Indonesian language regulation affects commercial agreements

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On 30 September this year, Indonesia’s president issued Presidential Regulation No. 63 of 2019 on the Use of Indonesian Language (PR 63) as the implementing regulation of Law No. 24 of 2009 on National Flag, Language, Emblem and National Anthem.

Before the issuance of PR 63, the common practice to conform with Law No. 24 for agreements where a foreign party was involved was to: (1) negotiate and execute the agreement in the national language of the foreign party and/or English language; (2) prepare and execute the Indonesian language version shortly after, but effective as of the date of the foreign language and/or English-language version, and (3) have the foreign language and/or English-language version effectively as the governing language version.

However, with the issuance of PR 63, that approach needs to be revisited. It is clear that for future transactions, a bilingual format – or any other format the parties choose, so long as there is a corresponding version in the Indonesian language – is required. The regulation gives the rationale that the non-Indonesian-language version is an equivalent or translation to ensure the common understanding of the parties to the agreement.

The stipulation on the use of English and/or foreign language, as well as the ability to choose the governing language, applies only when there is a foreign party involved in the agreement. There is no further explanation of what kind of “involvement” of foreign parties is required to justify the use of another language under PR 63, nor is there an explanation of what is meant by “foreign parties (pihak asing)”.

The regulation is silent on whether a bilingual form can still be prepared if the parties are all Indonesian entities. The authors take the view that in such cases the parties can have a non-Indonesian-language translation or a bilingual form agreement, however, the governing language would need to be Indonesian.

Like Law No. 24, PR 63 does not state any sanction for non-compliance, and therefore it would be subject to further interpretation or decision by the courts. Since it is mandatory under PR 63 to have an Indonesian version, there may be an argument that any infringement or non-compliance with this law would constitute a breach, which may result in the agreement being declared null and void.

Official communications

Affirming Law No. 24, it is mandatory under PR 63 to use the Indonesian language in any official communications within the working environment of government institutions and the private sector. This includes written or verbal communication between employees and institutions, or communication through electronic media. It would also include formal communication with foreign entities, for which an interpreter can be engaged to smoothen the communication.

PR 63 specifies that official communications would include, among other things, consultation, advocacy, negotiation, meetings, discussion and correspondence. This would mean that official meetings, negotiations and correspondence would require the use of Indonesian, and if there is a foreign party involved, an interpreter can be used.

It is not clear how this provision will be implemented in day-to-day business settings, especially in the case of meetings and negotiations. PR 63 also does not provide further guidance on the situation where there are discrepancies between the interpretations of the languages used in official communication. A possible solution to be considered, at least for written correspondence, is to have all correspondence between Indonesian entities in the Indonesian language, with a bilingual form to be prepared for correspondence with foreign entities.

MOUs and agreements

There are two possible scenarios under PR 63:

  • Where the parties are all Indonesians, in which case our view is that memoranda of understanding (MOUs) and agreements would need to be executed in the Indonesian language or bilingual form, or with a foreign language translation, provided that the governing language would be Indonesian.
  • Where foreign parties are involved, in which case our view is that the MOUs and agreements would need to be executed in bilingual form (consisting of the foreign language and/or the English language, and Indonesian language) or to have the foreign language version and/or English-language version prepared at the time of execution, but the parties can agree on the governing language.

Involvement of foreign parties

For the second scenario, under article 26 (3) of PR 63, the foreign language and/or English-language version is only used as an equivalent or translation of the Indonesian-language version to reconcile the understanding of the MOUs and agreements involving foreign parties. This provision gives rise to the question of when the Indonesian-language version of the agreement needs to be executed.

The provision seems to imply that the Indonesian version would need to exist before the foreign language and/or the English-language version exists. Therefore, the logical consequence would be that both versions need to be executed at the same time, or a bilingual form needs to be executed.

Buildings, trademarks, etc.

Aside from the above provisions, PR 63 requires the use of Indonesian language for, among other things, names of buildings, apartments and office spaces that are owned or established by an Indonesian national or Indonesian entity. PR 63 also requires the use of Indonesian language for trademarks that are owned by Indonesian nationals or Indonesian entities, except for foreign licensing trademarks.

No transition period

PR 63 does not provide a transition period, and therefore it became effective on the date it was enacted (30 September 2019), though it appears the regulation was only made available to the public on 9 October. This means that all agreements that have been executed from 30 September onwards will be affected by this regulation. On a case-by-case basis, there might be a need to take certain actions to deal with that situation.

Sanctions and supervision

The regulation does not state any sanction for non-compliance, and therefore it would be subject to further interpretation or decisions by the courts. PR 63 also mentions that the supervisory body of this regulation from the central government is the ministry responsible for education, but it does not specify whether it will be the responsibility of the Ministry of Education and Culture or the Ministry of Research, Technology and Higher Education. It also remains to be seen how strictly the authorities (both central and regional governments) will enforce the above requirements, and whether technical guidelines will be issued.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by emailing Danian Zhang at [email protected].