30 January 2024

On 29 December 2023, the Supreme Court of Indonesia issued Supreme Court Circular Letter No. 3 of 2023 (“Circular”) which serves as guiding principles to judges in courts of all levels when faced with the issue regarding, among others, the absence of Indonesian language (“Bahasa Indonesia”) translations in contracts between Indonesian and foreign parties. 

By way of background, pursuant to Law No. 24 of 2009 (“Language Law”) and Presidential Regulation No. 63 of 2019 (“PR 63/2019”), its implementing regulation, any agreement involving an Indonesian entity or citizen must be set out in Bahasa Indonesia. If a foreign party is also involved, the agreement should also be set out in the language of the relevant foreign party and/or in English. 

Both the law and the implementing regulation are, however, silent on any sanctions or legal consequences for a breach of the obligation to use Bahasa Indonesia in concluding agreements. Court precedents in this matter have been inconsistent.

On the one hand, courts have, in several occasions over the years, annulled agreements which were only set out in English because (i) the agreement did not comply with the Language Law, and (ii) such non-compliance results in the agreement not fulfilling the statutory requirements for a valid contract. 

On the other hand, there have been instances where courts have ruled that the absence of the Bahasa Indonesia version does not invalidate a contract as Language Law non-compliance does not contribute to the fulfilment of the statutory requirements for a valid contract.

The Circular - which provides guidance to the courts on how they should rule in cases involving similar facts - provides that the absence of the Bahasa Indonesia translation accompanying an agreement in foreign language entered by and between an Indonesian party (either private institution or individual) and a foreign party cannot be used as a reason for annulment of the agreement unless it can be proven that the absence of the Bahasa Indonesia translation was due to bad faith by one of the parties.

Interestingly, the Circular references “Bahasa Indonesia translations”, which may be viewed as contradictory to (i) the Language Law requirement for the agreement to be made in both Bahasa Indonesia and the relevant foreign language or in English (implying none of each constitutes a translation of the other); and (ii) PR 63/2019 which emphasises that the foreign language / English version is used as the equivalent or translation of the Bahasa Indonesia version (implying that the status of the Bahasa Indonesia version never constitutes a translation of the foreign language / English version, regardless of the fact that PR 63/2019 allows the parties to agree for the foreign language to serve as the governing language in the event of discrepancy between the two versions). 


In any event, the Circular merely serves as persuasive guidance to the courts. If this guidance is followed by the courts, it would theoretically be more difficult for a party to nullify agreements on the basis of an alleged violation of the Language Law because the plaintiff would now need to successfully prove bad faith on the part of the defendant for failing to procure the Bahasa Indonesia version.

The term “bad faith” is not distinctly defined within the Circular, Language Law, or PR 63/2019. Based on the Indonesian Civil Code and various Indonesian (and Dutch) legal scholars’ commentaries, “good faith” can be divided into two categories, namely: “subjective” and “objective”. The “subjective” good faith deals with “honesty” (e.g. whether or not a party has “knowledge” or “intention”) and is often applied in the pre-contractual situation. The “objective” good faith refers to the performance of contract (i.e. post-contractual situation) and is usually linked to the issue of reasonableness and fairness.

It will be interesting to see how the courts will implement this guidance in practice, especially when interpreting “bad faith”, as the opposite of either the “subjective” good faith or “objective” good faith or both.

Although it is not a rule of law and multiple interpretations on the “bad faith” element may still arise, the issuance of the Circular by the Supreme Court should be seen as a good and promising development in the right direction as an attempt to achieve consistency in court decisions that would present legal certainty and fairness.