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Supreme Court Clarifies the Necessity of Bahasa Indonesia Version in an Agreement

NO&T Asia Legal Review

*Please note that this newsletter is for informational purposes only and does not constitute legal advice. In addition, it is based on information as of its date of publication and does not reflect information after such date. In particular, please also note that preliminary reports in this newsletter may differ from current interpretations and practice depending on the nature of the report.

Introduction

On 29 December 2023, the Supreme Court issued the Supreme Court Circular Letter No. 3 of 2023 on Implementation of 2023 Supreme Court Plenary Meeting Conclusion on Implementing Guidelines for Courts (“Circular Letter 3/2023”). The Circular Letter 3/2023 offers insight on the validity and consequences of agreements in foreign language not translated to Bahasa Indonesia.

Position of Circular Letter under Indonesian Regulations

Before delving into the substance of the Circular Letter 3/2023, please note that under Indonesia’s hierarchy of laws as stipulated in Article 7 of Law No. 12 of 2011 as amended by Law No. 13 of 2022 on the Formation of Laws and Regulations (“Law 12/2011”), the hierarchy of laws is as follows:

  • -  Constitution of 1945;
  • -  Decision of People’s Consultative Assembly;
  • -  Law and/or Government Regulation in lieu of Law;
  • -  Government Regulation;
  • -  Presidential Regulation;
  • -  Local Regulation in Provincial Level; and
  • -  Local Regulation in City / Regency Level.

Furthermore, Article 8 of Law 12/2011 stipulates that regulations other than those mentioned in Article 7, such as: Minister Regulation, Supreme Court Regulation, Bank Indonesia Regulation, are also legally enforced to the extent that the formation of such regulations are allowed under the higher regulations (i.e. regulations stated in Article 7) or they are formed based on the authority of the relevant issuer.

The issuance of circular letter of Supreme Court itself is based on the Law No. 14 of 1985 on the Supreme Court, pursuant to which the Supreme Court is allowed to further regulate certain matters which are needed for the continuous implementation of judiciary if there are matters which are not sufficiently regulated in this law.

In principle, the circular letter is issued to be a guidance for courts under the supervision of the Supreme Court in case of (i) the relevant laws and regulations are not clear or easy to be misinterpreted, or (ii) filling a legal vacuum.

Substance of Circular Letter 3/2023

One of the substances of Circular Letter 3/2023 is related to the interpretation of Law No. 24 of 2009 on Flag, Language, National Emblem, and National Anthem and its implementing regulation of Presidential Regulation No. 63 of 2019 on the Use of Indonesian Language (“Language Laws”). The Circular Letter stipulates as follows:

“Indonesian private institutions and/or Indonesian individuals, who enter into an agreement with foreign party in foreign language which is not supplemented with Bahasa Indonesia translation cannot be used as the basis to annul the agreement, unless it can be proven that the absence of the Bahasa Indonesia translation is due to the bad faith of one of the parties.”

As a background, the Supreme Court had previously upheld a court decision which had held that an agreement involving an Indonesian entity is null and void if it is only executed in the English language. The general argument on this issue is because an agreement that is not translated into Bahasa Indonesia does not fulfil the requirements of validity of an agreement under Article 1320 of the Indonesian Civil Code, thus it is null and void. The requirements under Article 1320 of the Indonesian Civil Code sets out the following requirements for an agreement to be valid:

  • a. There is consent from the contracting parties;
  • b. The contracting parties are capable persons;
  • c. The existence of particular object of an agreement; and
  • d. The agreement must be lawful.

With respect to the condition (d) above, i.e. an agreement must be lawful, the Indonesian Civil Code regulates that an agreement cannot be contrary to the prevailing laws, morality, and public order. In the absence of Bahasa Indonesia version, it was interpreted that it violates the prevailing Language Laws, hence the agreement shall be null and void.

Based on the aforesaid interpretation, a contracting party can submit a claim to the court to annul the agreement. Consequently, parties have been taking a conservative approach whereby an agreement between an Indonesian entity and a foreign party which is prepared in foreign language is also accompanied with Bahasa Indonesia version, despite no explicit sanctions being stipulated under the Language Laws regarding absence of Bahasa Indonesia version.

To respond to such public interpretation, the Supreme Court through the Circular Letter 3/2023 has clarified that the absence of Bahasa Indonesia cannot by itself serve as a basis to annul an agreement, unless such absence of translation is due to bad faith from any of the parties.

Conclusion

The issuance of the Circular Letter 3/2023 provides clarity to the courts that the claim for nullification of an agreement due to the absence of Bahasa Indonesia version shall not be accepted unless such absence is due to bad faith from any of the parties.

We are of the view that the issuance of the Circular Letter 3/2023 is beneficial for both foreign and Indonesian parties to protect them in case that either of the party wishes to avoid the obligations under the agreement by seeking judicial intervention to annul the agreement due to the absence of Bahasa Indonesia version even though such agreement was fairly prepared and negotiated. Please note, however, the Circular Letter 3/2023 serves as an assertation to the implementation of Language Laws, not as an exception or waiver of it. Thus, it is still mandatory to prepare the Bahasa Indonesia version in an agreement between Indonesian and foreign party.

This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.

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