Companies entering into contractual agreements with organisations in Indonesia have been urged by an expert to ensure that those contracts are drafted or existing contracts re-drafted in the native language of the country after a court ruled that an English-language contract was void. A district court in Indonesia's capital city Jakarta ruled that a loan agreement between an Indonesian business and a lender based in the US was void because it failed to comply with Indonesian law, according to a report by Legal500. The law states that contracts involving an Indonesian organisation must be written in Bahasa Indonesia, the official language of Indonesia. The Government in Indonesia had previously said that the local language rule, whilst a formal requirement, would not affect the status and enforceability of a contract written in English or in both Bahasa Indonesia and English where the latter was the binding text, according to a report on legal updates platform Coventus Law. The Indonesian court rejected the distinction that the Indonesian Government had made and ruled that, because the contract failed to meet the local language requirement, the agreement between the Indonesian business and US lender was void. The US lender, which has appealed the decision, was therefore unable to claim money it said the Indonesian company owed it in loan repayments, according to the Conventus Law report. "We‘ve been hearing mixed messages about the application of the local language requirement," Kate Terry, a projects lawyer at Pinsent Masons, the law firm behind Out-Law.com, said. "This recent decision proves the unwillingness of the Indonesian courts to uphold English language contracts, albeit the decision was only at district court level. There is now a real risk for foreign investors if they do not comply with the local language requirements, and this legal ‘loophole’ could be used more widely by the Indonesian courts in the future."
www.out-law.com, 19 November 2013