Feeling Disadvantaged as the Result of an Agreement, How to Cancel It?
Aside from the substance of the cancellation, the court that has the authority to examine and decide the cancellation of the agreement itself must be considered.
In several lawsuits for cancellation of agreements, there are several different reasons causing the cancellation to be desired. However, often the cancellation of an agreement is implemented pursuant to, and regulated by the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata or “KUHPerdata”). The cancellation of an agreement results in legal consequences for the parties bound in the agreement. The cancellation of the agreement can be requested by one of the parties bound in the agreement who feels aggrieved by the agreement and/or the implementation of such agreement.
The following are the legal reasons for the cancellation of the agreement:
- The Agreement Violates Subjective Conditions for the Validity of the Agreement
The subjective conditions of an Agreement is regulated in Article 1320 Paragraphs 1 and 2 of the Indonesian Civil Code, which regulates the subjective condition for the validity of the agreement: Mutual Consent (Kesepakatan Para Pihak) and Competence to Act (Kecakapan untuk Bertindak). It must be noted that the consequence for an agreement that does not fulfil the subjective conditions for its validity is “can be cancelled” (dapat dibatalkan).Therefore, if the agreement is made with a defect of will, such as oversight, coercion or fraud, it does not fulfil the mutual consent condition, and the cancellation can be filed for the agreement.
Aside from that, the cancellation can also be filed due to or because of the incompetence of the parties to the agreement. Referring to Article 330 paragraph (1) of the Indonesian Civil Code, the age limit for competence is 21 years. The age is based on all personal data documents that are legally owned by the party concerned. For the parties who are not 21 years old yet, maturity can be requested. The age for “competence to carry out legal actions” based on the Indonesian Civil Code is 21 years, while the age for “competence” based on the Law of the Notary Profession (Law No. 2 of 2014) and the Manpower Law (Law No. 13 of 2003, as amended in Law No. 11 of 2020) is 18 years.
Aside from competence in the terms of minimum age, the ability to sign agreements on behalf of an Indonesian limited liability company (perseroan terbatas or perusahaan or “PT”), must also comply with the Company Law (Law No. 40 of 2007). Also read: Error in Granting Power of Attorney to the Board of Directors).
- The Agreement Violates Objective Conditions for the Validity of the Agreement
The objective conditions of an Agreement is regulated in Article 1320 Paragraphs 3 and 4 of the Indonesian Civil Code, which regulates the objective condition for the validity of the agreement: Specific Object of Agreement (Objek Perjanjian yang Spesifik) and Legal Cause (Kausa yang Halal or Geoorloofde Oorzaak). It must be noted that the consequence for an agreement that does not fulfil the objective conditions for its validity is “null and void” (batal demi hukum).
Procedure to Apply for the Cancellation of an Agreement
The lawsuit to or the cancellation of the agreement must be carried out through the court in accordance with the provisions of Article 1266 of the Indonesian Civil Code which states the following:
“The conditions for cancellation are considered to always be included in a mutual agreement, if one of the parties does not fulfil its obligations. In such a case the agreement is not null and void, but the cancellation must be requested to the Court.”
The cancellation of the agreement before the judge is called the active way, namely directly by demanding the cancellation before the judge by means of a defence. The period of claim for cancellation of the agreement is 5 (five) years.
Settlement of disputes through the courts (litigation) adheres to procedural law which regulates the conditions that must be met so that a dispute can be fulfilled and the efforts that can be made. It can be said that dispute resolution through the courts is a dispute resolution that forces one party to resolve the dispute through court mediation.
Lawsuit (Gugatan) vs. Application (Permohonan) for Cancellation of the Agreement
There are parties who filed for cancellation of the agreement by way of an application (permohonan) to the judge. However, this is not the most correct legal action that can be taken, because the cancellation of the agreement should be executed by filing a lawsuit. This is so the court can issue a constitutive and binding decision to cancel the agreement.
So, the way to file for the cancellation of an agreement is to file a lawsuit. It is also recommended to use a legal representative before the court. It is also very important to consider where the lawsuit will be filed. The lawsuit for cancellation of the agreement must be made at the place where the agreement was made and submitted to the District Court. This is in regards to the absolute and relative authority of the courts.
Is It Possible to Cancel the Agreement through Arbitration?
In various construction, property, transportation and other commercial contracts, we often find arbitration clauses as the forum of choice for dispute resolution. The consequence of this is that if one of the parties wants to cancel the commercial contract, it cannot be filed through the district courts, but must be filed through an arbitration forum.
Referring to the provisions of Article 11 paragraph (2) of Law No. 30 tahun 1999 concerning Arbitration and Alternative Dispute Resolution (Arbitration Law), which states that the District Court (Pengadilan Negeri) is not authorised to adjudicate disputes between parties who have been bound by an arbitration agreement. So, the District Court is obliged to refuse a dispute resolution that has been determined through arbitration. This is one of the implementations of the principle of limiting court involvement.
It is important to include the arbitration clause correctly in the agreement if you want to cancel the agreement through arbitration. Good intentions cannot always be carried out if there are defects in conveying them because the law is not only a matter of material aspects but also formal aspects.
According to the Indonesian National Arbitration Board (BANI), before registering a case, the first thing to examine is whether the arbitration clause is in the business contract. That is, the presence or absence and accuracy of writing an arbitration clause, will determine whether a dispute can be resolved through an arbitration forum. In the event the arbitration clause is written wrongly or incorrectly, the parties can agree on a clause or arbitration agreement after a dispute arises, as long as it is agreed mutually by both parties (Akta van Kompromis).
The standard arbitration clause at BANI is as follows:
“All disputes arising from this agreement, will be resolved and decided by the Indonesian National Arbitration Board (BANI) according to the rules of BANI arbitration procedure, the decision of which is binding on both parties to the dispute, as a decision at the first and final level.”
In Indonesian:
“Semua sengketa yang timbul dari perjanjian ini, akan diselesaikan dan diputus oleh Badan Arbitrase Nasional Indonesia (BANI) menurut peraturan-peraturan prosedur arbitrase BANI, yang keputusannya mengikat kedua belah pihak yang bersengketa,sebagai keputusan dalam tingkat pertama dan terakhir.”
Meanwhile, the standard UNCITRAL (United Nation Commission of International Trade Law) arbitration clause is as follows:
“Any dispute, conflict or claim arising out of or in connection with this agreement, or default, termination or validity of the agreement will be resolved by arbitration in accordance with UNCITRAL rules.”
In Indonesian:
“Setiap perselisihan, konflik atau klaim yang timbul dari atau sehubungan dengan perjanjian ini, atau wanprestasi, pengakhiran atau keabsahan perjanjian akan diselesaikan melalui arbitrase sesuai dengan aturan UNCITRAL.”
Object of the Arbitration Agreement in the Trading Business Sector
The object of the arbitration agreement according to Article 5 paragraph 1 of the Arbitration Law is only a dispute in the trade sector. Activities in the trading business sector include: trading, banking, finance, investment, industry and intellectual property rights. Meanwhile, Article 5 paragraph (2) of the Arbitration Law further regulated that disputes that cannot be resolved through arbitration are disputes which according to laws and regulations cannot be reconciled as stipulated in Book III chapter eighteen Articles 1851 to 1854 of the Indonesian Civil Code.
The point is, arbitration is absolute. Therefore, cases that already have an arbitration clause cannot be submitted to a district court. However, even though the arbitration award is independent, final and binding, arbitration is a quasi-judicial institution. So the registration and execution of the arbitral decision must be carried out by the district court as the executor of judicial power.
It must be understood that every case that has been handed down an arbitral decision cannot be brought to court again. However, if there are elements as referred to in Article 70 of the Arbitration Law, then the party who feels aggrieved can apply for the annulment of the arbitration award to the district court. (Also read: Business Disputes That Can Be Resolved Through Arbitration).
We can assist you in providing the best solution according to your needs from the process of drafting an agreement to the settlement stage when a dispute arises. Contact us via ask@bplawyers.co.id or 082112341235 for any of your legal needs.
Rio Aldi/Radinka Gabriella