Settlement Agreements in Commercial Disputes during Court Proceedings in Indonesia

Settlement Agreements in Commercial Disputes during Court Proceedings in Indonesia

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Legal disputes cost companies billions of dollars every year. In addition to court fees and the costs of legal representation, the two biggest cost contributors are the disruption the dispute causes within your company and the (legal) uncertainty arising from the dispute. Therefore, reaching an amicable settlement is often the best way to deal with the dispute.

In spite of the negative side of disputes, you should not make the mistake of settling any dispute you are in. This holds especially true when you are a foreign investor to Indonesia and haven’t been established here for a long time. Although a settlement offers certain advantages, it is highly recommended that you discuss with a lawyer on the chances of success before agreeing to very unfavorable terms.

In this blog post, we shed light on settlement agreements in commercial disputes pending before Indonesian courts and how and under what circumstances your organization can benefit from the existing settlement framework in Indonesia.

Court proceedings are disruptive, create uncertainty and cost a lot of money

Court proceedings are never easy and Indonesia is not different: litigation is a complex and challenging process. First, commercial disputes before Indonesian Courts usually take a lot of time. At the court of first instance level, the proceedings will often take half a year, consisting of up to five months [1] of “proper” litigation and a mediation phase that has to be passed by the disputing parties at the beginning of the proceedings for up to 30 (thirty) days. [2]

The first instance is seldom the last instance because the losing party will often appeal. The two additional levels High Court and Supreme Court often add two years or more to the duration of the dispute before there is a final and binding judgement. In the case of extra-ordinary legal recourse, this period is even longer.

Facilitation of settlements in pending court proceedings in Indonesia

Thus, when faced with 30 months or more of disruption in your company, legal uncertainty and a lot of costs, some parties decide to settle their dispute while the proceedings are still pending at court. Although any settlement typically requires a compromise, this is often the “win-win solution” disputants seek. Indonesia therefore facilitates the settlement of disputes during pending proceedings:

At the outset of court proceedings in Indonesia, there is a mandatory mediation phase. The judge or panel of judges to decide over the dispute has an obligation to endeavor to accommodate positions of the disputing parties so that they reach an ammicable settlement. It is thus not possible to skip this phase. [3]

A settlement is further possible at any time of the pending proceedings following an unsuccessful mediation phase, be it during the proceedings at the court of first, second or third instance. [4] Some judges often realize in the middle of a dispute that the parties are not far from another and actively encourage a settlement – even if the mediation phase has long passed. Sometimes, this is the missing piece which finally leads to a settlement.

A settlement agreement during pending court proceedings should be made in writing and has to state the details of each party’s rights and obligations. In principle, there is no requirement on the content as the parties are free to agree to settle their dispute in any way they want. However, any settlement agreement must be made without containing any provision which: [5]

(i) is contrary to law, public order or decency;

(ii) infringes upon any third party’s rights; or

(iii) cannot be implemented.

Once a written settlement agreement is in place, the parties may request the panel of judges to issue a deed of settlement agreement (Acta van Dading). [6] In principle, the power of Acta Van Dading is with the same as that of a final and binding judgement by a court. This has two highly relevant consequences in practice, legal force and enforceability:

First, all parties are bound, without any appeal being possible. [7] The Supreme Court made it clear that the Acta Van Dading may only be cancelled if the content of the settlement agreement contradicts the law. [8]

Second, since the Acta Van Dading is treated equally to a final and binding judgement by a court, it may also be enforced immediately. This gives all parties the “safety net” that if one day in the future, one of the parties fails to honor its obligations as set forth in such settlement agreement, the other side may request the authorized district court for a court order to enforce the settlement agreement. This avoids having to start court proceedings over again – as would be the case in a “regular” settlement agreement, which is only a contract.

Settlement before the dispute is pending in court

Before a party starts the litigation proceedings before the courts, needless to say, settlement is also possible at all times. However, any such agreement is but a “regular” settlement agreement and there is no guarantee that the parties will adhere to the terms of the settlement agreement. Not fulfilling the terms of the settlement agreement would then only be a breach of contract. This leads to the impractical situation that there is a need to litigate an issue which had earlier been settled.

Therefore, after the parties have agreed and set forth their rights and obligations in a written settlement agreement, they may submit their settlement agreement to the court. The court will then proceed as if it were a settlement reached during pending court proceedings and issue an Acta van Dading. [9] The effects are the same as for an Acta van Dading made during pending court proceedings. This avoids the uncertainty of settlement trap.

Do not settle your dispute without receiving legal advice

Given the disadvantages of litigation mentioned above, reaching an amicable settlement is often seen as an easy and quick alternative. While a settlement certainly means that the dispute is settled, it is hardly possible without any compromise. A claim for ten billion Rupiah may thus easily decrease to only five billion or less, depending on the negotiation power of the disputants.

Furthermore, companies which enter into settlement agreements every time they are involved in a dispute may easily gain the reputation in their industry of being “pushovers”. This is certainly something your company should avoid, even more so when you are a foreign investor and haven’t been established in Indonesia for a long time. It is therefore necessary to carefully consider whether a settlement truly is the best option and, above all, at what costs.

Schinder Law Firm has extensive experience in advising both foreign and local companies, as well as individuals in settlement negotiations. Numerous of our clients have reached very favorable settlement agreements based on our advice. Should you need any legal assistance in your case, please do not hesitate to contact us at info@schinderlawfirm.com.



[1] Circular Letter of Supreme Court Number 2 year 2014.

[2] Article 3 (1), (6) Supreme Court Regulation Number 1 year 2016.

[3] ibid.

[4] Article 33 - 34 Supreme Court Regulation Number 1 year 2016.

[5] Article 27 (2) Supreme Court Regulation Number 1 year 2016.

[6] Supreme Court Regulation Number 1 year 2016.

[7] Article 130 (2) and (3) Het Herziene Indonesisch Reglement.

[8] Indonesian Supreme Court Jurisprudence No. 454 K/Pdt/1991

[9] Article 36 Supreme Court Regulation 1 year 2016




Settlement Agreements in Commercial Disputes during Court Proceedings in Indonesia