Urgency in using Indonesia Language on Business Contracts and

Potency of Investment Dispute:

The Study of Supreme Court Decision Number 601 K/Pdt/2015

Johannes Ibrahim Kosasih

and Yohanes Hermanto Sirait

Faculty of Law, Universitas Warmadewa, Bali, Indonesia

Faculty of Law, Universitas Kristen Maranatha, Bandung, Indonesia

Keywords: Business Contract, Indonesian Language, Investment Dispute.

Abstract: Supreme Court (MA) Decision Number: 601 K / Pdt / 2015 concerning lawsuit by PT. Bangun Karya Pratama

Lestari against NINE AM LTD may induce a significant impact on the trust of foreign business actors to

regulation and law enforcement. It is true that the use of the Indonesian language as required in Article 31

paragraph (1) of Law of the Republic of Indonesia Number: 24 of 2009 is mandatory in any agreement or

memorandum of understanding involving State institutions, government agencies of the Republic of

Indonesia, Indonesian private institutions, or Indonesian State individuals. However, the decision by the

judiciary in Indonesia to cancel the agreement could hamper investment in Indonesia. Especially because the

use of the Indonesian language is more formal than substance. This article is normative research, using

primary, secondary, and tertiary legal material. The result shows that the urgency for judicial bodies in

Indonesia to adopt decisions to the needs of the investment program initiated by the Government and consider

the needs between two entities from different countries. The judges need to fairly measure good faith from

both parties in an agreement and understand the differences between the substantial and formal requirements

for a valid agreement.

1 INTRODUCTION

The Indonesian language has 2 main (two) purposes,

firstly as an official language and lastly, as a unifying

language. This recognition comes into binding when

Law Number 24 of 2009 on National Flag, Language,

Emblem, and National Anthem issued. Therefore, the

use of the Indonesian language is mandatory in any

activity whether carried out by state and government

institutions or by the private institution and all

citizens in Indonesia.

In business activity, this mandatory significantly

affects any type of agreement as stated in Article 31

of Law Number 24 of 2009:

“Bahasa Indonesia wajib digunakan dalam nota

kesepahaman atau perjanjian yang melibatkan

lembaga Negara, instansi pemerintah Republik

Indonesia, lembaga swasta Indonesia atau

perseorangan waga Negara Indonesia”. (Indonesian

language shall be used in any memorandum of

https://orcid.org/0000-0001-9073-8153

https://orcid.org/0000-0001-5678-3188

understanding or agreement which involved state

institution, government institution, private institution,

and individuals of Indonesian citizen).

As a sovereign state, Indonesia may obligate the

use of official language. But the issues occurred when

the development of business requires the use of a

foreign language especially English. In some cases,

there is something called a “standard agreement”

which is drafted in English. Most of business actor

use English as international language for contract.

An issue that interesting to be examined is the

study case between PT. Bangun Karya Pratama

Lestari, domiciled in Jakarta as plaintiff against NINE

AM LTD, domiciled in Texas 77530 USA, as a

defendant. This case registered as civil lawsuit No.

451/Pdt.G/2012/PN. Jkt. Bar, in District Court of

West Jakarta.

Those cases above concern a legal relationship in

terms of the loan agreement of April 23, 2010, made

by both parties. In this agreement, the plaintiff obtains

306

Kosasih, J. and Sirait, Y.

Urgency in using Indonesia Language on Business Contracts and Potency of Investment Dispute: The Study of Supreme Court Decision Number 601 K/Pdt/2015.

DOI: 10.5220/0010751300003112

In Proceedings of the 1st International Conference on Emerging Issues in Humanity Studies and Social Sciences (ICE-HUMS 2021), pages 306-311

ISBN: 978-989-758-604-0

a loan of US$ 4,442,000. The clause of the agreement

stated that the agreement subject to any prevailed law

of Indonesia and the agreement drafted only in

English.

The dispute then occurred; the plaintiff sues based

on the mandatory to use the Indonesian Language in

a contract made in Indonesia as stated in Article 31

(1) of Law Number 24 of 2009. The plaintiff wishes

the court to nullify the agreement (to be null and void

or void ab initio, nietig). Other legal standings used

by the plaintiff are Article 1320, Article 1335, and

Article 1337 of Indonesian Civil Code Number 23 of

1847. The district court then passes the decision to

nullify the agreement. This decision was then

strengthened by Supreme Court.

This research is normative by using statute and

conceptual approach. Law Number 24 of 2009,

Indonesian Civil Code Number 23 of 1847, and other

related regulations used as legal basis in analysing all

legal issues here.

From those backgrounds above, this article aims

to examine whether the consideration made by the

judge is exact and whether this decision may affect

any foreign investment activity in Indonesia.

2 METHODS (AND MATERIALS)

This article aims to examine the legal impact of the

decision of Supreme Court Decision Number 601 K/

Pdt/2015 on investment and contracts in Indonesia.

This article will also examine whether the Decision

will bring into any dispute on investment matters.

This article is normative research using a statute and

case approach. The data is primary, secondary, and

tertiary legal material. This article will analyze all

legal material deductively.

3 RESEARCH AND DISCUSSION

3.1 Indonesian Language and Legal

Language

Various languages are used by humans in all parts of

the world, from simple language to more common

languages that are used internationally. Language is

one of the natural skills bestowed on mankind

(Mukhlis, 2009) Language is the main tool for

communication, and communication almost always

plays an important role in a social context. Effective

communication requires an understanding and

recognition of the connections between a language

and the people who use it (Cochrane, 2012).

An important function of language is for humans

to convey information to each other or request

services of some kind in a variety of situations such

as to inform others on direction, market, and other

activities. (Armstrong & Ferguson, 2010) History

shows that language has affected many facets of

human culture: religious, political, social, and

economic. Nowadays, language also affects law and

regulation whether at the national, regional, or

international level.

The role of language also resides in legal studies.

Statement from J.J.H. Bruggink as translated by Arief

Sidharta affirms that when the student learns the law,

those students also learn how to think juridically. This

activity to learn law also include the competency to

master legal language because, in those legal

languages, juridical thinking lives. (J J H Bruggink;

Arief Sidharta, 1996). It means that law and language

basically have a deep link. The link between both is

the one that creates legal language.

Scope of legal language covers written legal

products (legislation, jurisprudence, lawsuits

(requisitor), defence (pledooi), letters in civil cases,

etc.) as well as those in the form of product issued by

legal professional drafts such as law drafter, judge,

attorney, lawyer, notary, and others. All those

products are arranged in the systemized language

(standardized) by legal actors (especially in writing)

which is a basic requirement for formulating a law

(Said, 2012).

3.2 Mandatory in using Indonesian

Language on Agreement and

Memorandum of Understanding

The obligation to use Indonesian language as stated

in Article 31 Law Number 24 of 2009 is mandatory

to every government entity, state, and private

institution as well as citizens who want to be bound

by agreement. It means that both parties in agreement

including foreign party must use Indonesian language

in their written agreement. If they do so, then those

agreement has fulfilled one of many requirements as

a valid one. Indeed, this mandatory trying to protect

all parties in an agreement. It is hoped that with the

uniformity of using Indonesian language, it can

minimize differences in interpretation of any terms in

the contents of the contract. With the lack of multiple

interpretations, it will minimize or even prevent legal

disputes between the parties (Muhammad Syaifuddin,

2009).

Urgency in using Indonesia Language on Business Contracts and Potency of Investment Dispute: The Study of Supreme Court Decision

Number 601 K/Pdt/2015

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In the agreement-making process, the freedom of

contract principle is an essence. However, this

principle is not automatically applicable if it is related

to the language used in the agreement. The parties do

not freely choose the language used in the agreement.

The parties concerned are not allowed to choose a

language other than Indonesian. If the choice of

language can be made, the obligation to use the

language stated in Law Number 24 of 2009 will be

futile.

Basically, the freedom of contract principle is

strictly regulated in Article 1338 paragraph (1) of the

Civil Code. It is stated that "all agreements made

legally are valid as laws for those who make them",

meaning that both parties have obligation to comply

with the agreement (pacta sunt servanda). This

obligation has equal standing as comply to any statute

issued in Indonesia. Hence, the role of the

government in the realm of private law should be

limited and refrain to intervene in the will and

agreement of the parties.

3.3 Interpretation and Legal Reasoning

in Interpreting Legal Norm in a

Contract

There are various main problems in legal studies,

such as determining what is the law in a certain

concrete situation, mainly when determining what are

the rights and specific obligations of the parties based

on the law (Baro, 2017).

To solve these problems, a reasoning process

known as legal reasoning is used, which is a juridical

method of thinking to identify, based on the

prevailing legal order, the rights, and specific

juridical obligations of the parties (Baro, 2017). The

reasoning is the activity higher level in the form of

examining and understanding a proposition or several

propositions. Then, based on those understanding and

the relationship between those propositions,

intelligence generates what is called a conclusion (J J

H Bruggink; Arief Sidharta, 1996).

Legal reasoning in understanding statutory

regulations, especially for Indonesia, a country that is

based on the codification encourages the judge to rely

on positive law, which is referred to as statute

(Butarbutar, 2011). In a situation when a law is

unclear or incomplete to decide any event or case, the

judge is required to always find the law

(Butarbutar, 2011). In this part, the role of the

judge gets stronger. Accordingly, a judge must be

insightful. Especially, when the constitution gives

freedom and authority to the judge according to

Article 24, Constitution of 1945 (Indonesia Supreme

Source of Law). Law Number 48 of 2009 on Judicial

Power strengthening this authority. Based on it, the

judge may do the discovery of law method

(Rechtsvinding) (Butarbutar, 2011). This method

is divided into three, namely interpretation,

argumentation, and exposition (legal construction).

Interpretation by the judge must be able to explain

the implementation of law in concrete events (Pitlo,

1993). Although, the result may be rejected by several

parties until the decision legally binding (inkracht van

gewijsde). The goal of explaining and interpreting

these rules is to realize the function so that the

positive law prevails. To simply put, interpretation is

taken to clear the meaning of regulation to a certain

real event (Bambang Sutiyoso, 2015).

3.4 The Impact of Court Decision to

Agreement That Does Not Use the

Indonesian Language

The case of PT. Bangun Karya Pratama Lestari

against NINE AM LTD was decided in West Jakarta

District Court (first-degree court) Number:

451/Pdt/PN. JKT. BAR on 20 June 2013. The panel

argued that the provisions in Article 1320 paragraph

(4) of the Civil Code (KUHPer) oblige (a) the

existence of a lawful cause is an essential

requirement, in case these conditions are not met then

an agreement is null and void, (b) loan agreement

between PT. Bangun Karya Pratama Lestari and

NINE AM LTD that signed on 23 April 2010 has

violated Article 31, Law Number 24 of 2009, Article

1335 KUHPer jo Article 1337 KUHPer, (c) based on

point (a) and (b) before, an agreement without cause

or that has been made due to a false or prohibited

cause, has no legal force and a cause is prohibited if

it is prohibited by law or if it is contrary to morals or

public order.

Based on its considerations above, the panel

decided to grant the Plaintiff's claim in its entirely;

states that the Loan Agreement dated 23 April 2010

made by and between the Plaintiff and the

Defendant is null and void; stating that the

Fiduciary Security Agreement Deed on Objects dated

27 April 2010 Number: 33 which is the accessory of

the Loan Agreement dated 23 April 2010 is cancelled

by law; order the Plaintiff to return the remaining loan

which has not been returned to the Defendant in the

amount of USD 115,540 (one hundred fifteen

thousand five hundred and forty United States

Dollars); sentenced the Defendant to pay expenses

incurred in this case amounting to Rp. 316,000 (three

hundred and sixteen thousand rupiah).

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Those decisions were then upheld at the appeal

level at the Jakarta High Court with the decision

Number: 48 / PDT / 2014 / PT.DKI on May 7, 2014,

at Supreme Court with the decision Number: 601 K/

Pdt/2015 on Agustus 31, 2015. The Supreme Court

rejected the appeal and stated that the previous court's

decision (judex facti) was correct. It means that there

is no mistake in applying the law. The supreme court

believes that the lawsuit is based on applicable law.

on the other hand, Defendant failed to prove the truth

of his argument. Therefore, the petition for cassation

from the defendant, in this case, NINE AM LTD, is

legally domiciled in Texas, the USA was rejected by

the Supreme Court (MA).

3.5 Investments in Relation to

Regulation and Law Enforcement

Issues in Indonesia

This decision discussed here will draw attention from

an investor. There are some points underlined here:

First, issues concerning the object of an

agreement as required in Article 1320 (4) of Civil

Code (KUHPerdata). Subekti stated that the object of

an agreement is the content of the agreement.

Second, the usage of the Indonesian language as

stated in the claim document against NINE AM Ltd,

in this matter, this article will refer to Article

1320 KUHperdata, Article 1335 KUHPerdata,

Article 1337 KUHPerdata and Article 31 (1) Law

Number 24 of 2009.

Third, interpretation by the Judges in their

decision. The judge equates “obligation” in Article 31

(1) 1337 KUHPerdata. This interpretation brings into

a consequence of the annulment. The judges see any

agreement made without the Indonesian language as

“null and void”.

Fourth, the potency of fallacy in the decision

made by the judges. This fallacy is categorized as

Irrelevant Conclusion / Ignorantio Elenchi /. The

judges wrongly generalize the terminology

“obligation” from different regulations which brings

into any harm to one party in an agreement or

contract. It happened when the judge claim that an

agreement made without the Indonesian language has

violated Article 31 (1) Law Number 24 of 2009 and

must be concluded as a substantially flawed

agreement.

Fifth, the urgency in interpreting KUHPerdata

appropriately to ensure the balance between all

parties in any agreement. Investment agreements

must be profitable to an investor and domestic

business actor. It is only possible if regulation and law

enforcer support the balance principle.

Based on the above analysis, it is interesting to

examine the case between PT. Bangun Karya Pratama

Lestari and NINE AM Ltd in the level of law

enforcement / “in Concreto”.

3.6 Best Practice in the Cancellation of

Agreement Which Solely based on

Obligation to Use Indonesian

Language in Any Contract

Nullification of an agreement solely based on the

obligation to use the National Language is new in

Indonesia. Supreme Court Decision number 601 K/

Pdt/2015 is the first and only decision that has been

made thus far in Indonesia. Therefore, there is a lot of

question about those decisions although it is mostly

dominated by a practitioner (advocate). There is pro

and contra to this decision between legal expert and

practitioner, even between the executive and judicial

body. But still, as a state that respects Trias Politica

(policy on the distribution of power), all decision

made by the court is just until there is a change of law

whether through judicial review or any other

procedure to amend the regulation.

There is an intriguing fact related to the case

NINE AM Ltd. It is about any other agreement

between both parties that made without Indonesia

Language and there is not any objection to it. The

defendant has stated this fact when answering the

lawsuit although the judge ignores this fact.

The judge’s verdict that cancels the agreement

between both parties has brought harm to NINE AM

Ltd. Therefore, the defendant submits this case to

appeal but still, the supreme court strengthens the

decision made by the district court. The argument

which is based on the principle of pacta sunc

servanda made by the defendant keep ignored by the

supreme court.

This article disagrees with the decision and

analyses and research further accordingly.

Comparative law is made in this article to observe

best practices in other states concerning the issue of

obligation to make the agreement in the national

language. The use of national language is normal in

making the contract in the United States of America

(USA), especially in California. The USA obligates

any contract or agreement made with the English

version to protect the consumer. That is why all

contracts made with foreign languages must be

translated into English version before those

agreements are signed. The agreement will be null

and void if signed before translating into English

because of the breaching of Civil Code section 1688.

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The regulation above shows some protection by a

state. For there is always a chance that business actors

may neglect good faith, a state must intervene in any

contract that potentially harms the consumer.

Although this type of agreement between the

business actor and the consumer may differ from an

investment contract. Most of the contracts that

involved consumers place a business actor as superior

to that consumer. It can be found in many standard

agreements.

From regulation in the USA, this article sees that

the good faith principle is essential to protect any

parties that may be harmed by a more superior party.

Depending on the exact setting, good faith may

require an honest belief or purpose, faithful

performance of duties, observance of fair dealing

standards, or an absence of fraudulent intent. While

good faith is important to protect, the NINE AM Ltd

case shows the opposite. The plaintiff (PT. Bangun

Karya Pertama Lestari) sues the agreement for not

making in Indonesia even though they are bound by a

similar agreement before. The defendant claims that

the suit occurred only because the plaintiff unable to

fulfill their duty and responsibility as stated in the

contract.

For the basic ground, we need to understand that

the agreement between business actors and

consumers is different from the agreement between

investors and entities that obtain investment. In a

standard agreement that places one party as a

consumer, there is a chance of unbalance between

rights and obligation. The business actor usually acts

superior to the consumer. Sometimes, these types of

standard agreement refer to take it or leave it

agreement. If the consumer wish, then the agreement

will continue. Meanwhile, in an investment

agreement, the chance of unbalance position is slim.

In fact, some cases show that the position of the

foreign investor is inferior if the case is settled in a

national court (Reinhold, 2013).

Basically, the good faith principle crystalizes in

pacta sunt servanda principle, prohibition in abuse of

rights and discretion, estoppel and acquiescence and

negotiation (Reinhold, 2013). From all principles,

negotiation has relevance to the NINE AM Ltd case.

When the court process a lawsuit, it should also

see the implementation of the good faith principle

from the plaintiff. The judge must ask first whether

the plaintiff and defendant know and understand the

existence of Law Number 24 of 2009, whether they

know the obligation to make any contract in the

Indonesian language. The judges also need to dig

more information whether both parties have

discussed drafting the Indonesian version for every

agreement that binds them. More importantly, the

judges must check whether there is a legal issue other

than the issue of “non-Indonesia language

agreement”. The judges should not be mere

mouthpieces of regulation but also the guardian of

justice. Moreover, the judges must see that the need

in protecting investment is important and in

accordance with the national interest.

3.7 Explaining Potency in Dispute

Settlement through Investor-state

Dispute Settlement

To be qualified, an investment agreement, whether

made by state investors, in this case, state institutions

as well as business actors and individuals, must

contain a minimum standard of protection to the

parties. This is the obligation of the host country to

ensure the implementation (Rachmi Hertanti, Rika

Febriani, 2014)

When the usage of the Indonesian language

becomes mandatory to any contract made by the

subject of law in Indonesia, not a few protests or

criticisms are delivered by the public, especially by

academics and practitioners. Hikmahanto Juwana

even criticized that the state has intervened too far in

any agreement made by the private sector and

individuals, especially to freedom of contract

principle. Not to mention, the supreme court decision

NINE AM Ltd case can be used as a reference to

cancel contracts made without using the Indonesian

language. He is concerned about the bad faith of the

parties involved in an agreement made only in a

foreign language if the agreement is not profitable in

the future. Some practitioners from different law

offices in Indonesia also expressed the same thing.

They are even worried that the ease of investing

program in Indonesia will be counterproductive due

to the mandatory use of the Indonesian language

(Hukumonline, 2017).

Furthermore, the resolution of the NINE AM Ltd

case by the national court will be highlighted by an

investor. The pro-investor policies that are being

voiced in Indonesia will be questioned again.

Although the NINE AMA LTD case is not between

state and investor, its practice will affect investors,

especially since the rules related to Investor-State

Dispute Settlement (ISDS) have not been completed

in Indonesia. When several countries are initiating

ISDS which can be the best solution for investment

disputes (Indonesian Global for Justice, 2019),

Indonesia has provided a loophole that will become

an obstacle to investment because the court may

cancel agreements that are not made in Indonesian.

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This article keeps reminding that there is a possibility

of bad faith from any party that will sue for the

cancellation of an agreement that was not made in

Indonesian when the party unable to carry out any

obligation on any agreement.

It is true that ISDS is not an agreement intended

for the state and investors but is made between the

state and the state so that in the future there will be no

conflicts between states. However, the existence of

ISDS will have an impact on the security guarantees

of foreign investors in a country, including Indonesia.

There are pros and cons regarding the better content

of ISDS and this article agrees that the proper ISDS

for Indonesia is one that encourages the use of the

doctrine of local remedies (use of national courts)

because state sovereignty (related to judicial power)

still needs to be put forward. However, the judicial

system in Indonesia also needs to improve on this

matter, including strengthening the resources of its

judges. Thus, when investment disputes are resolved

by the national court, the verdict really refers to

justice as well as the development of society. When

the development of society in investing demands

protection, the judge must become a mouthpiece of

justice. For this reason, judges should not understand

the written formality of a statute but also the

philosophical formation of a rule. In other words,

when investment involves relations between

countries, it is inevitable that judges also need to

understand developments in international law

including investment law involving parties from

different countries.

4 CONCLUSIONS

Article 31 (1) Law Number: 24 of 2009 concerning

the Flag, Language, and State Emblem and the

National Anthem which requires the use of

Indonesian language in business contracts must be

understood as an effort to support national language

not to hinder investment. Decisions of judicial bodies

in Indonesia that are detrimental to the position of

foreign investors create potential lawsuits through

international channels, namely ISDS. This matter

deserves attention from the government in the ease of

doing the business program is to conduct executive

law reviews of regulations related to investment and

law enforcement that can provide a sense of justice

and legal certainty for investors.

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