Commercial contracts with an Indonesian party must be drafted in Bahasa Indonesia if they are to be upheld in the Indonesian Courts. The extensive Bahasa Indonesia language requirements have recently been considered and strengthened in the case of PT Bangun Karya Pratama Lestari v Nine AM Ltd (Decision No. 451/Pdt.G/2012/PN.Jkt.Bar.), a decision of the West Jakarta District Court (the Court). The decision illustrates the wide application of Article 31 of Law 24/2009 (Article 31), in that an agreement was judicially annulled for the first time for contravening Article 31.

The Court’s Decision

The relevant loan agreement was entered into between a foreign lender, Nine AM Ltd, and an Indonesian borrower, PT Bangun Karya Pratama Lestari (BKPL). It was expressly provided to be governed by Indonesian law. The loan agreement was drafted only in English, while the deed of fiduciary security was written in Bahasa Indonesia. When BKPL challenged the validity of the loan agreement, the Court found that it was in breach of Article 31, which reads as follows:

Article 31

(1) All memoranda of understanding and/or agreements that involve state organs, government institutions of the Republic of Indonesia, private Indonesian institutions or individuals who are citizens of the Republic of Indonesia, must be written in the Indonesian language.

(2) Memoranda of understanding and/or agreements as specified in paragraph (1) that involve foreign parties shall also be written in the national language of the foreign parties and/or English.”

The Court construed Article 31 as requiring every contract involving an Indonesian party, whether public or private, to be made in Bahasa Indonesia. The Court found that as the loan agreement was in breach of Article 31, the agreement also contravened Article 1320 of the Indonesian Civil Code, which provides that a valid agreement must have a lawful cause. As such, the Court held the loan agreement to be void for failing to satisfy the requirements of a lawful contract under the Indonesian  Civil  Code.  The  Court  went  so  far  as  to  rule  that  any agreement entered into pursuant to a document held void for contravention of Article 31 is also void, irrespective of that agreement being made in Bahasa Indonesia. Thus, the deed of security was also held to be void. Although the facts in this case relate to an Indonesian law agreement, the judge made broad, albeit obiter, comments that Article 31 applies to all contracts with Indonesian parties.

Points to Note

In light of the Court ruling, anyone entering into an agreement involving a Indonesian party must bear in mind the following points:

  1. If the contract is to be governed by Indonesian law, it must be drafted in Bahasa Indonesia. This equally applies to standard agreements generally drafted in the English language, for example, banking documents, which should be translated to Bahasa Indonesia. Since the Indonesian Courts will make preliminary (or maybe even conclusive) judgments on the Indonesian version, accurate translation is crucial to ensure that the Indonesian version reflects what has been agreed.
  2. In the aftermath of this judgment, there is a greater likelihood that an agreement involving an Indonesian party expressed to be governed by a foreign law will also be subject to this stringent Bahasa Indonesia requirement. While the Indonesian District Court did not specifically address the issue of contracts governed by foreign law, in light of the court’s broad reading of Article 31, Indonesian parties may be encouraged to bring up such an argument in a dispute.

This decision is presently on appeal to the Jakarta High Court. Pending the outcome of the appeal, and in any event, when the enforceability of a commercial contract is at stake, it is advisable that parties take a conservative approach. This is especially so since specific Indonesian legislation and regulations expressly require particular contracts to be written in Bahasa Indonesia.

Accordingly, to prevent the risk of contravening Article 31, it is advisable that commercial parties err on the side of caution and spend more on front-end costs in executing bilingual contracts, rather than run the risk of uncertain and costly litigation.