For several years, the laws in force in Indonesia have required that memoranda of understanding ("MOU") or agreements with any Indonesian entity or person shall be in Bahasa Indonesia, i.e. the Indonesian language ("Bahasa").

Any MOU or agreement involving foreign parties may also be written in the national language of the foreign party and/or English and it is common to see contracts with Indonesian entities, written in both English and Bahasa.  In the event of any conflict the Bahasa shall prevail. The key point is that under Indonesian law, when entering into a contract with an Indonesian entity or person, there must be a Bahasa version.

The particular provision which introduces the requirement that all contracts be written in Bahasa is Article 31 paragraph (1) of Law Number 24 of 2009 on the Flag, Languages, and The State Symbol as well as The National Anthem (“Law No. 24/2009”).  Article 31 paragraph (1) of Law 24/2009 provides:

“The Indonesian Language shall be used on memoranda of understanding or agreements that involve state institutions, agencies of the government of the Republic of Indonesia, Indonesian private institutions or individuals of Indonesian nationals.”

The term “shall be” makes the requirement obligatory.

Law 24/2009 does not expressly set out the consequences if it is not complied with. However, Articles 1335 and 1337 of ICC (objective condition of a valid agreement) make clear that agreements which violate Indonesian law shall not be enforceable and so any agreement or MOU which violates Law 24/2009 should not be enforceable under Indonesian law.

This obviously has potentially very serious consequences for foreign entities who have entered into contracts with Indonesian entities and which are not also written in Bahasa.

The recent decision of the Supreme Court in the case of PT Bangun Karya Pratama Lestari v Nine AM Ltd[1], highlights the potential risk faced by parties who have contracts with Indonesian entities, which are not also written in Bahasa.

In 2013, the District Court of West Jakarta ruled that a loan agreement between an Indonesian limited liability corporation (PT) and a Texas-based lender was void on the grounds of illegal cause. The court held that the loan agreement was drafted in the English language only and as there was no Bahasa version of the contract, it violated Article 31 of Law 24/2009. As a consequence, the agreement was declared null and void, and was to be treated as if it had never existed.  The Court ordered the parties to reinstate each other to the same position they would have been in had the agreement not been entered into.

Although the West Jakarta District Court's[2] reasoning in that decision is open to criticism, it was recently affirmed by both the Jakarta High Court[3] and the Supreme Court[4].

It should be remembered that Indonesia is a civil law jurisdiction and the courts are not bound by previous case law. So whilst these judgments will be used as a source of reference and may influence judges who have to decide similar cases, it is also entirely possible that another District Court may come to an entirely different decision when faced with the same facts.

However, on the back of the Supreme Courts' decision, it is strongly recommended that parties contracting with Indonesian entities ensure that a Bahasa version of the contract is available at the time of signing. As mentioned above it is common for contracts to be written with the English text on one side of the page and the Bahasa translation on the other. Failure to provide a Bahasa version of a contractmay afford the Indonesian entity the opportunity to resile from the contract and/or result in that contract being declared null and void by an Indonesian court.

This language requirement will no doubt cause concern amongst the shipping industry.  Charterparties and contracts of carriage which are evidenced by bills of lading, for example, are usually agreed on an industry standard printed form such as an NYPE form or a CONGENBILL.  In our experience, standard form charter parties and bills of lading are very rarely, if ever, translated into Bahasa.

The vast majority of contracts for the international carriage of goods between foreign and Indonesian entities will not be subject to Indonesian law and jurisdiction, in which case the provisions of Law 24/2009 will not apply.  However, the provisions of Law 24/2009 cannot be ignored if contracting with an Indonesian counterparty. If a dispute were to arise under such a contract and it were to be arbitrated, for example in London and subject to English Law, it may be necessary in due course to enforce that award in Indonesia against the Indonesian entity.  The provisions of Law 24/2009 would be a relevant issue at the enforcement stage.

The Indonesian entity would be able to challenge the award on the basis that the underlying agreement was not written in Bahasa and was therefore in violation of Indonesian law.  Faced with such a challenge it is very possible that an Indonesian Court would refuse to enforce a foreign judgment or arbitration award.

It is also necessary to bear in mind the transferable nature of bills of lading. It is entirely possible for a "TO ORDER" bill of lading, which initially has no Indonesian involvement to be endorsed to an Indonesian entity.  A carrier under a bill of lading could therefore in theory end up in a contractual relationship with an Indonesian consignee and whilst it would be relatively unusual for the Carrier to have a claim against the consignee, it could happen if, for example, the consignee refused to take delivery of the cargo.

In summary, it is strongly recommended that when entering into a contract which involves an Indonesian entity that the contract incorporates a Bahasa translation of the terms.  Failure to do so may allow the Indonesian counterparty the opportunity to resile from the contract and it will afford a potential defence to any enforcement proceedings brought against them in the Indonesian courts.