Monday, November 09, 2009

Revisiting the Law on Mandatory Use of Indonesian Language: Updated Analysis

I have discussed Law No. 24/2009 on National Flag, Language, Emblem and Anthem ("Law 24/2009”) in my post dated 27 August 2009. However, I feel that my analysis on the issues related to this Law 24/2009 is not complete, I am not satisfied with the legal analysis in my previous post and in practice, the impact of this Law is greater than I've ever thought to be. Thus, I believe that I must revisit the issues on Law 24/2009 and provide a deeper analysis in this blog.

Our main issue revolves around Article 31 of Law 24/2009. The first paragraph of this Article requires the use of Indonesian language in agreements involving state institutions, Indonesian government authorities, Indonesian private institutions or Indonesian individuals. The elucidation of Article 31 paragraph 1 states that an agreement in this context includes international agreements made within the framework of public international law.

Article 31 paragraph 2 of Law 24/2009 further states that if the agreements involve foreign parties, the national language of those foreign parties and/or the English language can also be used. Furthermore, the elucidation of Article 31 paragraph 2 states that if agreements are executed in multiple languages, i.e.: Indonesian language, the national language of the foreign party and/or English language, each version is equally original.

Although the above provisions look simple, they have triggered significant legal problems, i.e.:

  • whether Indonesian companies are obliged to use Indonesian language in their commercial contracts since Article 31 paragraph 1 and its elucidation are not particularly clear on whether (i) the term “Indonesian private institutions” includes Indonesian companies or Indonesian branches of foreign companies; and (ii) the term “agreements” includes private commercial contracts;
  • suppose they are obliged to use Indonesian languages, what would be the legal impact for any failure to do so? Is this is a mandatory obligation or merely an administrative requirement?
  • with respect to dual languages contracts, whether “equally original” means that each contract must be executed as original (not merely translation) and if yes, whether the parties to such contract can choose non-Indonesian language as the governing language.
In practice, the impacts are disastrous, especially in relation to commercial contracts made between Indonesian and foreign parties. Most foreign parties fear that the failure of using Indonesian language in their contracts might cause the contracts to be annulled by operation of law due to breach of mandatory legal obligation. As a result, they act conservatively and request that the contracts must be executed in dual languages. Not only that this choice of action significantly delays the transactions completion and increases the parties’ costs, it also imposes unnecessary risks and liabilities, particularly because certain complicated contracts such as Indenture, Trust Deed and EPC Contracts are too technical to be perfectly translated into Indonesian language (which is a very young language compared to English). As a result of this and without any definitive meaning on the concept of “equally original,” parties are running the risk of executing a contract with misleading or incorrect terms and conditions.

While the fear is understandable, in my opinion, acting conservatively does not solve the problems and there are better ways to solve them rather than executing all contracts in dual languages format. First, we should refer to Article 40 of Law 24/2009 which stipulates that the use of Indonesian language will be further stipulated in Presidential Regulations. I appreciate the fact that the provisions of Law 24/2009 are still valid even without those Presidential Regulations. However, it also indicates that the provisions of this Law is not yet complete, which in fact is true. As a matter of Indonesian legal principle, when the text of the law is not clear, parties to a contract should not interpret the law for the detriment of any of the parties. If a party tries to annul a contract due to failure of using Indonesian language where each party to that contract is aware that having such Indonesian version would most probably cause adverse effect, it shows that such party has bad faiths and in my opinion the court should not grant the claim. After all, why forcing the parties to use Indonesian language if it does not give any clear benefit to them?

Second, Law 24/2009 does not provide for any sanction for failure to comply with the above requirements, and it is arguable under the general Indonesian legal principle that when a law provision does not have any sanction (or the sanctions are merely administrative), the failure of performing such provision cannot affect the validity of a legal act, i.e. the contract. This has been made clear in a famous landmark case where the Supreme Court decided that the failure of submitting a report on foreign loan (which is an administrative requirement under Bank Indonesia regulations) cannot be used as a valid reason to annul a credit agreement made between an Indonesian debtor and foreign creditors. While I understand that there is a previous case on the similar matter where the credit agreement was annulled, the latter precedent should prevail since it is in accordance with the correct interpretation of law and is closer to fairness, i.e. it is completely ridiculous and unfair to the creditors to invalidate a credit agreement due to the failure of the debtor to submit some administrative reports.

Therefore, I would suggest that in case a contract involves Indonesian and foreign parties, the parties should not execute a dual languages contract without first performing a complete analysis on the advantages and risks of having such format. Suppose they conclude that having a dual languages contract is not a viable option, I would suggest them to insert a clause stating that they have agreed to execute the contract in non-Indonesian language and that they will execute an Indonesian language version of the contract when the implementing regulations clearly oblige them to do so. This mechanic would be useful to prevent any party having bad faiths from trying to annul the contract.

On the "equally original" phrase, my suggestion is that the Parties involved must also insert a clause concerning governing language. It is indeed unclear on whether the equally original means that each language should be deemed as applicable. However, when in doubt, the Parties should not use an interpretation that harms them. In addition, why don't we refer to the freedom of contract principle? The Parties should be able to agree on the governing language of the contract, and therefore eliminating any risks to have misleading or incorrect terms. However, the main question would be: if the Parties execute the Indonesian language contract for the sake of complying with Law 24/2009 and the governing language of such Contract is non-Indonesian, what is the purpose of having an Indonesian version in the first place? Is not this a waste of time and money? The Government should answer this big question.

In the end, we can conclude that the existence of Law 24/2009 brings more problems than benefits in practice, particularly in relation to the use of Indonesian language. While, we can argue and use several solutions to solve the issues brought by Law 24/2009, it should be noted that there are no bullet proof mechanisms here. The courts could always have a different interpretation. So, let us hope that the Government can give us a better solution through the implementing regulations and the courts can decide based on the correct and fair interpretation of the law while we are waiting for the implementing regulations.

9 comments:

Pramudya A. Oktavinanda Friday, November 27, 2009 4:31:00 PM  

Yeah Rob, it is disastrous. Clients are confused, transaction costs increased, liabilities increased, longer period to close a transaction, and many more. Lawyers fees are increasing too, but it is not worth enough to cover the additional hours that we need to spend to deal with this crazy law. There are just too many bad laws in Indonesia!

DC Saturday, July 21, 2012 2:32:00 AM  

A very teleological and critical analysis of the law. My commendations to you, sir.

However, I would like to further explore your opinion, especially with regards to two

1. "the failure of performing such provision cannot affect the validity of a legal act, i.e. the contract. This has been made clear in a famous landmark case where the Supreme Court decided that the failure of submitting a report on foreign loan (which is an administrative requirement under Bank Indonesia regulations) cannot be used as a valid reason to annul a credit agreement made between an Indonesian debtor and foreign creditors"
- May I know the name of the case? While Indonesian case law may be hard to find, I would like to know more on it.

2. "As a matter of Indonesian legal principle, when the text of the law is not clear, parties to a contract should not interpret the law for the detriment of any of the parties."
- with regards to the judicial attitude of judges to statutory interpretation in Indonesia, are there any further materials which you could recommend? Or a source for such a legal principle?

Pramudya A. Oktavinanda Monday, July 23, 2012 1:17:00 PM  

Thanks for the question.

1. It's an old Supreme Court Case. While I remember the details of the case, I do not remember the case number. This is something that I need to recheck.

2. Such principle is based on the Indonesian Civil Code, particularly the section on Contract Interpretation.

DC Wednesday, July 25, 2012 11:27:00 AM  

Thank you. Looking forward to your reply on the Supreme Court case.

nliu,  Monday, July 30, 2012 11:14:00 AM  

Thanks for this thought-provoking analysis.

P.S. I, too, would much appreciate the name of that case.

Aravind,  Thursday, August 02, 2012 1:51:00 PM  

Dear Pramudya,

This is a brilliant analysis of the controversy surrounding Article 31 of Law 24 of 2009. Like what DC had asked, I would love to find out the name of the landmark case which you have made reference to. It could prove to be a very persuasive authority indeed. many thanks in advance.

Aravind

Pramudya A. Oktavinanda Thursday, August 16, 2012 5:17:00 PM  

For those of you who ask for the case number of the supreme court, I just want to let you know that I am still searching.

Apparently most of my colleagues remember the existence of the case but forget the number too. I hope that I can give you the update soon.

Kevin Hong,  Tuesday, November 06, 2012 3:34:00 AM  

I believe the case you are looking for is Marubeni Corporation v. Pt Indokaya Nissan Motors, if anyone is still looking for it

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