The Supreme Court has formulized its chamber plenary meeting result through the issuance of the Supreme Court Circular No. 3 of 2023 regarding the Implementation of the Formulation of the 2023 Supreme Court Chamber Plenary Meeting Results as a Guideline for the Implementation of Duties for the Courts (“Circular 3/2023”).

With the issuance of Circular 3/2023, the Supreme Court has introduced a new guideline applicable to all courts in Indonesia when adjudicating cases related to the nullification of agreements between private overseas and Indonesian entities, specifically due to the absence of an Indonesian version in those agreements.

In that Circular 3/2023, the Supreme Court stated that “Indonesian private institutions and Indonesian individuals who enter into an agreement with a foreign party in a foreign language that is not accompanied by an Indonesian translation cannot be used as a reason for the nullification of the agreement, unless it can be proven that the absence of an Indonesian translation is due to bad faith by one of the parties”.

For your information, in Case 1572, the nullification of the agreement therein was solely assessed by the Supreme Court based on the formal fact (normative interpretation), without considering whether such nullification lawsuit contained an element of bad faith (material fact) by either party. The Supreme Court nullified the agreement in Case 1572 on the grounds of violating the material requirement under the fundamental principle of contract-making in Article 1320 of the Civil Code, i.e. a non-prohibited cause.

Said normative interpretation above only considers the following provisions of Law No. 24 of 2009 regarding the Official Flag, Language, Emblem, and National Anthem (the "Language Law") and Presidential Regulation No. 63 of 2019 regarding the Use of Indonesian Language:

Civil Code. This violation occurred as it failed to adhere to the stipulation that the 'Indonesian Language must be used...'.

Considering the foregoing, before the issuance of Circular 3/2023, our judges may still held the perspective that if an agreement between foreign and Indonesian entities lacked an Indonesian language version, it would be construed as a violation of Article 1320 of the Civil Code. So, agreements that had already been made back then are very prone to nullification.

How about now?

With the issuance of Circular 3/2023, on a nullification case trial, our judges will now also request the plaintiff seeking nullification of the agreement to present and substantiate evidence of the defendant's bad faith during the discussion and signing of the agreement. if proven otherwise, we are uncertain about what the decision that will be rendered, but, we believe that the judges may consider dismissing the case. So, the nullification trial will no longer be as easy as it was before.

However, there is still a drawback to Circular 3/2023, and that pertains to its applicability. First and foremost, please understand that a Circular is not considered as a regulation; instead, it is a legal document that provides recommendations or guidance for those who are worked for the Circular-issuing body, such as judges for the Supreme Court.

Secondly, given that a Circular is not a regulation, it must inherently hold a lower position in the hierarchical order compared to regulations (including Law and Presidential Regulation). So, it is also a common discussion to perceive that Circular 3/2023 appears to be in potential contradiction with the Language Law and PR 63/2019.

Thirdly, given the non-binding nature of Circular, which only serves as recommendation or guidance, there is no assurance that all judges will render verdicts in favor of parties who have entered into agreements without an Indonesian version.

Recommendation?

Although the above may not alter the fact that the possibility of nullification of an agreement still exists, we consider Circular 3/2023 to represent a legal breakthrough. Since in Indonesia, judicial authorities, such as judges, possess a high degree of autonomy and freedom in interpreting cases since they are not bound by precedence. Therefore, even if Circular 3/2023 is found to be contradictory to the Language Law and PR 63/2019 (or may even be revoked), our judges still retain the authority to transform their thoughts and interpretation freely when rendering verdicts.

Thus, your foreign entity can now have a more relaxed stance following the issuance of Circular 3/2023. However, until a formal regulation is issued to address the aforementioned concerns, we still recommend adopting a more conventional approach, which involves providing an Indonesian version when available.

Moreover, we will continue to monitor the situation post the issuance of Circular 3/2023 and will provide you with any necessary updates. Should you have any inquiries related to this regulation or wish to ascertain its impact on your business or personal interests, please feel free to contact us.