On 29 December 2023, the Supreme Court issued Circular Letter No. 3 of 2023 setting out the Supreme Court judges' opinions on certain matters/legal issues formulated during the 2023 Plenary Meeting of the Supreme Court Judges in each chamber. One of the opinions formulated by the Supreme Court judges that sit in civil matter chambers is about the statutory obligation to use Indonesian language in contracts involving Indonesian parties. The opinion resolved:
"[The fact that] Indonesian private institutions and/or individuals enter into a contract with foreign parties in foreign language without it being accompanied by its Indonesian translation cannot serve as grounds to cancel the contract, except where it can be substantiated that the non-existence of an Indonesian translation was due to a party acting in bad faith."
Under Article 31 of Law No. 24 of 2009 on National Flag, Language, Emblem and Anthem ("Language Law"), there is a statutory obligation to use Indonesian language in contracts involving an Indonesian party:
- Indonesian language must be used in memoranda of understanding or agreements involving a state entity, the entity of the government of the Republic of Indonesia, an Indonesian private entity or an Indonesian individual.
- Memoranda of understanding or agreements referred to in paragraph (1) that involve a foreign party may also be written in the national language of the foreign party or in the English language."
The Supreme Court's opinion comes at a time when there is an increasing number of court claims seeking to cancel contracts based on Article 31 of the Language Law solely due to the absence of an Indonesian version of the underlying contract. While the Language Law is silent on the legal implications of violating Article 31 of the Language Law, courts in several cases made their own interpretation of the legal implications. The decisions in those cases have not been consistent. Some courts took the view that the contract should be cancelled and that it ceased being valid from the time it became effective, meaning the parties do not have to perform the obligations already agreed upon, on the sole grounds that there was no Indonesian language of the contract. Other decisions took opposing views.
The Supreme Court judges at civil chambers resolved that a contract between an Indonesian private entity or individual and a foreign party should not be cancelled by the courts on the grounds of absence of an Indonesian language version, as long as the absence of the contract in Indonesian language is not caused by a party acting in bad faith. It may be a breath of fresh air in that it may bring more consistency in how the courts approach the issue. The Supreme Court does not set out legal principles for determining in what circumstances parties should be deemed to have acted in bad faith. So judges will have to analyze on a case-by-case basis the parties' duties of good faith in terms of complying with the Language Law, and whether there was a breach of those duties by a party.
It is interesting to note that the Supreme Court opinion implies that the existence of an Indonesian translation of a contract should satisfy the language requirement. However, a conservative view of the provisions of the Language Law and its implementing regulation (President Regulation No. 63 of 2019) would suggest the opposite. The Supreme Court also made it clear that the opinion only applies to contracts with foreign parties entered into by Indonesian private entities and individuals. It does not expand the opinion to include contracts between an Indonesian state entity or an entity of the government of the Republic of Indonesia and foreign parties, as well as contracts between Indonesian entities.
The Supreme Court's opinions in Circular Letter No. 3 of 2023 constitute authoritative judiciary views. The Circular Letter is addressed to the chairperson of all courts at appeal and first instance levels under the Supreme Court's hierarchy with an instruction to judges to apply the opinions when deciding on similar cases/legal issues. Without undermining the independence of the courts, the Supreme Court opinion on the contract language requirement should have a persuasive effect on lower court judges and should be consistently applied when cases are escalated to the Supreme Court for examination at the cassation level. We should note that the opinion represents the Supreme Court judges' current position. The Supreme Court does sometimes supplement or revisit opinions in past circular letters for certain reasons.
* * * * *
© 2024 HHP Law Firm. All rights reserved. HHP Law Firm is a member firm of Baker & McKenzie International. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
