SWEDCHAM INDONESIA | MEMBER INSIGHT Contracting in Indonesia: Precision as Legal Risk Management

For Swedish companies operating in Indonesia, disciplined contracting is a core risk-management tool. This note highlights five contractual clauses that merit close attention, as general food for thought rather than legal advice.

The Commercial Case for Precision

In Indonesia, the contract often carries more risk-management weight than foreign executives expect. Courts and tribunals generally give primary effect to the written agreement, provided core validity requirements are met and the contract is performed in good faith.

Contractual silence is therefore commercially significant. Where the agreement is silent, default rules may apply; and those rules can be narrow, formal or outdated. Termination, force majeure, penalties and interest are common examples.

Many modern commercial risks: hardship, price adjustment, liability caps, consequential loss, indemnities, service levels, step-in rights, intellectual property and data treatment; usually need to be allocated expressly. Sector rules may define licences or approvals, but they may not decide who bears delay, disruption or regulatory-change risk.

The executive takeaway is simple: a short contract may appear efficient, but it can leave material risks unpriced. Precision is what makes commercial intent enforceable. The clauses that require that precision include:

1. Governing language: a condition of validity
Agreements involving Indonesian parties must be made in Bahasa Indonesia, although a foreign-language version may sit alongside it. The requirement cannot be waived. An English-only agreement was declared null and void in Nine AM Ltd v PT Bangun Karya Pratama Lestari, a result upheld by the Supreme Court in 2015. In the aftermath, the Supreme Court has now issued a Circular in 2023, which clarifies that an agreement between an Indonesian and a foreign party, executed without an accompanying Indonesian-language translation, should not constitute as grounds for annulment of the agreement itself, unless the absence of such translation is proven to be because of bad faith. However, it merely excuses the absence of translation and not the underlying substance of the agreement. Therefore, a bilingual instrument with a clear prevailing-language clause remains the safer structure; parties should still rely on Indonesian legal review rather than translation alone to manage this associated contractual risk.

2. Allocating liability before risk materialises
Liability should be allocated before exposure arises. The Civil Code offers limited guidance on caps, exclusions of indirect or consequential loss, and indemnities. In sectors such as maritime, energy and technology, a single incident can exceed contract value, making caps, exclusions, indemnities, entire-agreement clauses and exclusive remedies central to the bargain.

3. Termination and remedies: the court is the default gatekeeper
Article 1266 of the Civil Code makes judicial termination the default for breach of a reciprocal agreement unless expressly waived. Commercial contracts should therefore address termination mechanics, notice and cure, liquidated damages, penalties and interest in the contract itself, rather than relying on statutory defaults that may not reflect commercial economics.

4. Force majeure and regulatory change
Force majeure is not boilerplate in Indonesia. Natural events, supply-chain disruption, currency movements, price shocks and regulatory change should be addressed expressly. Articles 1244 and 1245 of the Civil Code excuse performance only in narrow circumstances, so the contract should define agreed triggers of what constitute as a force majeure event, allocate delay and resumption costs, set notice and mitigation obligations, address prolonged disruption and state whether change of law leads to force majeure, renegotiation or a fixed risk allocation.

5. Choose the forum that can deliver enforcement
Dispute resolution should be assessed by enforceability, not forum preference. Foreign court judgments are not enforced by Indonesian courts under Article 436 Rv. Where the counterparty or assets are in Indonesia, the practical options are usually Indonesian litigation or arbitration.

Litigation is public, conducted in Bahasa Indonesia and directly enforceable against Indonesian assets, but can involve appeals and long timelines. Arbitration is often used for higher-value, cross-border or technical contracts, offering confidentiality, agreed language and specialist tribunals. Foreign awards require exequatur from the Central Jakarta District Court and remain subject to public-order review.

A robust clause will identify the seat, institution, rules, language and tribunal; appear in bilingual form; align with guarantees and security documents; and include non-contractual claims, reducing the risk of forum disputes.

Compliance conditions that any local review should catch

Local review should also catch at least three of the following recurring compliance issues. Domestic payments may need to be settled in rupiah, subject to limited exceptions. Indonesian personal-data law applies to Indonesian data subjects and requires local adaptation beyond GDPR-style clauses. Foreign governing law does not override Indonesian mandatory rules on land, employment, licensing, investment, anti-corruption or corporate criminal liability.

Before you sign

Before signing, test the contract against the Indonesian regime that will interpret and enforce it. Forum, language, termination, force majeure, change of law, liability caps, exclusions and indemnities should be explicit, aligned and enforceable. Otherwise, the contract may carry risk that neither the Civil Code nor the courts will resolve predictably.

Continue the conversation

Anggraeni and Partners, a team of top-tier legal advisors attached to your ambitions. Through our world-class expertise in litigation and dispute resolution, we have evolved to become a key strategic partner to international clients in the Maritime, Energy, Environment, Technology and Commerce. We design and deliver the right legal strategies adapted to your needs, both for today and tomorrow. We welcome discussions with SwedCham members on topics of shared interest.

This publication is for general information and discussion only. It is not legal advice. Laws change and application depends on specific facts. Readers should seek qualified counsel before acting. May be shared with attribution to SwedCham Indonesia and Anggraeni and Partners.

Meet us In-Person or Send us an E-mail inquiry:

Jakarta, Indonesia:
R. Ahmad Anggi Hakim (Anggi)
Growth Manager, Anggraeni and Partners

Malmö, Sweden:
Setyawati Fitrianggraeni (Fitri), Ph.D. Candidate, FCIArb., FAIADR., CLA.
Managing Partner, Anggraeni and Partners

E-mail: connect@ap-lawsolution.net