The following is not legal advice but rather educational content. Non-reliance should be assumed.
Non-Disclosure Agreement
For In-Housel Counsel: Clauses Watch List
Article 1320 of the Indonesian Civil Code (“Kitab Undang-Undang Hukum Perdata” or “KUHPer”) stands as a fundamental provision governing the formation of valid contracts in Indonesia.
Contract review and negotiation is a day-to-day activity of in-house counsel (and legal practitioners). The main goal of contract review and negotiation is not only to close the deal or formalise business relationship, but also to avoid future risks e.g., misinterpretation of the parties’ intention.
In short, making sure the contract is valid under Article 1320 of Indonesian Civil Law is not enough.
A non-disclosure agreement (“NDA”) is one of the regular contracts reviewed by in-house counsel as NDA is commonly serving the role as the first document being signed by the parties before discussing the potential deal any further.
It is not uncommon for NDA to be the object of a dispute between the parties – in our experience, in most cases, unclear drafting which (unintentionally) allows various interpretations is the breeding ground for disagreements and disputes.
We set out below a watch list of clauses that should be considered by in-house counsel when reviewing and negotiating NDA. As a refresher, at the end of the article, we provide a high-level overview of Article 1320 and the challenges in practice.
1. Definition of confidential information
Ensure the definition of confidential information is precise and comprehensive, covering all types of data the disclosing party intends to protect, including trade secrets, rights attached to the information disclosed, business plans, and proprietary technologies.
2. Clear scope of confidentiality obligation
Clarify the scope of the confidentiality obligation to include not only keeping the information but also to include prohibition to reverse engineer the information and/or reproduce for commercial purposes or otherwise.
It is also key to clarify the extent of safe-keeping obligation, for example, impose the requirement of destroying the information when the NDA is deemed terminated.
3. Applicability of the confidentiality obligation
In global business, it is important for the obligation to keep the confidentiality obligation to apply not only to the recipient of the confidential information, but also the affiliates, advisors, or related party(ies) of the recipient.
Without clear drafting of the applicability of the confidentiality obligation, it could be challenging for the parties to enforce the NDA provisions in the future.
For completeness, it would be pivotal to clearly define “affiliates” or “related parties” or any other relevant term.
4. Exclusions from confidentiality
Pay attention to any exclusions, such as information already in the public domain or independently developed by the recipient without breaching the NDA.
These exclusions must be narrowly defined to avoid loopholes.
5. Term
Review the duration of the confidentiality obligations. While the agreement itself may have a fixed term, confidentiality obligations often extend beyond its termination and this should be clarified within the drafting.
As a rule of thumb, no party should be subjected to perpetual obligation (e.g., confidentiality obligation) or agreement as this would expose such party to potential risks of breach.
6. No transfer and no disruption to the intellectual property rights of the confidential information
It is common for confidential information to have intellectual property rights attached to it – hence it is key to spell out the restrictions of challenging the intellectual property rights of the confidential information.
Any sharing of confidential information should not imply transfer of the ownership of the information or the intellectual property rights attached to it. This should be clearly stated in the NDA to avoid any misunderstanding between the parties.
7. Warranty of no reliance
As the common purpose of NDA is to further discuss a potential commercial deal, it is very important for the NDA to limit any liability that might arise from any commercial decisions made in reliance on the confidential information disclosed between the discloser and the recipient.
High-level overview of Article 1320 of Indonesian Civil Law
Article 1320 prescribes four essential conditions for a contract to be valid:
- Consensus (Kesepakatan) The first requirement mandates mutual consent between the contracting parties. Consent must be free from coercion, fraud, or mistake (“dwaling”), as stipulated under Article 1321. Any taint to the purity of consent could render a contract voidable or even void.
- Capacity to Contract (Kecakapan untuk Berbuat) Parties must possess the legal capacity to enter into binding agreements. Under Indonesian law, capacity is often tied to age (e.g., adulthood at 18 years) and mental competence. Corporate entities must also act through duly authorized representatives, emphasizing the importance of power of attorney (“surat kuasa”) and corporate resolutions.
- A Specific Object (Suatu Hal Tertentu) The agreement must pertain to a specific and determinable object. This ensures the subject matter of the contract is clearly identified, whether it involves goods, services, or other obligations.
- A Lawful Cause (Suatu Sebab yang Halal) The contract’s purpose must not contravene public order, morality, or statutory provisions. Contracts involving prohibited activities, such as usury or illegal trade, are deemed null and void.
Challenges in Practice
Despite its clarity, Article 1320 can present challenges in practice. The subjective nature of “consent” and “lawful cause” often leads to judicial interpretation. Courts frequently scrutinize whether parties truly reached a meeting of the minds or whether external factors, such as coercion or misrepresentation, tainted the agreement. Legal practitioners must be meticulous in documenting negotiations and ensuring transparency in contractual terms to withstand potential disputes.
The dynamic nature of business practices also tests the limits of “lawful cause.” Innovations in technology, cross-border transactions, and regulatory changes may inadvertently lead to contracts that are later deemed unlawful. For instance, agreements involving emerging industries, such as fintech or blockchain, often require careful vetting against applicable laws to avoid future invalidation.
Moreover, the principle of “good faith” (itikad baik) increasingly influences judicial interpretations. Courts may evaluate the behavior of parties throughout the contractual process, adding another layer of complexity to compliance and enforceability.
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Read an article about Local Contents Threshold on Goods in Indonesia – https://murzallawfirm.com/local-contents-threshold-on-goods-a-refresher-of-the-local-contents-requirements-in-indonesia/
