The Indonesian Supreme Court recently issued its formal view that addresses concerns of market pertaining to the interpretation of the statutory requirement for a Bahasa Indonesia version of any agreement made involving an Indonesian party and a foreign counterpart. The view of the Supreme Court is contained in Supreme Court Circular Letter No. 3 of 2023 on the Enforcement of 2023 Supreme Court Chamber Plenary Meeting Result Formulations as Guidelines for the Implementation of the Duties of the Court ("MA Circular No. 3") issued on 29 December 2023 to the head of all district courts and high courts in Indonesia.
Pursuant to Law No. 24 of 2009 of the Republic of Indonesia regarding Flag, Language and Symbol of State and National Anthem and its implementing regulations ("Language Law"), any agreement to which an Indonesian citizen or entity is a party must be made in Bahasa Indonesia, but the Language Law permits multi-language texts (Indonesian being one (1) of the languages) for agreements involving foreign parties. The Language Law does not provide specific penalties for non-compliance, however, an Indonesian court has previously invalidated a contract executed in a foreign language without a Bahasa Indonesia version on the basis of non-fulfillment of the principles of validity of a contract under the Indonesian Civil Code due to violation of the Language Law.
The view of the Supreme Court as contained in the MA Circular No. 3 is that the absence of a Bahasa Indonesia translation of an agreement involving a foreign party cannot be used as a basis to invalidate an agreement, unless it can be proven that the absence of the Bahasa Indonesia translation is due to bad faith of a party. As such the burden of proof lies on the claimant who will be required to prove the existence of bad faith of the relevant party. Such a progressive view taken by the Supreme Court provides more legal certainty to the market.
Based on MA Circular No. 3, the above view is to be applied as a guideline in ruling over cases in the Supreme Court, high courts and district courts. It is noteworthy that a Supreme Court circular letter (such as, MA Circular No. 3) is not included in the Indonesian regulations hierarchy under Law No. 12 of 2011 on Law Enactment ("Law No. 12") and therefore, may be considered to have no legal force against the public. That being said, a Supreme Court circular letter is still considered by Law No. 12 and Law No. 14 of 1985 on Supreme Court (as amended, "Law No. 14") to have a legal binding effect against Indonesian courts (but not against the public) and it is also a common practice for Indonesian judges to consider and observe Supreme Court circular letters in issuing verdicts in relevant cases. While Indonesian courts may face reprimands from the Supreme Court for non-compliance with a Supreme Court circular letter, Indonesian courts are highly encouraged by Law No. 14 to uphold the freedom of justice principle in its court rulings and therefore, there remains a possibility that Indonesian judges in deciding a case may take a different view from the guidance under MA Circular No. 3.
What is the practical implication of MA Circular No. 3? In light of the foregoing, Parties should still prepare the Bahasa Indonesia version of an agreement executed in foreign language between an Indonesian party and a foreign party for compliance with the Language Law (which is a defense against a 'bad faith' claim) as soon as reasonably possible. The new guidance may, however, afford the parties flexibility on timing for the preparation of the Bahasa Indonesia version such that parties will be able to better manage the transaction especially in terms of timeline and quality control of the Bahasa Indonesia version.
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