Guidance on the Validity of Agreements Using Foreign Language Without Indonesian Translation
In December 2023, Supreme Court of the Republic of Indonesia issued its annual Circular Letter No. 3 of 2023 on Implementation of Formulation of Results of Plenary Meeting of the Supreme Court Chamber in 2023 as Guideline for the Implementation of Duties of the Courts (“Supreme Court Letter 3/2023”).
Supreme Court Letter 3/2023 provides several guidance on various matters to be adopted by the court, including the one on civil law, which outlines a guideline for the judges to settle dispute involving on the requirement on using Indonesian language in contracts involving Indonesian parties, as regulated under Law No. 24 of 2009 on Flag, Language, National Emblem, and National Anthem (“Law 24/2009”) and Presidential Regulation No. 63 of 2019 on the Use of Indonesian Language (“PR 63/2019”). The latter states as follows:
Indonesian private institutions and/or Indonesian individuals, who enter into an agreement with a foreign party in a foreign language, which is not accompanied by an Indonesian translation cannot be used as a reason to annul the agreement, unless it can be proven that the absence of an Indonesian translation is due to the bad faith of one of the parties.
Although it is not specifically mentioned in Supreme Court Letter 3/2023, we believe this guidance is issued to address the uncertainty and inconsistency in the implementation of Law 24/2009 and PR 63/2019, practically due to the precedent that judges have decided that agreements involving Indonesian parties entered into in a foreign language without the Indonesian translation can be deemed null and void.
This new guidance introduces an exception to the risk of contract nullification when such a contract is available only in Bahasa Indonesia, to the extent it can be proven that such unavailability is not due to “bad faith” of one of the parties. Supreme Court Letter 3/2023 does not provide further explanation on the scope of bad faith. Additionally, there is no other specific regulation can be referred to interpret the scope of good faith or otherwise. The term good faith can be found in Article 1338 (3) of the Indonesian Civil Code (ICC), which states that an agreement must be executed in good faith. ICC does not provide further explanation on the scope of good faith. As such, it will be interpreted based on sole judgement of the respective judge in case-per-case basis considering Supreme Court Letter 3/2023 and Article 1338 (3) ICC.
Moreover, Supreme Court Letter 3/2023 only applies to contracts between Indonesian private institutions and/or individuals, and foreign parties. It does not apply in other scenarios whereby (i) the agreements are entered between the Indonesian government and/or state-owned entities, and foreign parties; or (ii) the agreements are entered among Indonesian parties only.
Concluding Remarks
Considering the status of Supreme Court Letter 3/2023 that does not carry the same weight as a law or regulation within the Indonesian legal system, the issuance of Supreme Court Letter 3/2023 cannot be deemed superseding the requirement on the use of Bahasa Indonesia in agreements/contracts as set out in Law 24/2009 and PR 63/2019. Supreme Court Letter 3/2023 is issued only as an internal guidance for judges in judicial proceedings to decide the disputes over the mandatory use of Bahasa Indonesia by considering the good faith of the parties.
However, it remains strongly recommended to take due observance of Law 24/2009 and PR 63/2019 in usage of Bahasa Indonesia in agreements/contracts to prevent claims on the enforceability of such agreements/contracts.
The article above was prepared by Audria Putri (Senior Associate), Mia Sari (Senior Associate), and M. Irfan Yusuf (Associate).
