Supreme Court decision on Language Law: the Indonesian language is ‘a must’ in commercial agreements

Client Update - Appeal Court Decision on Language Law

Overview

Recently, the Jakarta High Court affirmed a decision of the West Jakarta District Court on the interpretation of Indonesia’s Language Law,[1] which governs agreements with Indonesian parties.

The High Court upheld the District Court’s decision without offering any further reasoning.  Accordingly, it does not provide any new guidance on the proper interpretation of the Language Law.  The High Court decision may be appealed to the Supreme Court.

In the meantime, those entering into agreements with Indonesian parties should carefully consider the implications of the Language Law.

We recommend such agreements:

• are drafted in bilingual versions (both a Bahasa Indonesia version, as well as an English or relevant foreign language version); and
• state which bilingual version prevails in the event of any inconsistency.

Background

Article 31 of the Language Law provides that all agreements and memoranda of understanding involving state agencies or Indonesian government institutions, private entities or citizens must be in Bahasa Indonesia and, if involving a foreign party, may also be made in the language of the relevant foreign party and/or English.

The Language Law contemplated implementing regulations and further provisions under a Presidential Decree.  To date no such regulations or decree have been issued.

In practice:

•  many agreements are negotiated and drafted in English, as bilingual versions entail additional cost and delay;
• such agreements often insert a general clause which requires the parties to translate the agreement into Bahasa Indonesia if the law requires them to do so (Translation Clause); and
• agreements usually provide that in the event of any inconsistency between any bilingual versions, the English version will prevail (Inconsistency Clause).

In the absence of implementing regulations, it has been unclear whether such practices are valid and effective.  Similarly, the consequences of any breach of the Language Law have been unclear.

Decisions

On 20 June 2013, the West Jakarta District Court declared an agreement between an Indonesian company and a foreign company which had only been executed in English to be null and void for the main reason that this breached the Language Law.[2]  The decision was appealed.

On 7 May 2014, the Jakarta High Court affirmed the District Court decision.[1]  The High Court determined the District Court’s decision was legally sound and no new facts had been submitted, hence the decision was upheld.

Either party may appeal the High Court decision to the Supreme Court within 14 days of being formally notified of the decision.  We understand such notification is still in progress.

Generally, the District Court and High Court decision will be stayed until a finding and binding decision has been delivered by the Supreme Court.  If no appeal is lodged, the High Court decision will automatically become final and binding.

Implications

Both the District Court and High Court decisions suggest that an agreement involving an Indonesian party executed only in English (or another foreign language) can be challenged to render it unenforceable.

The decisions do not resolve the uncertainty as to whether an agreement executed only in English (or another foreign language) might still be valid and enforceable with a Translation Clause.  Similarly, the decisions do not determine whether an Inconsistency Clause is valid.

Recommendations

In the context of the decisions, to maximize the likelihood that an agreement with Indonesian parties will comply with the Language Law (and to avoid the risk of relying upon a Translation Clause), we recommend all such agreements are drafted in bilingual versions (both a Bahasa Indonesia version, as well as an English or relevant foreign language version).

On the basis that neither the Language Law nor the decisions expressly address, let alone prohibit, an Inconsistency Clause, we recommend that it is prudent that all such agreements also state which bilingual version prevails in the event of any inconsistency.

Conclusion

We are monitoring the progress of this case and whether it might be appealed to the Supreme Court.  We will issue further updates on this topic as more information becomes available.

Footnotes
[1] Law No.24 of 2009 on the National Flag, Language, State Symbols and Anthem.

[2] Case No.451/Pdt.G/2012/PN.Jkt.Bar.

[3] Case No.48/Pdt/2014/PT.DKI.

Reference: http://www.soemath.com/advocates/public/en/article/read/259/Client.Update...Appeal.Court.Decision.on.Language.Law