On a recently long debated decisions, the District Court of West
Jakarta and the High Court of Jakarta judges ruled that Indonesian
law governed loan agreement between a foreign company (Nine AM
Ltd., lender) and an Indonesian company (PT Bangun Karya Pratama
Lestari (BKPL), borrower) was void, as the contract was written in
English language without the corresponding Indonesian language. The
lender, who found the decisions were made against its favor, later
appealed to the Supreme Court of the Republic of Indonesia against
the High Court decision.
It was later published at the Supreme Court's official website that on 31 August 2015, the Supreme Court has ruled in cassation level that the lender's appeal is dismissed.
The legal consideration and complete dicta of the Supreme Court's decision has not been publicly available at the Supreme Court's official website yet at the time this article is written. The published wording of the decision at the Supreme Court's website ("Dismissed") suggested that the Supreme Court upheld the High Court's decision (and the District Court's decision), which essentially granted the borrower's claim that loan agreement was void, as it was not executed in Indonesian language, and therefore, in violation of Law No. 24 of 2009 on Flag, Language, Symbol of State and National Anthem (Law 24/2009).
Article 31 of Law 24/2009 reads:
"(1) Indonesian Language shall be used in a memorandum of understanding or an agreement (including agreements in international public law) which involve a state institution, a government institution, a private Indonesian entity or an Indonesian citizen.
(2) If a memorandum of understanding or an agreement involves foreign parties, it should also be drafted in the national language of the foreign parties and/or English."
SUPREME COURT DECISION
A Supreme Court decision on cassation level is final and binding. As other civil law countries, Indonesia does not adopt stare decisis/case law system, that judges may have different view in examining other similar cases. In practice, however, court decisions (particularly Supreme Court decisions) may have persuasive effect to Indonesian court judges in examining similar cases, and is commonly referred to by one who seeks to the court to achieve similar outcome.
The recent Supreme Court decision may have left some vagueness
under Article 31 of Law 24/2009 unanswered, such as whether or not
non-compliance to the provision shall bring the contract void ab
initio, or in case of contract prepared in more than one languages,
which versions of contract language that would prevail in case of
differences of interpretation between versions. Nevertheless, it
becomes more apparent that there is greater risk after the Supreme
Court decision, for Indonesian law governed contract involving
Indonesian party (ies) which was not written in Indonesian language
to be contested and challenged before the court. It remains to be
seen, if the Supreme Court decision discusses the extended
application of the mandatory use of Indonesian language, to
contract between foreign party and Indonesian party governed by
As practical approach going forward and precautionary measures, it is suggested that agreement entered into between foreign party and Indonesian party which is governed by Indonesian law to be prepared in two languages, Indonesian language and foreign language required by foreign party. Ideally, the contract in both language versions should be signed at the same time. However, as in some cases it is difficult to prepare contract in both language versions in time for the signing, the parties could assess the possibility to first sign the agreement in foreign language, with provision that the parties should prepare and sign the contract in Indonesian language in certain period of time. For pre-existing contract which was entered into without Indonesian language version, it is recommended for the contracting parties to re-evaluate the risks on case by case basis to prepare the Indonesian version of contract to ensure compliance
The author would like to acknowledge the contribution of Yasser Mandela in preparing this news.
Originally published on 2015-12-23
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