15 April, 2016
For several years, Indonesian law (Article 31, Law Number 24 of 2009) has required that memoranda of understanding ("MOU"), contracts or agreements with any Indonesian entity or person shall be in Bahasa Indonesia, i.e. the Indonesian language ("Bahasa").
Any MOU, contract or agreement involving foreign parties may also be written in the national language of the foreign party and/or in English and it is common to see contracts with Indonesian entities, written in both English and Bahasa. In the event of any conflict the Bahasa shall prevail. The key point is that under Indonesian law, when entering into a contract with an Indonesian entity or person, there must be a Bahasa version.
The particular provision which introduces the requirement that all contracts be written in Bahasa is Article 31 paragraph (1) of Law Number 24 of 2009 on the Flag, Languages, and The State Symbol as well as The National Anthem (“Law No. 24/2009”). Article 31 paragraph (1) of Law 24/2009 provides:
“The Indonesian Language shall be used on memoranda of understanding or agreements that involve state institutions, agencies of the government of the Republic of Indonesia, Indonesian private institutions or individuals of Indonesian nationals.”
The term “shall be” makes the requirement obligatory.
Law 24/2009 does not expressly set out the consequences if it is not complied with. However, Articles 1335 and 1337 of ICC (objective condition of a valid agreement) make clear that agreements which violate Indonesian law shall not be enforceable and so any agreement, contract or MOU which violates Law 24/2009 should not be enforceable under Indonesian law.
This obviously has potentially very serious consequences for foreign entities who have entered into contracts with Indonesian entities and which are not also written in Bahasa.
The recent decision of the Supreme Court in the case of PT Bangun Karya Pratama Lestari v Nine AM Ltd[1] , highlights the potential risk faced by parties who have contracts with Indonesian entities, which are not also written in Bahasa.
In 2013, the District Court of West Jakarta ruled that a loan agreement between an Indonesian limited liability corporation (PT) and a Texas-based lender was void on the grounds of illegal cause. The court held that the loan agreement was drafted in the English language only and as there was no Bahasa version of the contract, it violated Article 31 of Law 24/2009. As a consequence, the agreement was declared null and void, and was to be treated as if it had never existed. The Court ordered the parties to reinstate each other to the same position they would have been in had the agreement not been entered into.
Although the West Jakarta District Court's[2] reasoning in that decision is open to criticism, it was recently affirmed by both the Jakarta High Court[3] and the Supreme Court[4].
It should be remembered that Indonesia is a civil law jurisdiction and the courts are not bound by previous case law. So whilst these judgments will be used as a source of reference and may influence judges who have to decide similar cases, it is also entirely possible that another District Court may come to an entirely different decision when faced with the same facts.
However, on the back of the Supreme Courts' decision, it is strongly recommended that parties contracting with Indonesian entities ensure that a Bahasa version of the contract is available at the time of signing. As mentioned above it is common for contracts to be written with the English text on one side of the page and the Bahasa translation on the other. Failure to provide a Bahasa version of a contract may afford the Indonesian entity the opportunity to resile from the contract and/or result in that contract being declared null and void by an Indonesian court.
This Bahasa language requirement will no doubt cause concern amongst the shipping industry. Charter parties and contracts of carriage which are evidenced by bills of lading, for example, are usually agreed on an industry standard printed form such as an NYPE form or a CONGENBILL. In our experience, standard form charter parties and bills of lading are very rarely, if ever, translated into Bahasa.
The vast majority of contracts for the international carriage of goods between foreign and Indonesian entities will not be subject to Indonesian law and jurisdiction, in which case the provisions of Law 24/2009 will not apply. However, the provisions of Law 24/2009 cannot be ignored if contracting with an Indonesian counterparty. If a dispute were to arise under such a contract and it were to be arbitrated, for example in London and subject to English Law, it may be necessary in due course to enforce that award in Indonesia against the Indonesian entity. The provisions of Law 24/2009 would be a relevant issue at the enforcement stage.
We would also recommend that ship owners who know that cargo is destined for Indonesian ports are mindful of the Bahasa language requirement. We recommend that ship owners check that their bills of lading include a binding law and arbitration clause. In a situation, for example, where a non-Indonesian ship owner was obliged to defend a claim which was brought in the Indonesian Courts, and if the bill of lading was silent on law and jurisdiction, then we would expect the Indonesian Courts to accept jurisdiction and to apply Indonesian law. In such a scenario it would then be open to either party to argue that the untranslated bill of lading contract should be rendered void for breach of Law 24/2009. The contract would remain valid until declared void by the Court, but if the Court declared the contract to be void, the Court could order the parties to be restored to their pre-contractual positions. However, the Indonesian receiver may, in theory, still have a claim under the Indonesian version of tort ("unlawful act") but the ship owner/carrier would not be able to rely on any of the defences contained in the Clause Paramount.
Out of caution, we would also recommend that if the Master believes that it is necessary to clause a bill of lading for cargo which is destined for discharge in Indonesia with protective wording, (e.g. the condition of the cargo on loading) that the wording is written in English and Bahasa if possible. By so doing the ship owner may increase the prospect of being able successfully to rely on the protective wording before an Indonesian Court, but also the Court has a very wide margin of discretion as to how to interpret the law. The Court could find that a contract which is only partially translated would also fall foul of Law 24/2009.
It is also necessary to bear in mind the transferable nature of bills of lading. It is entirely possible for a "TO ORDER" bill of lading, which initially has no Indonesian involvement when issued, to be endorsed to an Indonesian entity. A carrier under a bill of lading could therefore end up in a contractual relationship with an Indonesian consignee and whilst it would be relatively unusual for the carrier to have a claim against the consignee, it could happen if, for example, the consignee refused to take delivery of the cargo.
In summary, we recommend that for all contracts of carriage for goods destined for discharge in Indonesia that carriers check that they have a valid law and jurisdiction clause. It is strongly recommended that when entering into a contract which is subject to Indonesian law or which involves an Indonesian entity that the contract incorporates a Bahasa translation of the terms. Failure to do so may allow the Indonesian counterparty the opportunity to resile from the contract and it will afford a potential defence to any enforcement proceedings brought against them in the Indonesian courts.
[1] Judgment No. 451/Pdt.G/2012/PN.Jkt.Bar dated 20 June 2013 juncto Judgment No. 48/Pdt/2014/PT.DKI dated 7 May 2014 juncto Judgment No. 601 K/Pdt/2015 dated 31 August 2015
[2] Judgment No. 451/Pdt.G/2012/PN.Jkt.Bar dated 20 June 2013
[3] Judgment No. 48/Pdt/2014/PT.DKI dated 7 May 2014
[4] Judgment No. 601 K/Pdt/2015 dated 31 August 2015
For further information, please contact:
Chris Metcalf, Partner, Clyde & Co
chris.metcalf@clydeco.com
