On 31st August 2015, the Indonesian Supreme Court released a decision that a contract not drafted in the Indonesian language is null and void. Although this decision was issued two years ago, the issues remain relevant for those entering into contracts such as LNG Terminals’ Conditions of Use, charterparties or contracts of carriage with Indonesian entities.
According to the UK P&I Club, for a while, Indonesia has required that memoranda of understanding, contracts or agreements which involve Indonesian government institutions, Indonesian private entities or Indonesian citizens to be in Bahasa Indonesia, i.e. the Indonesian language. Article 31 (2) of Law 24/2009 allows execution of an agreement in more than one language. While this law aims to regulate the use of Bahasa, it practically means that any contract with any governing law, as long as it involves an Indonesian party, must be drafted in Bahasa, in addition to the foreign language.
On 28 December 2009, the Minister of Law and Human Rights issued a Clarification to Law Firms, where the Minister opined that Article 31(1) of Law 24/2009 did not apply to private commercial agreements and that these could continue to be drafted in English in accordance with parties’ intentions.
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Despite the Clarification to Law Firms issued by the Minister, in June 2013, the West Jakarta District Court held a loan agreement between an Indonesian borrower and a foreign lender unenforceable for failure to comply with the Language Law. The loan agreement was drafted in English only.
The Court determined that Article 31 of Law 24/2009 required every contract involving an Indonesian party, whether public or private, to be in Bahasa. As there was not a Bahasa translation, the loan agreement violated Article 31 of Law 24/2009, which caused the contract to have an illicit cause.
Law 24/2009 does not expressly describes the consequences if it is not complied with, however the Court concluded that the loan agreement was null and void. It also ordered the parties to be reinstated to the same position they would have been in had the agreement not been entered into.
The UK P&I Club mentioned:
It seems likely that, as long as an Indonesian is party to the contract, regardless of jurisdiction, failure by the parties to execute a Bahasa version may provide grounds for nullification.
The Club also advised operators to prepare bilingual versions of all commercial contracts involving an Indonesian party, no matter the governing law. operators should also have legal advice on whether it is necessary to have documents translated into Bahasa.
If operators have already entered into contracts with Indonesian entities without a Bahasa translation, they would consider executing Bahasa translations of such contracts.
Operators with cargo destined for Indonesian ports, have a binding law and arbitration clause in their bills of lading. Moreover, if the Master believes that it is necessary to clause the bills of lading in relation to, for example, the condition of the cargo upon loading, UK Club recommends that the clause or remarks are written in English and Bahasa.
