Jurisdiction - Indonesia
Reports and Analysis
Indonesia – High Court Affirms First Instance Court Decision That Contracts Written In English Language Are Void.

18 September, 2014

 

 

There has been continuing uncertainty and concern about the Indonesian legislative requirement that the Indonesian language be used in contracts with Indonesian parties. In the absence of anticipated implementing regulations, there are many unresolved questions about the meaning and applicability of the broadly expressed requirement.

 

In May 2014 the Jakarta High Court rejected an appeal against the 2013 ruling by the West Jakarta District Court which declared an Indonesian law governed loan agreement between an Indonesian borrower and a foreign lender to be void on the basis that the loan agreement was written in English in contravention of the requirements under Indonesia’s Law No. 24 of 2009 concerning Flag, Language and Symbol of State and National Anthem (“Law 24/2009”).

 

There was no new legal reasoning provided by the Jakarta High Court as to why the first instance judgment should be upheld. The judgment simply stated that the appeal submitted by the foreign lender (to overturn the first instance judgment) was rejected on the following grounds:

 

  • the Jakarta High Court was of the view that the first instance decision was decided correctly in compliance with prevailing laws; and
  • there were no new facts submitted by the appellant that would undermine the first instance decision.

 

One point which would be of particular interest to foreign investors in Indonesia and which the decision of the Jakarta High Court did not address was the question whether the obligation under Article 31 of Law 24/2009, which requires Indonesian language to be used in any agreement involving an Indonesian private or public entity, also applies equally to foreign law governed agreements in the same manner as Indonesian law agreements.

 

Despite comments made by the first instance judge (in the West Jakarta District Court decision) that all agreements involving an Indonesian party entered into after Law 24/2009 came into force (on 9 July 2009) which are not in Indonesian language will be deemed void, the appeal case decision was silent on this particular point. Therefore, it remains unclear whether failure to comply with the obligation under Article 31 of Law 24/2009 may result in foreign law governed agreements involving an Indonesian party to be deemed void.

 

Given that decisions of courts in the Indonesian Civil Law system do not have binding legal force, although the Jakarta High Court appeal decision does not, of itself, alter the legal position adopted by the West Jakarta District Court in respect of the application of Law 24/2009 and the risks associated with the language in which contracts involving Indonesian parties are written, this decision does serve as a reminder that the question of language in contracts with Indonesian parties remains a real consideration in practice and legal uncertainty surrounding the above issues will continue. Although this remains rare in practice so far, it is possible that other Indonesian parties could in contentious situations challenge the validity of agreements on the basis of the language in which such agreements are written and Indonesian courts may well be sympathetic.

 

We understand that the ruling made by the Jakarta High Court is currently subject to further appeal to the Indonesian Supreme Court. Thus it remains necessary (as we have explained before), in determining the choice of language to be used in agreements involving Indonesian parties, to assess the risk that may arise from this issue on a case-by-case basis, by taking into account the context of the relevant agreements, such as (among others) the governing law of the agreements, type of agreements, the identity of the Indonesian counterparty etc – please see our bulletin of 11 November 2013 for further details. In practice, since the first instance judgment that was issued in June 2013, there has been a noticeable increase in signing agreements in two languages (one being Indonesian language) and inevitably this has led to increase in the demand for good quality translation service which remains scarce. However, the exact procedures for achieving this (i.e. simultaneous signing of both versions of agreements or delayed signing of Indonesian version of agreements) still varies from case to case depending on the specific context and the parties’ risk appetite in the relevant circumstances.

 

herbert smith Freehills

 

For further information, please contact:

 

David Dawborn, Partner, Herbert Smith Freehills

david.dawborn@hbtlaw.com

 

Alastair Henderson, Partner, Herbert Smith Freehills

alastair.henderson@hsf.com

 

Tjahjadi Bunjamin, Partner, Hiswara Bunjamin & Tandjung

tjahjadi.bunjamin@hbtlaw.com

 

Cornellius Adrian Pranata, Partner, Hiswara Bunjamin & Tandjung

cornellius.adrian@hbtlaw.com

 

Chalid Louis Heyder, Partner, Hiswara Bunjamin & Tandjung

chalid.louis@hbtlaw.com

 

Nadia Harto, Hiswara Bunjamin & Tandjung

nadia.harto@hbtlaw.com

 

Iril HiswaraHiswara, Bunjamin & Tandjung

iril.hiswara@hbtlaw.com

 

Narendra AdiyasaHiswara, Bunjamin & Tandjung

narendra.adiyasa@hbtlaw.com

 

Vik TangHiswara, Bunjamin & Tandjung

vik.tang@hbtlaw.com

 

Corporate/M&A Law Firms in Indonesia

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