Breach of Contracts: What Can You Do?

In theory, the Indonesian Civil Code dictates that contracts must be performed in good faith (article 1338), and in the case of breach of contract (wanprestasi), the wronged parties can bring the dispute to court and demands enforcement, termination with the compensation for loss and interest owed.

However, in practice, contracts are notoriously difficult to enforce here in Indonesia and a breach of a contractual obligation does not immediately classified as a breach. As a result, parties often resort to alternative dispute resolution (secara kekeluargaan) or settlement outside of the court to avoid expensive and long litigation process.

This article explains what steps you have to make a successful breach of contract claim and the remedies you can receive.

Making the Claim

1. Send a Summon (Somasi)

Failure to perform a contractual obligation does not immediately constitute as a legal breach and the non-breaching party is obliged to serve the breaching party with a summon (surat somasi) on the possibility of legal default. A party cannot bring a legal dispute to court without first giving a sufficient notice or warning to the wrongful party in a written form. This written notice however, does not need to be in authentic deed (bentuk otentik) as defined in Article 1868 where a document is in a legal format or drawn up before a public officials such as notary. The breaching party has a minimum of 1 warning and up to 3 warnings before the other party can bring the matter to court.

2. Gather Evidences and Fact

Revisit your contractual documents and make sure the alleged breach fits the terms that are incorporated within your original contracts. Collect any evidences you have to prove the breach such as signatures, bank receipts, written communication (email, text message, etc) to give to court during trial.

3. Determine the Type of Breach

Beware of the type of breach. In Indonesia, legal offenses are regulated under criminal or civil law (hukum pidana dan perdata). Criminal law offenses will be dealt by the police instead of court and you must file a police report to start a legal action. Meanwhile, civil law offenses are settled in court and you must submit dossier on the case to court in order to trigger the litigation. Depending on the severity of the case and your legal knowledge, Indonesian courts generally allow plaintiffs to represent themselves in civil law disputes.

4. Consult a Trusted Legal Aid

Hiring a competent and trusted lawyer is a key in winning any cases. Make sure that your lawyer is registered under the Indonesian Advocate Association (Perhimpunan Advokat Indonesia).

Remedies

1. Termination by Legal Default

According to Article 1243, if a contract stipulates a deadline for performance, failure to perform an obligation within that deadline will be considered as a legal default. This breach will give rise to a right for the wronged party to terminate the contract without a court order.

2. Seeking Enforcement

It is the up to the Court to decide whether a breach has occurred or not and whether the contract can be terminated. This rule applies even if a contract contains a termination clause (Article 1266). However, lawyers in Indonesia tend to include a clause to waive the operation of article 1266 to allow one-sided termination by the non-breaching party.

3. Termination with Compensation

Pursuant to Article 1267, in the event of a breach, the wronged party can seek enforcement of the contract or terminate the contract and demand compensation for the loss incurred or collect the interests owed.

4. Alternative Dispute Resolution

Given the difficulty in enforcing contracts in Indonesia, parties tend to avoid litigating matters to the court and settle their disputes via arbitration or settlement. This method often involves negotiation that leads to revision of the original contracts to ensure future performance remains reasonable and possible.

Salam,

Phoebe

Sources:

1. Tim Lindsey and Simon Butt, Indonesian Law (Oxford Scholarship Online, 2018).

2. Kitab Undang-Undang Hukum Perdata [Indonesian Civil Code].

3. Boris Tampubolon SH, https://konsultanhukum.web.id/akibat-hukum-bila-seseorang-ingkar-janji-atau-wanprestasi/

4. Hukum Online, https://www.hukumonline.com/klinik/detail/ulasan/cl483/somasi/