Background
It is common practice in Indonesia to make agreements involving international commerce in multiple languages, Indonesian and English, or in place of the latter, any of the other parties’ preferred languages. Such a principle is embodied within Article 31 paragraph (1) of Law No. 24 of 2009 regarding the National Flag, Language, Coat of Arms, and Anthem (“Language Law”) which regulates that the Indonesian language shall be used in agreements involving Indonesian state institutions, private entities, and Indonesian citizens.
To supplement such law, on 30 September 2019, Presidential Regulation No. 63 of 2019 regarding the Use of the Indonesian Language (“PR 63/2019”) was enacted as an implementing regulation of the Language Law. Article 26 Paragraph (2) of this regulation reaffirms the obligation above to use the Indonesian language. In this instance, international arbitration agreements may be affected, especially if such a party does not contain prerequisite knowledge of this requirement.
Jurisprudence Recognizing the Obligatory Use of the Indonesian Language
The obligation to use the Indonesian language has been affirmed in several cases —among others, Supreme Court cases PT Bangun Karya Pratama Lestari v. Nine AM Ltd (“PT BK v. Nine)[1] and in PT Jasa Angkasa Semesta Tbk. v. PT Gatari Air Services (“PT JA v. PT GA”)[2]. In these cases, the Supreme Court believed that the absence of the Indonesian language version of an agreement shall render the agreement null and void.
With heed to the Supreme Court’s decisions above, every agreement therefore must satisfy the following requisites in order to be valid:[3]
1) the consent of the parties bound by the agreement;
2) the capacity of the parties to conclude an obligation;
3) that there is a specific subject matter being regulated; and
4) the matter regulated in the agreement is legal.
Regarding the Supreme Court’s decision in PT BK v. Nine and PT JA v. PT GA, the court provided that Article 1335 and Article 1337 Indonesian Civil Code (“ICC”) would render the relevant agreements in those cases void by law.
At first glance, Article 1335 and Article 1337 ICC may very well allow the agreement to be deemed as void. The wording contained in those articles specifically refers to a cause prohibited by law. However, the reasoning in these cases would typically not be in line with the basic definition of what a cause is. Multiple scholars have proposed a contradiction of PT BK v. Nine and PT JA v. PT GA’s consideration.
Prof. Mariam Daruz Badrulzaman provides such on the interpretation of what the term “cause” used in Article 1335 and Article 1337 ICC refers to:[4]
“Cause is the purpose, content, and meaning that are intended together by the parties to create an agreement that gives birth to a legal relationship.”
The purpose behind such an agreement would have to be assessed not through the fulfillment of formal requirements but through the actions and main intentions of the parties in making such agreements, i.e., sales of goods and financing agreements. Additionally, under the freedom of contract principle, it does not matter for an agreement to be concluded in a specific format, whether it be written or unwritten, an English version or an Indonesian version, so long as all the preceding requirements are met. Even more so, judges in Gunawan Halim v. PT ISS Facility Services[5] declared that any objections to entering into a non-Indonesian language agreement should be made before its execution, rendering uncertainty for Language Law requirements.
Determination of the Arbitration Agreement’s Validity
Per the above, any and all agreements with any Indonesian parties shall require an agreement to be created in an Indonesian version. Without such, either party may as well argue for it to be invalid. However, arbitration agreements contain a different analysis framework and shall not automatically be deemed invalid if it lacks an Indonesian version.
The relevant arbitral tribunal would ultimately determine an arbitration agreement’s validity by virtue of their analysis of the chosen law used to interpret the arbitration agreement.[6] If an arbitration agreement lacks an Indonesian version, usage of Indonesian Law for the law of the contract would challenge, if not invalidate, the arbitration agreement.
When confronted with such an issue, an arbitral tribunal may interpret the arbitration agreement according to the law of the seat or the law of the contract. The arbitral tribunal would first use the separability principle to assess the arbitration agreement’s validity,[7] which would not automatically render the arbitration agreement invalid, and choose the appropriate law afterwards.
Such interpretation was enhanced within numerous cases, wherein if the tribunal find that the parties did intend to go to arbitration, they will try in such a manner to pick a law that would validate the arbitration agreement. Landmarked in Sulamérica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.,.[8] a three-step test shall be abided, which consists of:
i) the express choice in stage 1;
ii) the implied choice in stage 2; and
iii) the law with the closest and most real connection in stage 3.
The express choice means the law that is explicitly mentioned to govern the arbitration agreement; the implied choice would, in most cases, be the law of the contract.[9] Lastly, the law with the closest and most real connection shall be the seat.[10]
In effect, express choice cannot be challenged. However, in stage 2, Indonesian Law as the law of the contract would present a problem. It depends on the arbitral tribunal’s interpretation of what a “valid cause” is. Considering Indonesia is a civil law country and does not recognize the principle of stare decisis, the decisions in PT BK v. Nine and PT JA v. PT GA do not bind other courts from passing different decisions in similar cases. If the arbitration agreement is deemed valid within stage 2, the award’s annulment would have a high chance of being requested as they are acting against the consent and validity requirements of the arbitration agreement.[11] This dilemma, alongside Indonesian Law’s ambiguity, may allow the Tribunal to pursue stage 3 to validate the parties’ intent to arbitrate. To quote Prof. Gary Bell:[12]
“Shouldn’t we presume that since they had a clear intention to arbitrate, they could not have intended Indonesian law to apply to the clause as this would make the arbitration agreement and their clear intention to arbitrate invalid?”
If found to be invalid, stage 3 would be utilized when the intent to arbitrate exists. The seat shall then be utilized to assess the arbitration agreement’s validity. Hence, the Tribunal would first consider the Language Law’s effects on the arbitration agreement. If it does invalidate the arbitration agreement, then the choice to move into applying the law of the seat to validate the arbitration agreement will come into effect, so long as there is intent to arbitrate and no express law governs the arbitration agreement.
Conclusion
Indeed, this can be a long-debated issue for the Tribunal to determine. It must be admitted that the large scale of jurisprudence would deem an arbitration agreement that lacks an Indonesian version to be void. Alternatively, the purely theoretical aspects of a “cause” may be considered. If, contrarily, an intent to arbitrate exists, the Tribunal shall still exhaust all ways of interpreting the arbitration agreement to make it valid. A suggestion, especially for commercial parties, is always to try to comply with the Language Law by providing a copy of the agreement in an Indonesian version, or to at least create it on a later date.
[1] Supreme Court Decision No. 1572 K/Pdt/2015 dated 23 October 2015.
[2] Supreme Court Decision No. 3395 K/Pdt/2015 dated 2 December 2019.
[3] Article 1320 of ICC.
[4] Mariam Daruz Badrulzaman, Hukum Perikatan dalam KUH Perdata Buku Ketiga: Yurisprudensi, Doktrin, serta Penjelasan (Citra Aditya Bakti 2015), page 120 and page 121.
[5] Supreme Court Decision No. 1622/K/Pdt/2019 dated 17 July 2019.
[6] Gary B. Born, International Commercial Arbitration (Kluwer Law International 3rd Edition, 2014), page 498.
[7] Article 16 of the Uncitral Model Law on International Commercial Arbitration.
[8] Paragraph 25 of Judgement of the English Court of Appeal Decision [2012] EWCA Civ 638 dated 16 May 2012.
[9] Emilia Onyema, International Commercial Arbitration and the Arbitrator’s Contract (Routledge Research in International Commercial Law), page 23.
[10] Born (n11), Op. Cit., page 105.
[11] Article 4, Article 5, Article 62 Paragraph (2), Article 66 Paragraph (c) of Law No. 30 of 1999 on Arbitration and Alternative Dispute Settlement.
[12] Gary Bell, “Conflict of Laws and Jurisdictions in Indonesia-related Arbitrations Seated in Singapore – Perspectives From the Tribunal” (Indonesia Law Review Vol. 12 No. 1, 2022), page 47.