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At a Glance: Energy Disputes Procedure in Indonesia
Commercial/civil law – substantive
Rules and industry standards
Describe any industry-standard form contracts used in the energy sector in your jurisdiction.
Specifically for activities of procurement in upstream oil and gas activities, the Indonesian Special Task Force for Upstream Oil and Gas Business Activities published SKK Migas Work Procedure Guidelines Number: PTK-007/SKKIA0000/2023/S9 (Revision 05) on the Second Book: Guidelines for Implementing Procurement of Goods/Services (PTK 007). Another commonly used industry-standard form contract is the FIDIC Conditions of Contract for Construction.
What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?
Contractual interpretation is generally governed by Indonesian Civil Law. In principle, a contract must fulfil the following cumulative requirements:
- the parties must consent to the contract;
- the parties must have capacity to enter a contract;
- the contract must have a certain object; and
- the contract must have a lawful cause.
If a contract is subject to multi-interpretation, the rules of interpretation that apply to a contract pursuant to Indonesian Civil Law are as follows:
- the interpretation that must be chosen is the one that allows the contract to be enforceable rather than an interpretation that does not allow implementation;
- the interpretation that must be chosen is the one most compatible or in accordance with the nature of the agreement;
- the agreement must be interpreted according to what is customary in the country or place where the agreement was made;
- matters customarily agreed upon are deemed to be tacitly included in the agreement;
- the agreement made cannot be interpreted part by part, but must be interpreted as a whole; and
- an agreement must be interpreted to the detriment of the person who has asked for something to be agreed upon, and for the benefit of the person who has bound themself to it.
Describe any commonly recognised industry standards for establishing liability.
In principle, the Indonesian Civil Code adopts fault-based liability for unlawful act. An unlawful act is committed if the following conditions or elements are met:
- the act is unlawful;
- there must be an error;
- there must be harm caused; and
- there is a causal relationship between the action and the loss.
Performance mitigation
Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility recognised in your jurisdiction?
In principle, the Indonesian Civil Code recognises the concept of force majeure, and this is reflected in articles 1244 and 1245. Article 1244 provides that if there is any reason for this, the debtor is compensated for costs, damages and interests if they cannot prove that the non-performance or the late performance of such obligation, is caused by an unforeseen event, for which they are not responsible and were not acting in bad faith. In addition, article 1245 provides that the debtor need not compensate for costs, damages or interests, if an act of God or an accident prevented them from giving or performing an obligation, or if, because of these reasons, they committed a prohibited act.
Nuisance
What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?
Indonesia is silent on regulation concerning nuisance to obstruct energy development.
However, Law Number 32 of 2009 on Protection and Management of Environment (the Environmental Law) regulates that anyone who causes nuisance (vibration, noise and odour) faces a criminal penalty of a maximum of three years and a fine of a maximum of 3 billion rupiah. The penalties can be imposed if administrative sanctions have been imposed which are not complied with or the violation has been committed more than once. The claim for compensation can also be made by third parties, government, public officials, environmental organisation and/or any disadvantaged community group by filing an unlawful act lawsuits.
Liability and limitations
How may parties limit remedies by agreement?
Indonesian law does not provide any prohibition on any type of limitation of remedies. In principle, parties are generally free to enter into an agreement including limiting the type of remedies in this agreement in so far as not for an unlawful or immoral purpose. Indonesian law has yet to develop the distinction between liquidated damages and penalty clauses found in some other jurisdictions.
In addition, Indonesian Civil Law recognises the existence of subpoenas (legal notice). The parties may stipulate in the agreement that the parties can arrange to be given a subpoena or warrant first before filing a lawsuit as an obligatory step before commencement of legal proceeding.
Is strict liability applicable for damage resulting from any activities in the energy sector?
Strict liability only applies for environmental damages resulting from activities in the energy sector involving hazardous and toxic waste. Environmental Law provides that every person whose actions, business or activities use hazardous and toxic waste produces or manages hazardous and toxic waste, or who poses a serious threat to the environment is strictly responsible for the losses that occur without the need to prove any element of fault.
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