JP/Rafaela Chandra

In less than a month before his second inauguration, President Joko “Jokowi” Widodo issued a regulation on the use of Bahasa Indonesia in an attempt to clarify provisions of the 2009 Language Law.

According to the Law, the use of Indonesian is mandatory in agreements or contracts involving Indonesian parties. If non-Indonesian parties are involved in such agreements, the agreements can “also” be written in English or in the national language of the non-Indonesian parties.

There are three points in the presidential regulation that will largely influence how business contracts (with non-Indonesian parties) are made.

First, the timing for the use or execution of Indonesian-version contracts or agreements. Second, the prevailing language in the case of inconsistencies and finally, the absence of legal consequences that should have been addressed in the regulation.

The presidential regulation confirms the logical conception in the Language Law, namely, that the foreign language version is intended as the equivalent or the translation of the Indonesian version so that parties share the same understanding.

It implies that the parties must first prepare the Indonesian version beforehand. Consequently, the parties should also execute the Indonesian version of the agreement at least at the same time as the foreign language version.

Confirmation of this conception may be a game-changer for it might transform what has been customary thus far, whereby parties execute the Indonesian version days after the execution of the English version.

If we delve into it, however, having the concurrent execution would simply be the logical consequence of the word “also” in the Language Law, and arguably the market practice seems to outweigh the law.

It might be easier said than done, especially when it comes to complex cross-border transactions in which the negotiations are conducted in English and use English language documents. Still, it is the choice the lawmakers made, which can be perceived as ironic, given the concerted campaign to attract more investment from abroad.

However, the regulation sheds some light on the issue of the prevailing language. In case of differences in interpretation between the Indonesian version and its equivalent or translation, the version that prevails is the one that is agreed upon in the agreement.

Although it is appreciated, there seems to be a deviation in this particular provision. If the foreign language version is intended to merely be the equivalent or translation of the Indonesian version, the Indonesian version should arguably be treated as the original one.

If we follow this logic, the one that prevails should be the Indonesian version instead of leaving it up to the parties in the agreement.

What is more salient to be discussed is the legal consequences of failing to execute the Indonesian version. There have been court precedents whereby an agreement is declared legally unenforceable from the outset because of the absence of an Indonesian version.

The courts have decided that an agreement involving an Indonesian party that was not executed in Indonesian did not satisfy the lawful “cause” requirement because it violates the Language Law.

There are four criteria for an agreement to be legally enforceable, namely: (i) the consent of the parties, (ii) a capacity to contract, (iii) a specific subject matter and (iv) a lawful cause. If the first and second criteria are not satisfied then the agreement is void. If the third and fourth criteria are not satisfied, then the agreement is also void from the outset.

The discussion on whether the absence of an Indonesian-language version will cause the agreement to be void should hinge on how we understand the nature of “cause” in the first place.

Until we appreciate this, the absence of an Indonesian version would likely still be the basis for the agreement to be void from the outset.

Scholars are of the view that “cause” refers to the purpose of the parties in entering into an agreement. It deals with the parties’ obligation in an agreement. For example, in an agreement to sell a car, the seller’s purpose is to get payment, while the buyer’s purpose is to get a car.

The seller’s purpose is essentially the buyer’s obligation and vice versa. In that sense, the agreement would satisfy the lawful cause given the purpose or the obligation of each party in the agreement does not violate any laws and regulations.

The “cause” would be unlawful if the parties’ obligations under the agreement are unlawful, for instance, in the case of an agreement to sell a kidney in which the seller’s obligation is to sell his or her kidney to the buyer.

A kidney is a prohibited object in an agreement, which makes the obligations arising from the agreement unlawful.

Failing to execute an Indonesian version should not fall into the unlawful cause category because the failure itself does not deal with either the parties’ purpose or obligation in the agreement.

The presidential regulation could have said that the Indonesian language requirement should be considered a formality in which its absence should not be grounds to invalidate an agreement from the outset, for the sake of clarity.

Yet given the lack of clarity in the presidential regulation, court decisions that have declared an agreement void have already caused nightmares for foreign investors.

The fact that Indonesia does not adopt binding precedents in which courts are not bound by previous decisions in similar cases is not that helpful because there is no guarantee whatsoever that a court will not render the same outcome.

It would be better for businesses to be safe than sorry considering the weight of the risk, especially due to the issuance of the presidential regulation.

If a non-Indonesian party intends to enter into an agreement involving an Indonesian party, then it should execute the Indonesian version in addition to the foreign language version.

Furthermore, it must cautiously consider executing them at the same time.

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