INDONESIAN LANGUAGE CONTRACT OBLIGATION UNDER LANGUAGE LAW

Overview of the Language Law

Law No. 24 of 2009 on National Flag, Language, Coat of Arms and Anthem (commonly referred to as the “Language Law”), was initially introduced on 30 September 2019. Subsequently, in 2010, the Indonesian government issued an implementing regulation, Presidential Regulation No. 16 of 2010, which has now been revoked by PR 63/2019.

PR 63/2019 provides the answer to the most problematic interpretation of provisions in the Language Law in respect of the choice of language in cross-border transactions between Indonesian and foreign parties.

PR 63/2009 now formally affirms the common market approach that has been adopted by most practitioners, as it is now clearly specified that contracting parties are free to choose the prevailing language should differences or inconsistencies be found between the Indonesian language version and the foreign language version.  It means that the foreign language version can be determined as the prevailing version.[1]

Contract Requirements under Language Law Enactment

Previously, issuance of the Language Law generated controversies and debates, particularly as to the requirement introduced by the Law for use of Indonesian language in a contract involving an Indonesian party, as well the requirement where there is non-Indonesian party to draft the contract in the national language of the foreign party or English.[2]

Lack of explanation of those requirements raised further questions, including about the prevailing language, timing, effective date, and, most importantly, the validity of the contract in the event of any non-compliance with those requirements. The common market practice that has been generally adopted by practitioners is to execute the contract in both English and Bahasa Indonesia, and to carve out a prevailing language clause to minimize any potential dispute between the parties in the future.

Domestic Court Decisions Following the Enactment of the Language Law

The issue escalated in 2013 when the Indonesian District Court of West Jakarta ruled[3] that a loan agreement between an Indonesian entity and a foreign lender was void on the grounds of illegal cause. The District Court held that the loan agreement was drafted in the English language only and, as there was no Indonesian language version of the contract, it violated the Language Law. Consequently, the agreement was declared null and void (i.e. was to be treated as if it had never existed). The District Court ordered the parties to put each other in the same position they would have been had the agreement not been entered into. The decision of District Court was affirmed by both the Jakarta High Court[4] and the Supreme Court.[5]

It should be noted that Indonesia “has ’ civil law system, and the courts are not legally bound by previous case law. Whilst these judgments will be used as a source of reference and may influence judges who later have to decide similar cases, it is also possible that another District Court may hold an entirely different decision when faced with the same facts.

Interestingly, PR 63/2019 also stipulates that the native language of the foreign party shall be used as an equivalent or translation of the Indonesian language version, which has led to other debates between certain practitioners on the timing of the execution.

PR 63/2019 and the Language Law are both silent in respect of any sanction for failure to comply with the Indonesian language requirement. However, the series of controversial judicial decisions mentioned above have made it clear that the Indonesian courts can be unpredictable.

Implications for Practice Following Domestic Court Rulings

Therefore, where an Indonesian party is involved, it is strongly recommended that either an Indonesian language version or a bilingual version of the contract be made and executed simultaneously, regardless of what the governing law or the choice of law provisions may be in the contract. Failure to do so may run the risk of the contract being declared null and void.

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[1] Article 26 (4) of PR 63/2019 states that “in the case of different interpretations between a foreign language version and a Bahasa Indonesia version of an agreement, the prevailing language may be agreed in the agreement.”

[2] Article 31 (1) and (2) of the Language Act - “The Indonesia language must be used in a memorandum of understanding or agreement to which one of the parties is a Republic of Indonesia state institution or government agency, an Indonesian private entity or an Indonesian citizen.”[2] and further requires “a memorandum of understanding or agreement, as referred above, which involves a foreign party to also be written in the national language of the foreign party or in English.”

[3] Judgment of the West Jakarta District Court No. 451/Pdt.G/2012/PN.Jkt.Bar dated 20 June 2013.

[4] Judgment of the Jakarta High Court No. No. 48/PDT/2014/PT.DKI, dated 7 May 2014.

[5] Judgment of the Supreme Court No. No. 1572 K/Pdt/2015, dated 23 October 2015.

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The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.