According to the Indonesia Investment Coordinating Board (BKPM)’s report of the country’s investment realization in Q1 2019, foreign direct investment increased relative to the same time period in 2018 — in part, driven by the increase in the number of foreign owned companies in Indonesia, the country saw a rise in the number of transactions and agreements entered. For many of these multinational companies, English is the preferred language of business, used in formal agreements and documentation.
In Indonesia, Law No. 24 of 2009, concerning Flag, Language, State Emblem, and National Anthem (“Law No. 24/2009”), stipulates that the Indonesian language must be used as a memorandum of understanding or as an agreement entered with an Indonesian party. 1 This provision is intended to protect Indonesian parties entering an agreement to ensure all terms and conditions are understood in the country’s official language. Law No. 24/2009 tries to accommodate for the commercial reality of international business operations, inevitably involving foreign parties, by allowing all agreements to be written with both the Indonesian language and the relevant foreign language.2
These language requirements have created controversy related to the validity of contracts exclusively written in a foreign language. In some cases, contradicting interpretations have led to different judicial decisions and legal consequences. In BKPL v Nine AM, the West Jakarta District Court declared that any agreement made without an Indonesian language version shall be voided by law.3 However, the Supreme Court Decision in BKPL v Sumatra Partners LLC4 and BANI Award in Truba Jaya Engineering v Adhi Karya ruled otherwise: that agreements made and entered in foreign language are valid regardless of the Indonesian language component. The inconsistency often causes confusion on whether it is safe to enter into an agreement without an Indonesian translation.
Translating each legal document into Indonesian is highly impractical for most foreign businesses – from a financial and time perspective, there are clear costs associated with the administrative, legal, and language support necessary to conduct the translations or draft new contracts. Moreover, certain industries, such as construction or energy, often have contracts with transnational law elements and international best practices containing universally accepted terms which are difficult to translate into Indonesian. Despite this, to mitigate the legal risks around language, most foreign owned companies with draft contracts containing two languages, including Indonesian.
To avoid further misinterpretation of terms and conditions, many agreements also provide that still the English language should be the prevailing language of agreement.
However, to this date, there is no regulation that explicitly allows for a single language – Indonesian or English – to hold superior legal standing. The freedom of contract principle give the parties the flexibility to agree on any clause as long as it is not against the law. Yet, as of the date of this article is published, there is no Indonesian courts precedent yet that support this interpretation
As a full service boutique law firm, Schinder, can advise you on how to best draft your business contracts to comply with the laws as well as represent you in contractual disputes, including when the issues revolve around the Indonesian language requirement.
1 Article 31 paragraph (1) of the Law No. 24/2009
2 Article 31 paragraph (2) of the Law No. 24/2009
3 West Jakarta District Court Judgment No. 451/Pdt.G/2012/PN.JKT.BRT
4 Supreme Court Judgment No. 807 K/Pdt/2016 in conjunction with West Jakarta District Court Judgment No. 515/Pdt.G/2012/PN.Jkt.Brt
5 BANI Award No. 548/XII/ARB-BANI/2013
About the author:
Marsha graduated with cum laude predicate from Universitas Tarumanagara 2018 majoring in business law. During her study, she joined various committee, seminars, and workshops. She was the participant of Student Exchange Program at Malaya University.
Prior to joining Schinder Law Firm, Marsha worked at another prominent law firms in Jakarta, which emphasis in foreign direct investment, energy, financial technology, e-commerce, and various general corporate matters ranging from general to complex. In addition, she has been involved in a complex merger and acquisitions transactions.