By Prof. Dr. Huala Adolf, S.H., LL.M., Ph.D., FCBArb., Vice President, BANI Arbitration Centre

 

The language used in an arbitration does not normally pose any problems when parties to an arbitration speak the same language. However, difficulties may arise where the parties speak different languages, are of different nationalities or if the arbitrators are of different nationalities. Reasonable practical solutions can normally be found between the parties and arbitrators in these types of situations, but an additional layer of complexity arises where national laws require the national language of the state to be used in commercial transactions.

This issue has recently raised concern in Indonesia after a domestic court in Jakarta delivered a judgment regarding the use of language in contracts. Following the decision, some have questioned if the decision of the court also affects which language can be used in arbitrations conducted in Indonesia. In the author’s view, any concerns surrounding the use of language in a contract should not affect what language can be used in an arbitration.

Law No. 24 of 2009 (Language Law)

The issue of language came to the fore in 2009 when the Government promulgated Law No. 24 of 2009 on the Flag, Language, State’s Coat of Arms and National Anthem (the “Language Law”).

The Language Law consists of 74 articles divided into five main regulations concerning: (i) the national flag (articles 4 – 24); (ii) the national language (articles 25 – 45); (iii) the State’s coat of arms (articles 46 – 57); (iv) the national anthem; and (v) the criminal provisions for the violations of the provisions regarding the national flag, the nation’s coat of arms and the national anthem. The criminal provisions are silent on what penalties can be incurred for violations of the provisions regarding Indonesia’s national language.

Article 27 of the Language Law clearly states that the Indonesian language, Bahasa Indonesia, shall be used in any official state documents. The explanatory provisions of Article 27 stipulates that official state documents include, among others, state decision letters, bonds, (official) certificates, the (official) notes, identity cards (ID), agreements and court decisions.

Furthermore, Article 31 of the Language Law states that Bahasa Indonesia shall be used in a memorandum of understanding or an agreement (including agreements in international public law) which involve a state institutions, a government institution, private Indonesian entity or Indonesian citizens (paragraph 1).

Paragraph 2 article 31 of the Language Law states that if a memorandum of understanding or an agreement as stipulated in paragraph 1 above involves foreign parties, it should also be drafted in the national language of the respective party and/or in English.

This seemingly gives the assurance that English may be used in drafting an agreement (or contract) where one of the parties is not Indonesian.

PT Bangun Karya Pratama Lestari (“BKPL”) v. Nine AM Ltd (“NAM”)

However, as stated above, concerns were raised when the District Court of Jakarta Barat (west Jakarta) ruled on the legality of a contract written in English in a case between PT Bangun Karya Pratama Lestari and Nine AM Ltd.

The claimant, BKPL, is an Indonesian limited liability company. The respondent, NAM, is a US limited liability company based in Texas. BKPL issued its claim against NAM in the District Court of West Jakarta on 30 August 2012.

BKPL had entered into a loan agreement with NAM on 23 April 2013. for NAM to provide a loan of USD 4,422,000 to BKPL. BKPL was to pay the loan back in 48 instalments. After making several loan payments, BKPL filed a claim in the West Jakarta Court alleging that the loan agreement signed between BKPL and NAM was in violation of article 31 of the Language Law. BKPL also claimed that because the loan agreement violated the Language Law, the loan agreement was null and void.

NAM denied that the agreement violated the Language Law and put forward a number of arguments. Firstly, the parties had already entered into a similar agreement and the use of English had never been disputed. Secondly, the parties were subject to the pacta sunt servanda obligation when they entered and agreed to be bound by the loan agreement.

The District Court held that the loan agreement was null and void and did not have any binding force upon the parties because it did not meet the formal requirements of a valid contract, i.e. it was not drafted in the Indonesian language. The District Court was of the opinion that every contract involving an Indonesian institution, company or private individual made after the enactment of the Language Law must be made in the Indonesian language.

The decision was affirmed by the High Court of Jakarta in 2014 and reaffirmed by the Supreme Court in 2015.

The Arbitration Language

The concern surrounding the use of language in a contract should not affect what language can be used in an arbitration. Generally, the parties to an arbitration agreement have autonomy to decide which language to use. This principle is enshrined in the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law).

Article 22 paragraph 1 of the UNCITRAL Model Law provides that: “1. The parties are free to agree on the language or languages to be used in the arbitral proceedings. Failing such agreement, the arbitral tribunal shall determine the language or languages to be used in the proceedings. This agreement or determination, unless otherwise specified therein, shall apply to any written statement by a party, any hearing and any award, decision or other communication by the arbitral tribunal.”

Article 28 of Indonesian Law No. 30 of 1999, concerning arbitration and alternative dispute resolution in Indonesia (the “Indonesian Arbitration Law”), stipulates that the Indonesian language must be used in all arbitration proceedings, although parties may choose to use another language with the consent of the arbitrator or arbitration tribunal.

In contrast to the brief article 28 of the Indonesian Arbitration Law, there are extensive provisions regarding language under the arbitration rules of the Indonesian National Board of Arbitration (the “BANI Rules”). Article 14 of the BANI Rules addresses four elements related to the language of arbitral proceedings, namely:

(1) the language of the proceedings (para. 1);

(2) the document language (para. 2);

(3) the interpreter (para. 3); and

(4) the award language (para. 4).

 

BANI Rules on the language of arbitral proceedings mirror Article 28 of the Indonesian Arbitration Law (as set out above). Paragraph 1 article 14 of the BANI Rules provide that the case examination must be conducted in the Indonesian language. However, the parties may agree to use another language subject to the approval of the arbitration tribunal. The arbitral tribunal will consider several conditions when determining whether to grant approval, including:

(1)     the existence of foreign parties in the dispute;

(2)     if the arbitrators are foreign nationals who cannot speak the Indonesian language; or

(3)     if the dispute arises from a transaction that was conducted in another language.

Paragraph 2 article 14 of the BANI Rules addresses the situation where two languages may be used. If the original documentation submitted or relied upon by the parties in the submission of the case is in a language other than the Indonesian language, then the Tribunal may determine whether or not the original documents must be accompanied by a translation into the Indonesian language. Similarly when the original document is in the Indonesian language, the Tribunal may request for it to be translated into another language.

Under paragraph 3 article 14 of the BANI Rules, if the Tribunal and/or any party requires the assistance of an interpreter during the proceedings, such an interpreter shall be provided by BANI at the request of the Tribunal. The fee incurred for the interpreter shall be borne by the parties.

It is important to note that under Article 27 of the Language Law, arbitration awards are considered to be court decisions which are subject to the Language Law. Furthermore, Indonesian Arbitration Law requires arbitration awards to be registered with the Registrar of the District Court where the respondent is domiciled. As the officer of the Court, the Registrar will only register the arbitration awards written in Indonesian language.

Hence, arbitration awards in Indonesia must be written in the Indonesian language. If the parties are foreign nationals, the award may be translated into another language as requested by the foreign party. If the language used in the arbitration is not the Indonesian language, the translation of the award into the Indonesian language is required.

 

The Language of Arbitration in Indonesia

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