Mind your language: Using the wrong language invalidates Indonesian contract

An Indonesian Supreme Court judgment invalidated a commercial contract written in English as a violation of Indonesia’s language law, No 24 of 2009. 

21 January 2016

The Indonesian Supreme Court has ruled in PT Bangun Karya Pratama Lestari v Nine AM Ltd (‘BKPL’ and ‘Nine AM’) that a loan agreement between an Indonesian mining company and an American lender was void as it was written in English with no Indonesian language counterpart. This was held to violate Indonesian Law No 24 of 2009.  

The law in question established Bahasa Indonesia as the official language of Indonesia. This law appears to apply to contracts with governmental organisations, requiring them to be written in Bahasa Indonesian in addition to any other language that the parties choose to use (Article 31).  The problem for Nine AM in their case was that, through a quirk in the legislative process, Article 31 was extended by lawmakers to cover contracts with private enterprises.

The impact of this language law on private contracts has been previously downplayed, with a generous reading of the clause suggesting that the law was intended to cover only contracts between private enterprises and governmental bodies. Consequently, major contracts have been entered into with only an English translation, even where the contact was solely between Indonesian corporate enterprises. However, those who have been more cautious regarding the language law and who have insisted on a translation of any Indonesian contract have had their scepticism justified after the above ruling which declared the contract null and void because there was no Indonesian translation.

The contract between BKPL and Nine AM was governed by Indonesian law and was subject to Indonesian jurisdiction. It is an open question whether a similar result would pertain for contracts subject to other laws or jurisdictions. Nevertheless, it seems likely that, regardless of jurisdiction, failure by the parties to execute an Indonesian-language counterpart may provide grounds for nullification.

It is therefore important to ensure in any contract with an Indonesian party that an accurate translation of the contract is prepared and agreed. This will most likely be an expensive exercise as it will involve professional translators, and it would be prudent to have the translation reviewed by an Indonesian lawyer. It is nevertheless always worth remembering that the consequences of nullification of a contract may be far more extensive.

Where a translation of a contract is prepared, it is also important to note that the parties should specify which version of the document will control in the event of any conflict between the two versions of the agreement – although it seems likely in view of this judgment that an Indonesian judge may consider that the Indonesian version of the document will control.

Ultimately, there is always the possibility of quirks like this existing in individual jurisdictions and advice should always be obtained from your legal advisor and any local lawyers to ensure that you are not caught out when drafting your contract.