Joel R. Hogarth,
Ratih (Ipop) Nawangsari
Last month we circulated an alert on
Indonesian Law Number 24 Year 2009 (the “
Language Law”) about the new requirement to use the Indonesian language in written agreements involving Indonesian counterparties.
In that alert we expressed the hope that this would not lead to the huge cost, expense and delay of translating long and complex documents into the Indonesian language, not to mention our concerns whether it is possible to fully achieve consistency between translations. Unfortunately, this hope has not been reflected in the recent market practice following the passage of Language Law.
Leading Indonesian law firms have taken the view that their legal opinions will need to be qualified if documents are not translated in accordance with the Language Law. A major acquisition transaction we are currently working on involves a high yield bond issuance and a syndicated facility agreement as part of the acquisition financing package. The high yield bond managers have required the translation to be completed within a period of time after issuance, which approach is accompanied by a risk factor in the offering memorandum. The syndicated facility arrangers have taken a more conservative view, and have insisted that the Indonesian language versions be prepared
prior to signing the facility agreement. Needless to say, this has led to a very considerable amount of additional cost and complexity to the transaction.
Interestingly, Indonesian companies have been more commercial regarding the application of the Language Law. One approach we have seen taken on English language documents between Indonesian parties is to include a clause requiring translations to be conducted only “
if so required by the implementing regulations”. We attended a seminar hosted by the Indonesian Ministry of Law and Human Rights, and including a number of leading Indonesian lawyers, where the following guidance was proposed:
- The use of the Indonesian language is a formal requirement, not a substantive one, so the absence of dual language versions should not be used as a ground to declare contracts invalid.
- The language requirements should not have retroactive effect on agreements entered into prior to the passing of the Language Law.
- Going forward, if costs and timing are of concerns, an Indonesian language translation should be provided as a condition subsequent within a reasonable period of time after the agreement is signed.
- There is no objection to a contractual provision stating that - in the event of a conflict between translations - one language version (English) be used to interpret the other language version (Indonesian).
Unfortunately, this guidance is not binding and has not altered the approach of the leading Indonesian law firms. Our view is that - based on the current approach taken by market participants - foreign lenders are likely to continue to insist on full translations prior to signing, at least until implementing regulations are passed. Parties to corporate transactions may be prepared to take a more commercial view, as this type of transaction is less often analysed in terms of formal ‘enforcement’ measures.
On the current schedule, implementing regulations are not due to be issued until 9 July 2011. As it is invariably the Indonesian parties that bear the cost and delay of conducting their international business imposed by the Language Law, our hope is that the Indonesian authorities will try to mitigate the impact by accelerating the implementing regulations. We also hope that these will include an express statement that the language requirements do not affect enforceability of contracts. Until then, this will be a significant additional cause of uncertainty to Indonesian cross-border transactions.
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O’Melveny & Myers LLP is not licensed to practice law in Indonesia, and this Client Alert should not be construed as providing advice concerning the laws of Indonesia or of any other country or jurisdiction. The foregoing should not be construed as an opinion on the laws of Indonesia. Readers should consult with Indonesian counsel for legal advice on the matters addressed herein.
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