Compliance with local law – a US lender learns a salutary lesson

by The Corporate and Commercial Team

23-04-2014

A US lender has been left high and dry in relation to the loan agreement with an Indonesian company for failing to comply with local laws.

A district court in Jakarta has ruled that the loan agreement is void because it was only concluded in English. Indonesian law requires that the agreement must be finalised in Bahasa Indonesian (the official language of Indonesia). This was not done and therefore the agreement does not comply with the local law. It is therefore void and means that the US lender cannot enforce the agreement in the Indonesian courts – leaving it without a remedy in Indonesia.

While the US lender is appealing the decision, the case does bring into sharp relief the requirement in cross border transactions for the parties to take local advice and to ensure that they comply with local laws. It is very easy in the heat of a commercial transaction to forget about the formalities, particularly when it comes to contract language, as the primary language of international business is English.

Lending and other financial agreements tend to be subject to the tightest regulation, but other commercial contracts can also be caught. Formalities can range from (as in this case) a requirement for a specific language to be used to documents having to be executed in a particular form or with particular number or type of witnesses. And, as the saying goes, “ignorance of the law is no excuse” – it could be a very expensive mistake to fail to take the necessary advice.

 


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