Constitutional Court Accepts Judicial Review of Fiducia Security Law
Following the judicial review of Article 15(2) and Article 15(3) of Law No. 42 of 1999 on Fiducia Security (the “Fiducia Law”), the Constitutional Court has identified issues of constitutionality relating to aspects of the Fiducia Law and in particular, the provisions dealing with a creditor’s executorial power over the secured assets of a debtor.
What is the status of the Fiducia Law?
The Constitutional Court has ruled that a creditor may only execute its fiducia security on the basis of an agreement with the debtor as to the debtor’s underlying breach of contract or, in the absence of such agreement, on the basis of a court decision.
Relevant breaches could include, for example, a payment default or other events of default under a loan agreement signed by debtor and creditor.
While the Fiducia Law remains valid, it now must be interpreted with reference to the Constitutional Court’s ruling.
So what has changed?
Previously, creditors with appropriate documentation, namely a fiducia security certificate, were able to execute their security under the Fiducia Law and sell the subject goods – described in the Fiducia Law as the fiducia object – upon their own power and without the need for separate legal proceeding in a district court.
The Constitutional Court has now declared that despite the black letter of Article 15(2) of the Fiducia Law, fiducia security certificates do not have the same executorial power as final and binding court decisions.
This is notwithstanding that under the terms of a fiducia deed, the debtor is allowed to possess and control the fiducia object, unless and until there is an enforcement event relating to the loan.
What are the practical ramifications?
The Constitutional Court’s decision may result in renewed focus on the scope of default provisions in finance documents, particularly where the underlying indebtedness has been secured by a fiducia.
Creditors, however, will need to bear in mind aspects of the decision which remain unclear, pending further clarification from the government. For example, there is some uncertainty around whether a new agreement with the debtor needs to be concluded following the relevant breach of contract.
In its decision, the Constitutional Court makes it clear that creditors have a second option, namely the pursuit of a court decision in order to prove the occurrence of the breach of contract. In this regard, however, litigation risks will need to be considered, such as the likelihood of delays and use of court processes to prolong the execution process of the fiducia object.
What is the background to the case?
The applicants of the judicial review claimed that their rights under Article 28G(1) of the Indonesian Constitution (Undang Undang Dasar 1945) had been violated as the debt collectors of the creditor (as the fiducia grantee) took over the goods under possession of the applicants without following proper legal procedure.
Article 28G(1) states as follows:
“Each person is entitled to protection of self, his family, honor, dignity, the property he owns, and has the right to feel secure and to be protected against threats from fear to do or not to do something that is part of basic rights.”
In its assessment of the legal standing of the applicant, the Constitutional Court provided a basic overview of the relevant facts of the case. While the facts are not set out in detail, they appear to involve a creditor executing its rights over secured goods, in the context of an outstanding car loan. In particular, the decision refers to certain arbitrary actions taken by a debt collector against the individual debtor and his wife, including personal attacks and even a death threat.
Some of the relevant facts of the underlying case appear to have influenced the Constitutional Court’s decision on the constitutionality of the Fiducia Law. For example, the court found that a creditor’s rights under a fiducia security certificate were open to arbitrary and forcible abuse – arguably a veiled reference to the actions of the debt collector.
What are the next steps?
Unfortunately, the Constitutional Court does not appear to have contemplated the broader ramifications of its unconstitutional findings. Fiducia security is used in a broad range of transactions including those of a transactional nature between commercial parties.
Relevant regulators, such as the Financial Services Authority (“OJK”) and the Ministry of Law and Human Rights, must now take steps to limit the potentially adverse effect of the decision on finance markets.
As the sun set on 2019, the government issued two new regulations on e-commerce and, separately, electronic systems1. Both regulations are likely to be relevant to a wide range of stakeholders in Indonesia’s e-commerce industry, which is estimated by Google and Temasek to be worth US$53 billion.
Government Regulation No. 80 of 2019 on Electronic Commerce (“GR 80/19”) touches on a range of matters including (among others) licensing requirements for e-commerce providers (“ECP”), consumer rights, personal data protection and liabilities for illegal content. Identification and transparency requirements appear to have been influenced by the EU’s Electronic Commerce Directive 2000. In contrast, new technical content controls, as referred to below, mark a departure from the EU stance.
Key changes include the following: • Subject to limited exceptions for intermediaries, ECPs (as defined in GR 80/19) must obtain a license under the Online Single Submission (OSS) system; • ECPs must provide clear, accurate and truthful information on the condition of goods/services being sold, as well as the underlying electronic system, and comply with ethical advertising rules under Indonesian law; • ECPs must not list merchants that fail to comply with Indonesian law; • Financial transaction data must be retained for a minimum of 10 years, and 5 years in the case of non-financial transaction data; and • Intermediary service providers must establish a technical content control mechanism for complaints relating to illegal content, among other things.
Importantly, GR 80/19 serves as a reminder that online service providers are not exempt from general Indonesian laws relating to trade, tax, local content, consumer protection, customs and excise and competition.
Government Regulation No. 71 of 2019 (“GR 71/19”) on the Electronic Systems and Transactions, on the other hand, relates specifically to providers of electronic systems and transactions, either via an e-commerce platform or otherwise.
Notably, under GR 71/19, private electronic system operators (“PESOs”) may now establish data centers outside of Indonesia, subject to certain governmental/law enforcement supervision and access requirements relating to the underlying electronic information. This represents a partial u-turn on the previous data localisation requirement for data centers.
GR 71/19 also provides for the mandatory registration of PESOs with the Ministry of Communication and Informatics, and contains various provisions on personal data protection and the general “right to be forgotten”. In both instances, GR 71/19 appears to have been influenced by the European Union’s General Data Protection Regulation. The provisions on personal data protection, in particular, need to be read in conjunction with Minister of Communication and Informatics Regulation No. 20/2016 regarding Personal Data Protection in Electronic System (“MOCI 20/2016”). It is likely that MOCI 20/2016 will be replaced by the proposed law on personal data protection, a draft of which was put before the House of Representatives in February 2020.
1 Defined as “a set of electronic devices and procedures that functions to prepare, collect, process, analyze, store, present, publish, transmit and/or disseminate information”
New Opportunities for Franchise Sector
The Ministry of Trade has liberalised the terms relating to franchise arrangements. The removal of “clean break” requirements for the termination of existing franchise agreements, local content requirements and the restrictions on the number of retail/restaurant outlets established under the franchise, should provide a boost to Indonesia’s franchise sector.
Previous restrictions on intra-group franchise arrangements have also been unwound. As a result, offshore parent companies, for example, may now explore the possibility of granting franchise rights to their Indonesian subsidiaries.
The above requirements were set out in various previous regulations, including Regulation of Minister of Trade No. 53/M-DAG/PER/8/2012 as amended by Regulation of the Minister of Trade No. 57/M-DAG/PER/9/2014, Regulation of the Minister of Trade No. 68/M-DAG/PER/10/2012, Regulation of Minister of Trade No. 07/M-DAG/PER/2/2013 and Regulation of the Minister of Trade No. 60/M-DAG/PER/9/2013. Such regulations were revoked under Government Regulation No. 71 of 2019 on Franchise.
The Supreme Court has rejected an appeal filed by the board of directors of the National Arbitration Agency of Indonesia (“Original BANI”) board over the ruling of the South Jakarta District Court in Case No. 674 / Pdt. G / 2016 / PN Jkt. Sel (the “Ruling”).
As of January 2020, the Supreme Court’s website provides for a verdict of “Reject” in relation to Original BANI’s appeal. However, the reasons for the judgment of the court have not yet been published. It is likely that the court orders relating to the decision, and any potential review of the decision by Original BANI, will come into focus only after the details around the judgment have been published by the Supreme Court.
Among others, the Ruling declares that the board, as it was then composed, had been formed in a manner contrary to Original BANI’s constitutional documents. The reasons for the default under such documents included the failure to appoint to the board any of the heirs and successors of Original BANI’s founders, who passed away in 2015.
The Ruling legitimised the legal standing of BANI Pembaharuan (“BANI Renewed”), which is managed by such heirs and successors. Divergent views on BANI’s governance and operations held by Original BANI’s management team, on the one hand, and the heirs and successors of Original BANI’s founders, on the other hand, appear to underpin the dispute which has, in turn, led to bifurcated national arbitration bodies.
It is worth noting, however, that the Original BANI has won two other cases against BANI Renewed, being: (i) the ‘BANI’ mark rights in the Commercial Court and its appeal in the Supreme Court; and (ii) the legality of the BANI Renewed establishment in the Administrative Court and its appeal to the Supreme Court.
The two BANIs are often referred to as “BANI Mampang” (Original BANI) and “BANI Sovereign” (BANI Renewed) respectively, with reference to their physical office addresses in Jakarta.