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Indonesia’s Language Law (Law No. 24 of 2009) took effect on 9th July 2009. It regulates the practices and procedures for using the Indonesian flag, emblems, national anthem and language.
In 2013, the West Jakarta District Court issued a groundbreaking decision concerning the use of the Indonesian language in commercial agreements made with an Indonesian party. That decision captured the attention of the business community, in particular to the provision in the Language Law concerning the use of Indonesian language in commercial agreements (i.e., Article 31(1) of the Language Law).
Article 31(1) stipulates that the “Indonesian language must be used in a memoranda of understanding or agreement involving state institutions, government agencies of the Republic of Indonesia, Indonesia’s private institutions or individual Indonesian citizens.”
By virtue of Article 31(2) of the Language Law, in addition to the use of the Indonesian language, parties to a commercial agreement may also execute the agreement in English or the national language of the non-Indonesian party. Below are court decisions that have addressed provisions under the Language Law and have commercial implications for business players in Indonesia.
The West Jakarta District Court, in its Decision No. 451/Pdt.G/2012/PN.Jkt.Bar (“Court Decision No. 451 of 2012”) dated 20th June 2013, declared a commercial agreement between an Indonesian legal entity and a foreign legal entity as null and void on the grounds that the agreement was not written in the Indonesian language. This was the first time an Indonesian court annulled an agreement for not being in compliance with provisions under the Language Law.
The key matter in Court Decision No. 451 of 2012 was the legality of a loan agreement made by PT Bangun Karya Prima Lestari (“BKPL”), an Indonesian legal entity, and Nine AM Ltd., a limited partnership corporation established and subject to the laws of the U.S. state of Texas. The loan agreement was concluded in April 2010, with the entire agreement written in English, notwithstanding that it was governed by Indonesian law. BKPL, as the plaintiff, asked the West Jakarta District Court to annul the loan agreement and its derivative agreement and reinstate the condition of both parties prior to the conclusion of the loan agreement. BKPL argued that the loan agreement violated Article 31(1) of the Language Law, which requires the use of the Indonesian language for an agreement if one of the parties is an Indonesian legal entity or national. This violation of the Language Law, BKPL argued, resulted in the non-fulfillment of one of the requirements for the legality of an agreement under the Indonesian Commercial Code (i.e., non-fulfillment of “legal cause” or “lawful purpose”).
The West Jakarta District Court agreed with the arguments brought by the plaintiff, declared the loan agreement null and void and that, as such, the condition of both parties before the conclusion of the loan agreement should be reinstated. In page 61 of the decision, the West Jakarta District Court stated:
“Considering that Law No. 24 of 2009 explicitly obligates the use of the Indonesian Language in a Memorandum of Understanding or Agreement involving the state, a Government Institution of the Republic of Indonesia, an Indonesian Private Entity or an Indonesian citizen and the binding force of the Law is the date of the promulgation, in this case since July 9, 2009, and accordingly any Memorandum of Understanding or Agreement involving the state, a Government Institution of the Republic of Indonesia, an Indonesian Private Entity or an Indonesian citizen executed after July 9, 2009, without using the Indonesian Language is in contrary to the Law, in this Case Law No. 24 of 2009 … .
“Considering, whereas the signed Loan Agreement between the Plaintiff and the Defendant on April 23, 2010 … that is after the promulgation of Law No. 24 of 2009, therefore if this Agreement/Loan Agreement is not made in the Indonesian Language then it is in violation of the Law in this case Law No. 24 of 2009 as such it constitutes a prohibited agreement because it is made with the prohibited cause (Vide Article 1335 jo. Article 1337 of the Indonesian Civil Code); accordingly it does not fulfill one of the Essences of the requirements for the legality of an agreement under Article 1320 of the Indonesian Civil Code, and therefore this Agreement/Loan Agreement dated April 23, 2010 signed by the Plaintiff and the Defendant is null and void.”
The interesting points of this decision are: (i) the West Jakarta District Court not only upheld the non-existence of the Indonesian language in the loan agreement as a violation of the Language Law, but took it to the next level of assessing the loan agreement’s legality under the Indonesian Civil Code to render a decision in declaring the loan agreement as null and void; and (ii) the court disregarded the clarification made by the Minister of Law and Human Rights (“MOLHR”) concerning the implications and implementation of the Language Law because the minister’s letter is not included in the order of laws and regulations. MOLHR expressly clarified that the use of English in an agreement does not violate the formal requirements set forth by the Language Law until a Presidential Regulation, as mandated by the Language Law, is promulgated. The court expressly stated that the MOLHR’s letter does not override the word “must” in Article 31(1) of the Language Law.
The defendant in Court Decision No. 451 of 2012, Nine AM Ltd., filed an appeal to the High Court of Jakarta, which affirmed the decision of the West Jakarta District Court. In Decision No. 48/PDT/2014/PT.DKI dated 12th February 2014, the High Court of Jakarta found that the legal consideration of the West Jakarta District Court was correct. Consequently, the agreement between Nine AM Ltd. and BKPL was affirmed as in violation of the Language Law for not being in the Indonesian language, thus failing to fulfill the requirements for the legality of an agreement under the Indonesian Commercial Code.
On page 4 of its decision, the High Court of Jakarta stated:
“(T)he Panel of Judges in the Appeal is of the opinion that the legal consideration of the Panel of Judges in the First Level in the a quo case is appropriate and correct and it is not in violation of law, thus the Panel of Judges in the Appeal agrees and takes that as its own consideration in deciding this case and becomes the integral part of the agreement.”
By this virtue, the High Court of Jakarta upheld the decision to declare the loan agreement null and void as a legal consequence of failing to comply with the requirements for the legality of an agreement (i.e., prohibited due to the violation of Article 31(1) of the Language Law). The losing party in this decision (Nine Am Ltd.) may endeavor to appeal this decision to the Supreme Court of Indonesia. Under Indonesian law, a court’s decision is not enforceable until a final and conclusive decision in the appeal is issued (in this case, a Supreme Court decision).
Praya District Court of Central Lombok, West Nusa Tenggara, issued a decision related to a similar subject matter two years before the West Jakarta District Court issued Decision No. 451 of 2012. In this case, the Plaintiff and Defendant, both foreign nationals, entered into an agreement in 2010 to purchase land in Central Lombok that was claimed by the Defendant to be owned by a legal entity in which the Defendant served as a director. The agreement was written only in English.
One of the arguments submitted by the Plaintiff was that the agreement violated Article 31(1) of the Language Law because it was not written in the Indonesian language. The Defendant argued that Article 31(1) of the Language Law was not applicable in this case because both parties to the agreement were not Indonesian nationals or Indonesian legal entities. The court declined to rule the agreement null and void for failing to use the Indonesian language. However, in its decision the court did not mention Article 31(1) of the Language Law, instead citing an agreement by the parties to use English in the agreement. The court stated that the request for nullification of the agreement was exaggerated because the parties had agreed to use only English in the agreement.
There have been other court decisions in which the parties to the case referred to a particular provision under the Language Law, but such provision was not a central issue and was thus left unassessed by the court. One example is Supreme Court Decision No. 477 K/Pdt.Sus/2012 concerning a trademark dispute. In this case, the Plaintiff invoked Article 36 paragraph 3 of the Language Law, which imposes an obligation to use the Indonesian language for a trademark owned by an Indonesian citizen or legal entity. However, the court did not assess this issue because the central issue in this case was a trademark violation under Law No. 15 of 2001 regarding Trademarks, and the Plaintiff only cited the Language Law article as an additional reason why the Defendant should not be allowed to use an English word (in this case, the plaintiff’s trademark) as its trademark.
Another example is Supreme Court Decision No. 254 K/Pdt.Sus-PHI/2013 regarding a dispute over a fixed-term employment contract. The Plaintiff drew the court’s attention to Article 31(1) of the Language Law, which obligates the use of the Indonesian language in a contract with an Indonesian party. It is to be noted that there exists a specific rule governing the obligation to use the Indonesian language in a fixed-term employment contract under Law No. 13 of 2003 regarding Manpower. In this case, the issue of language in the fixed-term employment contract was not addressed at all by the court.
Although Indonesia does not recognize the principle of stare decisis, which is to say Indonesian courts are not bound by previous court decisions, and jurisprudence is not included in Indonesian order of laws and regulations, the court decisions pertaining to the Language Law have already influenced the recent practices of the business community in executing agreements with Indonesian parties. It is expected that if the losing party in High Court of Jakarta Decision No. 48/PDT/2014/PT.DKI pursues the case to the Indonesian Supreme Court, the Supreme Court Decision in this matter will be carefully scrutinized by the business community once it is issued.
SSEK - 24th February 2015
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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