Indonesia's unclear contract law bites

Indonesia's courts have begun enforcing a law requiring contracts to be in local language.

Though not directed to IP or indeed any commercial objects, Article 31, paragraph (1) of Law 24 of 2009 concerning the Flag, Language, National Emblem and Anthem (“Law 24”), has been a source of worry for several years. Law 24 requires all agreements involving Indonesian institutions, government, citizens and companies to be in local bahasa language.

Until now its enforceability was unclear. In particular the law is stated to cover public law matters. But many have worried that it could be used to attack commercial agreements. A promised implementing regulation never materialized.

The West Jakarta District Court has now voided a contract because it was executed in English. Specifically the court said that it was not a valid agreement under Article 1320 of the Indonesian Civil Code due to use of incorrect language under Law 24. The court then voided the agreement, ab initio. The case related to a financial transaction but is regarded as having wider implications.  It is thought to be the first judicial interpretation of the provision. Law 24's penalty for failure to use the correct language was not clear. But the court went as far as it could go by voiding the agreement. Lesser penalties are possible in other cases - unenforceability for example.

Companies trading in Indonesia have long worried about agreements due to the uncertainty of this provision in a law that doesn't relate to private contracts. However Indonesia's courts are not to be relied on to allow practicality to trump legal niceties.

So now all IPR licenses, assignments, settlement agreements, franchises, indeed any form of Agreement concerning Indonesia needs to be in bahasa language, or perhaps bilingual. Companies now need to go back and review all previous agreements since 2009.