The Validity of Terms and Conditions (T&C) Under the Prohibition of Standard Clauses

In large-scale business, efficiency is key. For companies serving thousands or even millions of customers or users every day, it is simply not feasible to draft and negotiate an agreement with each consumer individually. To get around this, businesses draw up Terms and Conditions (T&C): a standard-form agreement whose entire content has been set unilaterally by the company. From the consumer’s point of view, however, T&C often leave them in an awkward position. Consumers face a “take it or leave it” situation. If they wish to use an app, buy a product or enjoy a particular service, they are effectively “forced” to accept every clause in the document, often simply by ticking a box marked “I Agree”. There is no room for consumers to negotiate or amend terms they consider overly burdensome.

Although consumers appear to have no bargaining power over the content of the agreement, they in fact retain one key strength: freedom of choice. If a consumer feels that a company’s T&C are too detrimental or unfair, they are fully entitled to cancel their registration or transaction and can easily switch to a competitor’s product or service. Since every business has its own policies and operating standards, T&C will naturally differ from one company to another, so consumers can look for a service whose rules they find most acceptable. This raises an important question in business law practice. Given that T&C are drawn up unilaterally by the company without the consumer’s input, how valid are they as a binding agreement? And to what extent is their content permitted by law without breaching the prohibition of standard clauses under the Consumer Protection Law?

The Status of T&C and the Requirements for a Valid Agreement

Under Indonesian civil law, Terms and Conditions are recognised as a form of agreement or contract. Even though their format is standardised and drafted unilaterally by the company, T&C are binding on both parties as if they were law (pacta sunt servanda). That binding force, however, only applies if the T&C satisfy the four requirements for a valid agreement set out in Article 1320 of the Indonesian Civil Code (KUHPerdata). Let us look at how these four requirements apply to T&C in practice, particularly in the era of digital transactions.

1. Consent (meeting of minds): In a conventional contract, consent is evidenced through negotiation and a wet-ink signature. With digital T&C, consent is formed when the consumer knowingly ticks the consent box and clicks “I Agree” in order to access the service. Under the Electronic Information and Transactions Law (UU ITE), this electronic action or trace is legally recognised as a valid form of consent.

2. Legal capacity: The law requires the party entering into an agreement to have legal capacity. As companies cannot always physically verify every user’s identity card, T&C usually address this requirement through a declaration clause, for example a statement that “by using this service, the user warrants that they are at least 18 years old or are acting under the supervision of a lawful parent/guardian”.

3. A specific subject matter: This requirement calls for clarity as to what is being agreed. In T&C, the subject matter is highly specific and easy to identify, such as the rules for using an app, the returns procedure, service fees or software licence terms.

4. A lawful cause: This requirement confirms that the content, purpose and performance of the T&C must not contravene the law, public order or morality. It is this fourth requirement that forms the most crucial boundary.

If all four requirements are met, then in principle the T&C constitute a valid agreement under civil law. Legal disputes, however, usually turn on the fourth requirement (a lawful cause). Although companies have full freedom to design the content of a contract, that freedom is not absolute. Clauses in T&C must not infringe the basic consumer rights guaranteed by law.

To What Extent Do T&C Comply with the Prohibition of Standard Clauses?

Many businesses interpret Law Number 8 of 1999 on Consumer Protection (UUPK) as prohibiting T&C. In reality, the UUPK does not prohibit companies from using standard contracts for business efficiency at all. What Article 18 of the UUPK expressly prohibits is including certain content in those T&C that may unreasonably harm consumers (exoneration clauses). For T&C to remain valid and not breach the prohibition of standard clauses, companies must pay attention to two main aspects: limits on substance and limits on form and placement.5

1. Limits on Substance

   Article 18(1) of the UUPK lists the clauses that are “forbidden” in standard agreements. T&C are considered valid and lawful as long as they do not contain the following:

   • Absolute transfer of liability: A company may not include a clause that unilaterally releases it from legal liability. Example of a breach: “The Company accepts no liability for any damage, loss or harm suffered by the consumer while using the service.” Solution: The company may set reasonable and proportionate limits on its liability, for instance capping compensation at the value of the transaction or the insured amount, unless wilful misconduct on the company’s part is proven.

   • Refusing the return of goods or money: A classic clause is the no-returns rule. Example of a breach: “Goods purchased cannot be exchanged or returned under any circumstances.” Solution: The company must allow consumers to return goods that have a manufacturing defect or do not match the order. The T&C need only set out the specific conditions and time limit for returns, for example within 7 days and accompanied by an unboxing video.

   • Being bound by unilateral changes to the rules: A company may not force consumers to accept new rules changed unilaterally without their consent. Example of a breach: “The Company reserves the right to change, add to or remove these Terms and Conditions at any time without prior notice.” Solution: The T&C should require the company to give consumers notice before any change takes effect, for example by email or an in-app pop-up, and give consumers the right to stop using the service if they do not agree with the new rules.

2. Limits on Form and Placement

   Beyond content, Article 18(2) of the UUPK also governs the visual aspect of standard clauses. T&C may not be placed where they are difficult to see, or printed in type so small that consumers cannot reasonably read them. In the digital era, this means companies must place the T&C link on an easily accessible page, use a standard font size, and give consumers enough time to read it before clicking the consent button.

What happens if a company still includes prohibited clauses in its T&C? Under Article 18(3) of the UUPK, such clauses are declared null and void by operation of law. This means the limitation-of-liability or no-returns clause is deemed never to have existed, so if a dispute arises before a court or the Consumer Dispute Settlement Agency (BPSK), the company cannot rely on that clause for protection.

Legally, Terms & Conditions drawn up unilaterally by a company are valid and binding as an agreement. Their validity rests on satisfying the four requirements in Article 1320 of the Civil Code, where consent in the digital era can be given through an electronic action such as ticking a consent box or clicking “I Agree”. As long as the consenting party has legal capacity, the service is clearly defined and its purpose is lawful, the T&C bind both parties.

Although companies are free to formulate the content of their T&C, that freedom is limited by the Consumer Protection Law (UUPK). T&C do not breach the prohibition of standard clauses as long as the company does not include clauses that transfer liability absolutely, deny consumers’ right to return goods, or impose unilateral rule changes without notice. If a company does include such prohibited clauses, they are null and void and cannot be used to protect the company in a dispute.

Illustration: Gemini AI