VALIDITY OF CONTRACTS IN FOREIGN LANGUAGES
The use of foreign languages in contracts requires serious attention. The court once annulled a contract between PT Bangun Karya Pratama Lestari (PT BKPL) and Nine Am LTD on the grounds that the contract was drafted in a foreign language. The court concurred with PT BKPL’s argument that a contract executed in a foreign language contravenes statutory provisions and therefore must be declared null and void ipso jure.
Essential Requirements of a Valid Contract
The term contract generally refers to a written agreement executed for business purposes. Article 1313 of the Indonesian Civil Code (KUHPerdata) defines an agreement as an act whereby one or more persons bind themselves to one or more other persons.
The validity of a contract refers to the validity requirements of an agreement. Article 1320 of the Indonesian Civil Code stipulates four essential elements:
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- Mutual consent of the contracting parties;
- Legal capacity of the parties to enter into a binding obligation;
- A clearly determined object of the agreement;
- A lawful cause that does not contravene prevailing laws and regulations.
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Regulation on Language Use
The validity of contracts executed in a foreign language relates to the requirement of a lawful cause that must not contradict prevailing laws. Article 31 paragraph (1) of Law No. 24 of 2009 concerning the National Flag, Language, State Emblem, and the National Anthem (Law 24/2009) provides that the Indonesian language must be used in memoranda of understanding or agreements involving state institutions, government agencies of the Republic of Indonesia, private Indonesian entities, or Indonesian individuals.
However, in contracts involving foreign parties, Article 26 paragraph (1) of Presidential Regulation No. 63 of 2019 concerning the Use of the Indonesian Language (Perpres 63/2019) reiterates that:
“Bahasa Indonesia shall be used in memoranda of understanding or agreements involving state institutions, government agencies of the Republic of Indonesia, private Indonesian entities, or Indonesian individuals.”
Validity of Foreign Languages in Contracts
In commercial transactions involving foreign parties, contracts must still be drafted in Indonesian in compliance with statutory requirements. Nevertheless, contracts may be accompanied by translations into foreign languages, including the national language of the foreign party or an international language, to ensure mutual understanding of the contractual terms. Article 26 paragraph (4) of Perpres 63/2019 grants the parties discretion to designate which language shall prevail in case of any discrepancy between the Indonesian and foreign-language versions.
The use of a foreign language in contracts remains valid insofar as it complies with the applicable rules and is executed carefully. To prevent misinterpretation, contracts in foreign languages should ideally involve sworn translators so that each clause carries consistent legal meaning. Hence, the inclusion of a foreign language not only facilitates cross-border communication but also ensures legal certainty for the parties.
Matters to be Considered
When drafting agreements involving foreign parties, the parties must expressly stipulate from the outset which language shall prevail in interpreting any potential discrepancies in the performance of the agreement. Such stipulation is crucial to avoid future disputes and to ensure legal certainty for the parties. This aligns with Article 26 paragraph (4) of Perpres 63/2019, which provides that if there is a difference in interpretation between the Indonesian and foreign-language texts, the prevailing language is the one expressly agreed upon by the parties.
Contracts Without Translation
If a contract is executed solely in a foreign language without an Indonesian translation, the contract cannot automatically be deemed void. This is affirmed in the Legal Formulation of the Civil Chamber, Point 1, Supreme Court Circular Letter No. 3 of 2023 (SEMA 3/2023) concerning the Application of the Legal Formulations from the 2023 Plenary Chamber Meeting of the Supreme Court as Guidelines for Judicial Practice. It provides that agreements entered into between Indonesian private entities or individuals and foreign parties solely in a foreign language, without an Indonesian translation, cannot be annulled merely due to the absence of such translation, unless it can be proven that the absence of translation was caused by bad faith of one of the parties.
Conclusion
The use of the Indonesian language is mandatory in every contract involving foreign parties; however, foreign languages are validly permitted as official translations. The parties may expressly designate which language shall serve as the legal reference in the event of a dispute or divergent interpretation. Nevertheless, pursuant to SEMA 3/2023, a contract executed solely in a foreign language without an Indonesian version remains enforceable and not subject to annulment, provided that no element of bad faith is present in the agreement.
Author :
Gabe Petrus
Evi Mutiara
Editor:
Muhammad Arief Ramadhan, S.H.