. [Alternate -. The Recipient acknowledges that any intellectual property developed as a result of the Business Collaboration shall be jointly owned by Discloser and Recipient in equal and undivided shares; and the Recipient agrees to execute any documentation or do any act or thing reasonably necessary or desirable for the purpose of effecting the registration of such intellectual property to be protected as patent or such other form of intellectual property that Discloser designates

CheckList for contracting in Indonesia

Currency -
Bank Indonesia Regulation number 17/3/PBI/2015 concerning Mandatory Use of Rupiah in the Territory of Indonesia (BI Regulation).  Ruppiah is to be the denominated currency for transactions.  Note exception - a. certain transactions related to the state budget; 2. acceptance of grants from overseas; 3. international trading transactions: a. import goods from overseas;  b. export of goods;    c. international supply; and d. for consumption abroad


Language - to have at least an Indonesian language version


Termination - contract out of Article 1266


Dispute resolution - consider arbitration in a neutral country where there is greater transparency in the legal system

Data protection in Indonesia

The relevant laws/regulations governing data protection are:

 

a.  Law No. 11 of 2008 concerning Electronic Information and Transaction, in particular Article 26.

b.  Government Regulation No. 8 of2012 concerning Electronic System and Transaction Operation

 

It should be noted that data protection under the above instruments are in the context of regulating operation of electronic systems/transactions. (a) is an Act of Parliament while (b) is a subsidiary regulation.

 

The basic requirement is that the party collecting data needs to secure the consent of the data subject in respect of the intended use of the data.

 

The only provision on data protection in the EIT law is Article 26.

 

                Article 26 of EIT Law

(1) Unless provided otherwise by Rules, use of any information through electronic media that involves personal data of a Person must be made with the consent of the Person concerned.

(2) Any Person whose rights are infringed as intended by paragraph (1) may lodge a claim for

damages incurred under this Law.

 

Elucidation of Article 26 of EIT Law

In the utilization of Information Technology, personal data shall be a part of the privacy rights to be protected. Privacy rights shall contain the following meaning:

a. A privacy right shall be the right to enjoy personal life and be free from any disturbance.

b. A privacy right shall be the right to communicate with other Persons without surveillance.

c. A privacy right shall be the right to inspect access to information about personal life of and data on individuals.

 

The elucidation (which is considered as part of the law) clarifies the rights of the data subjects.

 

Essentially, consent of the data subject is required in respect of use of the data intended by the client.

 

Given that the party's ability to use personal data is based on consent from the data subjects, it is recommended that the the privacy policy also provide for the data subject's consent to the transfer of data.  Where the destination system is under the control of a different entity, it is unclear if the original consent can extend to the new entity.

 

In 2012, the government issued government Regulation 82 of2012 concerning Electronic Systems and Transaction Operation (GR 82/2012) purportedly to implement certain provisions of the EIT Law.

 

The relevant provisions on data protection of GR82/2012 are set out below

15. Electronic System Operator shall:

keep the confidentiality, integrity, and availability of Personal Data are managed;

ensure that the acquisition, use, and utilization of Personal Data are based on approval from the owner of Personal Data, unless otherwise provided by laws and regulations; and

ensure the use or disclosure of the data is based on approval from owner of such Personal Data, and in accordance with the purpose mentioned to the owner of Personal Data on the data acquisition.

(2) If there is a failure in the confidentiality protection of Personal Data that are managed, Electronic System Operator shall notify in writing to the owner of those Personal Data.

(3) Further provisions on the guidelines for Personal Data protection in Electronic Systems as referred to in paragraph (2) will be governed by Ministry Regulation.

 

Article 15 of GR82/2012 Regulation does not really add much to Article 26 of EIT law other than the requirement to notify the data subject in writing in the event that there is any "failure in the confidentiality protection of personal data". 

 

GR82/2012 contains rather onerous requirements such as the need for electronic system operators for public (which includes most E-commerce merchants) to be registered (Article 5), obtain "electronic systems capability certificate", registration of software used by the electronic system operator (Article 7).  To date, the Ministry of Communication and Informatics has issued regulation 36/2014 discussed above.

 

Termination

It is usual to have a clause to specifically contract out of Article 1266/1267 of the Indonesian Civil Code which states that a notice of termination to the agreement by either party is not final and binding unless there is a court order confirming this. The proposed clause would be as follows:

 

In relation to the termination of this Agreement as referred in Section __, both Parties agreed to waive Articles 1266 and 1267 of the Civil Code in relation to the termination of this Agreement, so that the termination of this Agreement can be made lawful simply by giving a written notice to the other Party without have to wait for a decision from a Court, and the terminated party hereby agrees to waive any of its rights arising from it.

 

Untuk hal pemutusan Perjanjian sebagaimana dimaksud Pasal __, kedua belah pihak sepakat untuk mengesampingkan berlakunya Pasal 1266 dan 1267 Kitab Undang-Undang Hukum Perdata terhadap segala sesuatu yang bertalian dengan pemutusan Perjanjian ini, sehingga pemutusan Perjanjian dapat dilakukan berdasarkan hukum cukup dengan memberikan pemberitahuan tertulis dari satu Pihak kepada Pihak lainnya tanpa perlu menunggu adanya keputusan Pengadilan, serta pihak yang diputuskan dengan ini menyatakan menyetujui untuk melepaskan hak-hak yang timbul dari padanya.

 

For your reference, Articles 1266 and 1267:

 

Article 1266 - The condition of the dissolution of an agreement is always deemed as implied in a mutual agreement in the event that one of the parties does not comply with his obligation. In such event, the agreement does not automatically terminate by operation of the law, but must be requested through the court. This request must be also submitted, even if the agreement contains the dissolution condition.

 

If the dissolution is not provided in the agreement, the judge is free, by considering the circumstances, at the defenders request, to allow time for the defendant to comply his obligation, which time, however, may not exceed a period of one month.".

 

Article 1267 -Party that his/her agreement was not fulfilled, can decide, to force other Parties to fulfill the agreement, if it still can be conducted, or demanded the termination of agreement, with compensation of cost, losses and interest.

 

 

General Principles -formation of valid agreement

The Article 1320 of the Indonesian Civil Code provides that an agreement is enforceable as long as it has the following elements:

 

(i) consent of the parties;

(ii) capacity to contract;

(iii) a defined object; and

(iv) a permissible cause.

 

Generally, contracts are given effect to if these four basic elements are fulfilled and the Indonesian courts seldom interfere parties in trying to give effect to the terms of the agreement subject to the discussion below.
Consent of parties usually require both party to indicate this with their signature, ideally notarized.
Common law concept of "consideration" is usually not a requirement to support an enforceable agreement.




Capacity excludes minor defined as someone under 21 years.

 

Arbitration in Indonesia

Article 11 of the Arbitration Law:

(1)      The existence of a written arbitration agreement shall eliminate the right of the parties to seek resolution of the dispute or difference of opinion contained in the agreement through the District Court.

(2)      The national courts shall refuse and not interfere in settlement of any dispute which has been determined by arbitration except in particular cases determined in this Act.

 

 

Arbitration clause - sample

 

      i.        Any claim, difference, dispute or controversy arising between the parties hereto, arising out of or in connection with this Agreement, including without limitation to,  any question regarding its execution, existence, validity, enforcement, breach, performance, interpretation, implementation, termination, expiration, or the consequences of its nullity, and any dispute relating to any obligation arising out of or in connection with it a (“Dispute“) shall be referred to and finally resolved by Indonesian Arbitration (Badan Arbitrase Nasional Indonesia/”BANI”).

     ii.        The arbitration shall be conducted in accordance with the Arbitration Rules (the “Rules“) of the BANI which Rules, as modified from time to time, are deemed to be incorporated by reference into this Agreement.

    iii.        The seat or legal place of arbitration shall be Jakarta.  The law governing the agreement to arbitrate contained in this Agreement shall be Indonesian law.

   iv.        Neither party shall be entitled to commence or maintain any action in a court of law in Indonesia or elsewhere upon any matter in dispute arising from or in relation to this Agreement except for the enforcement of an arbitral award made in accordance with this Article.

    v.        Solely for the purpose of enforcing any arbitration award, the Parties agree to choose the general, permanent and non-exclusive domicile of the Office of the Registrar of the Central Jakarta District Court (Kantor Panitera Pengadilan Negeri Jakarta Pusat) without prejudice to the Parties’ rights to enforce any arbitration award in any court having jurisdiction over the other party or its assets.

 

 

Licensing issue - corporate name

indemnity agreement is recommended to be entered into with founders/ individual controller of the Indonesian Licensee .

 

This is because the courts are still unwilling to consider use of an entity's own legally registered name as trade mark infringement.

 

As long as a name is registered with the Ministry of Law, either as a corporation or partnership, there is very little that a brand owner can do and the avenue to sue the Ministry of Law for name change has been difficult.

 

As such, it is recommended that the individuals controlling the licensee separately undertake to its name.

 

Language for conracts

Article 31 of Law No. 24 of 2009 concerning the Flag, Language, National Emblem and Anthem (“Law No. 24”) is as follows for your reference:

 

(1)  Indonesian language must be used in memorandum of understanding or agreement that involves government institution, government agency of Republic of Indonesia, Indonesian private institution or individual citizen of Indonesia.

Elucidation: “Agreement” means, including international agreement, every agreement in the field of public law that is regulated by international law, and made by government or state, international organization, or other international legal subject. International agreement shall be written in Indonesian language, language of other country, and/or English language. Specific to agreement with international organization the languages used shall be languages of international organizations.

(2)   Memorandum of understanding or agreement as mentioned on paragraph (1) that involves foreign party shall be written also in the language of such foreign party and/or in English language.

Elucidation: In bilateral agreements, agreements shall be made in Indonesian language, national language of the other country, and/or English language, and all copies are equally deemed as the original.