Freedom of contract or the freedom to make an agreement, is a fundamental principle in civil law that grants parties the right to determine the content, form, and terms of an agreement. In Indonesia, this principle is enshrined in Article 1338 of the Indonesian Civil Code, which states that any agreement made legally is binding as law for the parties who make it.
Scope of Freedom of Contract for Foreign Investors
The freedom to make agreements provides flexibility for foreign investors who wish to invest in Indonesia. They can design agreements that suit to their business needs and interests. For example, in facing difficult situations, foreign companies can enter into agreements with their employees regarding the reduction of certain rights stipulated by law.
A real example is the agreement between a company and its employees in the event of termination of employment. Legally, the company is required to provide the rights of the terminated employees, such as severance pay, service appreciation pay, and compensation for rights. However, if there is a disagreement between the company and the employees, the matter can be resolved based on the decision and agreement of both parties during the company’s operations.
Limitations of Freedom to Contract: Violating the Law is a Breach
Although there is freedom of contract, legal boundaries must still be observed. Article 1337 of the Civil Code also emphasizes that agreements must not contradict laws, public order, or morality. This means that foreign investors cannot make agreements that are contrary to the regulations in force in Indonesia.
A concrete example of a violation of these boundaries is an agreement made by a smelter with a seller of mineral products without proper permits. Regulations in Indonesia prohibit the purchase of mineral products from parties who do not have official permits. If the smelter still makes an agreement to buy these illegal mineral commodities, then the agreement is considered null and void. Moreover, the parties involved can be subject to criminal or administrative sanctions in accordance with applicable laws and regulations.
The freedom to make agreements provides broad opportunities for foreign investors to creatively draft agreements that suit their needs in Indonesia. However, this freedom is not absolute. Agreements made must still comply with applicable laws, not violate public order, and not be contrary to morality. For investors, understanding these limitations is crucial to ensure that their investments remain safe and legally compliant in Indonesia.
Should you, as a prospective client, have any further inquiries regarding the topic discussed above, Schinder Law Firm, recognized as one of the leading consulting firms in Indonesia, possesses extensive experience in handling similar matters through its team of highly skilled and professional corporate and civil lawyers. We are well-equipped to assist in ensuring that every agreement entered into is not only legally sound but also safeguards your business interests. Please feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Dewi Susanti