Indonesian First Instance Court rules that contracts written in English language are void

The West Jakarta District Court ruled recently that an Indonesian law governed loan agreement between an Indonesian borrower and a foreign lender was void because it was written in English rather than Bahasa Indonesia and it was, therefore, in violation of Indonesia’s Law No. 24 of 2009 concerning Flag, Language and Symbol of State and National Anthem (“Law 24/2009”).

More generally, although the facts of the case relate to an Indonesian law governed agreement, the Court made comments that all agreements involving an Indonesian private or public entity entered into after 9 July 2009 which are not in Bahasa Indonesia will similarly be in violation of Law 24/2009 and therefore void.

We have reservations on whether this judgment is properly decided as a matter of Indonesian law, and the decision may be reversed on appeal or ideally overtaken by amendments or clarifications to the law. It is important to recognise that Indonesia has a civil law system which does not follow a system of binding case law precedent and so a court in any case is free to interpret and apply the law as the judge decides without being bound by decisions in earlier cases. A first instance decision of a District Court judge should be seen in this context. The decision is under appeal and therefore does not have final legal force. However, the case is important as it may indicate how the Indonesian judiciary reacts to this important issue and therefore, in our view, increases the risk associated with the language in which contracts with Indonesian parties are written. We do expect an increase in cases that rely on this argument to challenge obligations under English language contracts involving Indonesian parties, and we expect also the uncertainties around this issue will persist until the result of the appeal to the highest courts in relation to this decision is issued or further regulatory clarifications to the law are issued. In the mean time, we set out in the recommendation section our views on practical steps to take to mitigate this risk. Read full briefing here.

If you wish to discuss further, please contact any of the members of our team listed on page 5 of the full briefing. 

Note: Views expressed on Indonesian law in this e-bulletin are provided by Indonesian advokats at Hiswara Bunjamin & Tandjung