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Nature of claims
Common causes of action
What are the most common causes of action brought against banks and other financial services providers by their customers?
The two most common causes of action are breach of contract (eg, under an insurance policy) and unlawful act (eg, in relation to false advertising and misselling of financial products).
If a customer commences an unlawful act claim under article 1365 of the Indonesian Civil Code (ICC) against a financial services provider, the customer will be required to prove that:
- an unlawful act has occurred through the fault or negligence of the financial services provider;
- the customer has suffered loss; and
- a causal relationship between the unlawful act and the loss suffered.
This is a very broad type of claim and can arise from both regulated and unregulated activities. If an activity breaches regulatory rules, then it is an ‘unlawful act’ in the statutory sense. If an activity is unregulated, then it might be an unlawful act in the sense that it contravenes good moral norms and standards of propriety.
In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?
Financial institutions’ obligations or duties to their customers are generally as provided in the agreement between the financial institutions and the customers. These are different from the financial institutions’ obligations or duties to the Indonesian Financial Services Authority (OJK).
We have not seen a case where a customer has successfully pleaded that duties owned by a financial institution to the OJK are also owned directly by that financial institution to such customer. A customer may try to advance an ‘unlawful act’ claim based on the actions of the financial institution that are also a breach of its obligations to OJK, but in order to succeed the customer will have to satisfy the requirements set out in question 1.
The ICC does, however, provide for a requirement of good faith, as explained in question 4.
We set out below some of the obligations or duties of financial institutions under the OJK regulations. Breaches of these regulations may result in the imposition of sanctions by OJK on the non-compliant financial institutions.
The sale and promotion of financial products and services is regulated under Regulation No. 1/POJK 07/2013 (POJK 1/2013) and supervised by the OJK.
POJK 1/2013 sets out the parameters and limitations that apply to the sale and promotion of financial products and services and the non-contractual duties owed by financial institutions to their customers and the OJK.
These duties apply to verbal communications and promotions, promotional tools, agreements and other activities or documents alike. In particular, POJK 1/2013 expressly prohibits fraudulent and misleading sales of financial products and services, and requires that financial institutions provide customers with:
- a summary of the product (including the benefit, risk, fees and terms and conditions);
- easy to understand wording or terms, also in the Indonesian language;
- the rights and obligations of the consumers;
- updates on any amendments to the product (ie, amendments to the benefit, risk, fees and terms and conditions);
- the name and logo of the company; and
- a statement saying that the company is registered and supervised by the OJK.
In addition, Regulation No. 76/POJK 07/2016 on Improvement of Financial Literacy and Inclusion in Financial Services Sector to the Consumer and/or Society requires financial institutions to improve their customers’ financial literacy by providing information regarding:
- financial management;
- types of financial services industry;
- financial services and products including their characteristics:
- benefit, cost and risk of the financial services and products;
- rights and obligations of the customers;
- ways to access financial services and products; and
- information regarding transaction mechanisms to utilise the financial services and products; and
- taxation on the relevant financial services or products.
Statutory liability regime
In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?
There is a statutory liability regime in place to ensure that financial institutions present true and accurate information about their financial products. Typically, it is enforced by the OJK by way of administrative or criminal sanctions. However, customers or parties (eg, investors) who are affected by false or misleading financial disclosures may also bring claims against the relevant financial institutions.
The statutory regime does not rule out claims under the general principles of the ICC; it concerns different and separate types of sanction (ie, administrative), which are different from those that the ICC can impose (ie, civil penalties).
The claimant shows reliance on the relevant document to prove the factual basis of his or her claim. Financial institutions are the most likely defendants. However, in practice, an Indonesian plaintiff in such a claim would generally try to include a large number of co-defendants. For example, in a misinformation claim in relation to a prospectus, the claim may include the regulator (the OJK), auditors, brokers and other advisers.
Generally, the law only covers those who have suffered actual harm, injury or loss caused by misleading statements.
Duty of good faith
Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?
Article 1338(3) of the ICC expressly provides that parties have a duty to perform contracts in good faith. This includes contracts concluded between financial institutions and their customers. However, the ICC does not elaborate on this in terms of specific obligations or restrictions.
Good faith can be inferred from the parties’ pre-contractual negotiations and actions before and during the performance of a contract. A party’s lack of good faith may be an incriminating factor in a contractual dispute. Breach of a ‘duty of good faith’ may potentially constitute a separate cause of action in its own right.
In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?
In Indonesia, there is no specific regulation imposing fiduciary duties on financial institutions in relation to their customers. The duties owed by financial institutions to their customers will be as prescribed in the agreements between them. The imposition of fiduciary duties outside of agreements only applies in the context of company law (eg, board of directors and board of commissioners’ duties).
However, as mentioned in question 4, the ICC provides for a duty of good faith, which cannot be excluded by contract.
How are standard form master agreements for particular financial transactions treated?
There have been a number of cases where Indonesian courts have been asked to adjudicate on matters involving standard form master agreements, such as the International Swaps and Derivatives Association (ISDA) Master Agreement. There has not, however, been a significant body of cases in which provisions of such standard form master agreements are thoroughly analysed or interpreted. It should also be noted that Indonesia, being a civil-law jurisdiction, does not recognise the concept of binding precedent, unlike in common-law jurisdictions.
One example of a standard form of master agreement that has been regulated and adopted in Indonesia is the general master repurchase agreement (GMRA) for repurchase (repo) transaction.
The standard form of GMRA is governed by English law. However, following OJK’s adoption of GMRA as a standard form to be used in Indonesia for repo transactions, an Indonesian annex has been created. The Indonesian Annex modifies certain provisions of the standard form GMRA to make it more suitable for local use. For instance, the Indonesian Annex amends the governing law clause to Indonesian law. It also amends the dispute resolution forum to arbitration under the auspices of certain arbitration bodies such as the Indonesian National Arbitration Board (BANI), Indonesian Capital Market Arbitration Board (BAPMI), Singapore International Arbitration Centre (SIAC), or any other alternative dispute resolution institutions registered with the OJK (see question 12).
Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?
Generally, from a contractual perspective, a financial institution can limit its liability provided that the limitations are mutually agreed by the financial institution and the customer and are not prohibited (although there is no guarantee that the Indonesian court would uphold this contractual limitation of liability). POJK 1/2013 provides that a standard agreement used by Indonesian financial institutions must be drafted in compliance with the prevailing laws and regulations. In order to protect consumers, POJK 1/2013 prohibits limiting standard agreements (ie, agreements drafted by the financial institution and treated as a template, containing standard clauses), among others, in the following ways:
- a financial institution’s statutory liabilities cannot be waived or transferred to the customer;
- the agreement cannot prevent the customer from demanding or obtaining a refund;
- the agreement cannot allow the financial institution to take unilateral action against the customer’s assets (ie, sell the assets in order to offset an outstanding obligation) or to encumber such assets with any security interest;
- the financial institution may not unilaterally reduce or remove any benefits from its services or products or reduce its customer’s assets (eg, in an agreement between a bank and its depositing customer, the bank is prohibited from including a clause that allows the bank unilaterally to withdraw the customer’s deposit); and
- the financial institution is not allowed to amend the agreement unilaterally.
Under POJK 1/2013, the consumer can submit a complaint to the OJK based on the indication that the financial institution has violated the provisions or requirements under the prevailing laws and regulations in the financial sector.
Freedom to contact
What other restrictions apply to the freedom of financial institutions to contract?
In addition to the restrictions mentioned in question 7, there are also industry-specific regulations. For example, financial institutions dealing in insurance are prohibited from applying policies that:
- prevent the insured party from raising any objection against the institution’s refusal to entertain a claim; or
- otherwise limit the insured party’s rights to file a claim or lawsuit.
The ICC also contains general provisions that prohibit certain ‘unfair’ contracts. For example, a contract between two parties that manifestly harms a third party is generally prohibited (although this will depend on the specific context of each case).
Additionally, non-negotiated unilateral clauses in an agreement between a financial institution and a customer are subject to Law No. 8 of 1999 on Consumer Protection, which prohibits the use of certain standard clauses (eg, the law prohibits clauses that purport to transfer liability to a third party).
The ICC states that damages for breach of contract should comprise only the actual loss, costs or interest caused to a claimant. However, the ICC also provides that if the contractual parties have agreed to a specific amount of damages for a certain breach, then their agreement should be respected and upheld. Therefore, it is not clear how a penalty clause that provided for an ‘excessive’ remedy would be treated by the courts. As always, the courts have a large amount of discretion in making such decisions.
The ICC provides for a general requirement of fairness, which prohibits the execution of unfair contracts being made and renders such contracts unenforceable. We have acted on a case in which the unilateral termination of a contract was found to be unlawful, even though it was conducted in accordance with the contract itself. The judges deliberately disregarded the clause that allows for unilateral termination on the ground that it was unfair.
What remedies are available in financial services litigation?
Under Law No. 8 of 1995 on Capital Markets, capital markets investors may take civil action against a financial institution in breach of such law or its implementing regulations. In addition, POJK 1/2013 also provides that financial institutions are responsible for any loss suffered by their customers if such loss was caused by their mistake or negligence.
If the litigation concerns an ‘unlawful act’ (see question 1), the substantive remedies available include financial compensation for material or immaterial damages. Indonesian law does not provide for punitive damages, although damages that might elsewhere be regarded as punitive may potentially be awarded as ‘immaterial’ (ie, intangible) damages.
If the litigation concerns a contractual breach, then the plaintiff is entitled to ask for mandatory orders requiring the performance of certain specified acts or rescission along with compensation for costs, damages, and interest.
Parties can be granted a ‘provisional decision’ (ie, injunctive relief) from Indonesian courts, for example, in order to temporarily stop an illegal product from being sold. It is relatively rare for Indonesian courts to grant provisional decisions (as compared to courts in common-law jurisdictions).
Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?
We are not aware of any financial services case before the Indonesian courts between a financial services institution and its customer relating to limitation of defence. Note, however, that under article 1967 of the ICC, the statutory limitation for any party to bring a civil claim is 30 years.
Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?
Yes. The OJK provides a special dispute resolution ‘facilitation’ procedure (a process similar to mediation). Matters that can be referred to this process must meet with the following criteria:
(i) the offender is a bank, pension fund, life insurance company, leasing company, pawn shop or guarantee institution;
(ii) the amount of monetary loss must not exceed 500 million rupiah or, if the offender is a general insurance company, 750 million rupiah;
(iii) the relevant financial institution has attempted to resolve the dispute but failed to do so as described in a letter (POJK 1/2013 requires financial institutions to periodically report any customer complaints and the progress of each such complaint. The regulation is silent on what the institution is required to show to prove that it has attempted to resolve the case; however, we foresee that in practice reports and minutes of meetings with the customer should be sufficient);
(iv) the dispute has not been heard or resolved in any other dispute resolution forum; and
(v) the dispute is not a criminal offence.
POJK 1/2013 expressly provides that only the consumer can initiate this procedure.
Claims using this process must be submitted no more than 60 days after the letter mentioned in point (iii) has been delivered to the customer. The OJK will appoint one or more facilitators. This ‘facilitation’ procedure will produce either a written mutual agreement (ie, a settlement agreement) or, if no settlement is reached, minutes of the facilitation.
Alternatively, there are several OJK-registered alternative dispute resolution bodies (LAPS) that may offer different dispute resolution mechanisms (eg, mediation, adjudication and, or arbitration). Parties can agree to submit their disputes to the relevant LAPS, either before the dispute arises or after.
Do any specific procedural rules apply to financial services litigation?
There are no specific procedural rules applicable to financial services litigation before the Indonesian courts. The general procedural rules depending on the type of civil claim will apply.
However, for OJK-facilitated dispute resolution procedure (see question 11), the procedural rules established under POJK 1/2013 will apply. In addition to the requirement set out in question 11, prior to the facilitation, relevant parties must sign a mutual agreement consenting to the process. The process should then be completed within 30 days of this agreement (although this can be extended by a further 30 days).
For LAPS, each LAPS has its own applicable rules and procedures (see question 11).
May parties agree to submit financial services disputes to arbitration?
Yes. Either on the basis of an existing arbitration agreement between the parties (usually found in the agreement that is being disputed) or a new agreement between them.
Out of court settlements
Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?
Generally speaking, parties are not required to attempt to settle matters out of court or use alternative dispute resolution before referring disputes to court. However, if a civil claim is filed with a district court, the parties will have to undergo a mandatory court-administered mediation before the court will examine the civil claim.
Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?
There are no such considerations specific to financial services litigation. We set out below general guidelines applicable to litigation in Indonesia.
Generally, before commencing a civil claim for breach of a contractual or statutory obligation, a plaintiff should first serve several letters of demand on the defendant, in order to show the plaintiff’s good faith to settle the matter amicably. In addition, the plaintiff must also take into account and comply with other requirements set by the court, including, but not limited to, certain formality requirements that are particularly relevant to foreign plaintiffs to Indonesia actions (eg, a power of attorney signed overseas must be signed before a local notary and legalised by the Indonesian embassy or consulate, and all foreign language contracts and documents that need to be submitted as part of the evidence must be translated into Indonesian by a certified, sworn translator).
After the claim is registered, a notice of a claim will be delivered to the defendant by the court registrar. The plaintiff has no obligation to notify the defendant in respect of the claim that is being filed.
Indonesian courts do not require any pre-trial discovery of documents.
Unilateral jurisdiction clauses
Does your jurisdiction recognise unilateral jurisdiction clauses?
The use of unilateral jurisdiction clauses is not uncommon. There is also no express prohibition against the use of such clauses. However, their enforceability has not been tested before the Indonesian courts.
What are the general disclosure obligations for litigants in your jurisdiction? Are banking secrecy, blocking statute or similar regimes applied in your jurisdiction? How does this affect financial services litigation?
In practice, there are few disclosure obligations on litigants in Indonesia. There is no pre-trial discovery of documents in Indonesian civil litigation and each party only has to produce evidence that it wishes to rely on to prove its case. Strictly speaking, therefore, parties have no obligation to share documents or information that they do not wish to rely on or provide.
Financial services institutions are bound by a duty of confidentiality to their customers and can only disclose customers’ information if the customers have given their consent or if the disclosure is required or permitted by the prevailing regulations. For example, some of the exemptions to banks’ duty of confidentiality include the ability to disclose for purposes of criminal and civil proceedings:
- customer data that can be disclosed if the customer is a criminal suspect or defendant (provided that such a disclosure is requested by a law enforcement agency and approved by the OJK); and
- in civil proceedings between a bank and its customer, the OJK does not need to give its prior approval for disclosure of information relating to customers by the relevant bank to the extent that the disclosed information bears relation to the civil proceedings.
Must financial institutions disclose confidential client documents during court proceedings? What procedural devices can be used to protect such documents?
As explained in question 17, there is no pre-trial discovery of documents in Indonesian litigation and each party only has to produce evidence that it wishes to rely on to prove its case. Therefore, if a financial institution does not wish to rely on the confidential client documents during civil court proceedings, it will not need to disclose such documents. Note that in criminal proceedings, in general, financial institutions must comply with any request (which has been approved by OJK) to disclose information issued by the police, prosecutors or courts.
In the event a financial institution wishes to disclose confidential client documents in a civil court proceeding and protect their confidentiality, while there are no procedural devices expressly provided in the regulations, the financial institution can rely on the laws and regulations providing for confidentiality of such documents and request that the judge give effect to the ‘spirit’ of such laws and regulations.
In addition, the financial institution may also request that the judge hold ‘closed door’ proceedings that will not be open to the public. Redaction of irrelevant or sensitive material from documents may be possible, depending on the nature of the documents and the information they contain. This should be discussed on a case-by-case basis and can be explored with the judge or counterparties to a dispute.
Ultimately, where parties to a dispute are at risk of having to disclose confidential client information, it is a matter of ‘negotiating’ with the judge, who has a wide discretion in such matters.
Disclosure of personal data
May private parties request disclosure of personal data held by financial services institutions?
Yes. Private parties may request disclosure of their own personal data held by financial services institutions. This right is currently provided for in the 2016 regulation issued by the Minister of Communication and Information on personal data protection in the electronic systems. The regulation allows data owners to access their personal data that has been provided to electronic system operators (which term is defined sufficiently wide to arguably cover financial services institutions), provided that the disclosure is still in compliance with prevailing laws and regulations.
At the time of writing, there is no single umbrella data protection legislation in Indonesia. However, there is currently a bill waiting to be passed by the legislature.
Note that financial services institutions are prohibited to disclose customer information unless one of the exceptions (eg, the relevant customer’s consent has been obtained) applies (see question 17). This means, if none of the exceptions applies, a private party cannot request disclosure by a financial services institution of personal data of another private party.
What data governance issues are of particular importance to financial disputes in your jurisdiction? What case management techniques have evolved to deal with data issues?
We are not aware of any financial dispute where data governance issues became the highlight of the proceeding. Indonesia has promulgated several laws and regulations pertaining to electronic data, documents, transactions and signatures. These laws and regulations generally provide that electronic instruments made in compliance with the prescribed requirements are acceptable forms of evidence that can be presented to courts.
However, using electronic evidence has been a challenge in Indonesia. It is highly dependent on the preference, view, and level of comfort of the relevant panel of judges. The stance taken by one court may therefore differ from that taken by another court.
Although there have been a number of developments on the regulatory front relating to technology-based financial services, the position taken by the judges in examining the case brought before them may not be as advanced. In the past, Indonesian courts have taken a conservative approach in relation to the use of electronic data and have been known to not accept any electronic data as evidence at all. We therefore normally prepare printouts of the relevant electronic information and, if necessary, stamp the printed data to assure validity of the printed documents. It is also common to liaise with an IT expert or an IT law expert if the matter involves a complex data issue.
Interaction with regulatory regime
What powers do regulatory authorities have to bring court proceedings in your jurisdiction? In particular, what remedies may they seek?
The OJK is vested with extensive powers of investigation into potential breaches of laws and regulations applicable to the financial services sectors (including requesting assistance from other law enforcement bodies, eg, the police, prosecutors or courts), and may impose sanctions such as written reprimands, suspension of a licence, revocation of a licence or financial penalties.
The OJK is also authorised to investigate financial crimes but such cases have to be forwarded to the relevant public prosecutor’s office for criminal prosecution.
Disclosure restrictions on communications
Are communications between financial institutions and regulators and other regulatory materials subject to any disclosure restrictions or claims of privilege?
Generally speaking, communications between financial institutions and the OJK are not subject to disclosure restrictions or claim of privilege. Financial institutions are legally obliged to submit periodic financial reports to the OJK. The OJK will then collate and process the reports to produce collective, public periodical reports.
However, communications and correspondence exchanged between a financial institution and the OJK during its course of business may be confidential in nature, especially if marked as such by the financial institution. If the information is confidential, the law strictly prohibits the OJK and any person, who, because of their relationship with the OJK, came into the possession of, or has knowledge of, such information, from disclosing that information.
Law No. 21 of 2011 on Financial Services Authority also provides that any person who is or has ever served as a member of the board of commissioners, officials or employees of the OJK is prohibited from using or disclosing any confidential information to other parties, unless it is within the performance of his or her functions, duties and powers as part of the OJK or it is required by law.
May private parties bring court proceedings against financial institutions directly for breaches of regulations?
As explained in question 2, generally speaking, financial institutions’ duties to the regulator (which are typically provided for in regulations) are separate from financial institutions’ duties to their customers (which are typically provided for in the relevant agreements). Therefore, a breach of a regulation in and of itself will not usually entitle private parties to commence court proceedings against financial institutions.
A private party (whether an individual or a corporate) can, however, commence an ‘unlawful act’ claim based on the financial institution’s action that is also a breach of a regulation, but in order to succeed the private party will have to satisfy the requirements set out in question 1.
In a claim by a private party against a financial institution, must the institution disclose complaints made against it by other private parties?
A financial institution is not required to disclose complaints made against it by other private parties. The parties in a civil court proceeding are only required to provide evidence relevant to their own arguments and positions as the Indonesian courts do not require any pre-trial discovery of documents (see question 17).
Where a financial institution has agreed with a regulator to conduct a business review or redress exercise, may private parties directly enforce the terms of that review or exercise?
Generally speaking, private parties cannot directly enforce the terms of a review or exercise carried out by a regulator.
Changes to the landscape
Have changes to the regulatory landscape following the financial crisis impacted financial services litigation?
Indonesia did not suffer as much as many other countries from the 2008 global financial crisis and, accordingly, there were no major changes to the regulatory landscape as a result. A number of regulatory provisions were introduced, however, to ensure continued economic stability and to increase risk management within the banking industry.
To complement these new regulatory provisions, a new set of procedural frameworks was also established to assist consumers in seeking remedies for financial losses (these new frameworks concerned, for example, consumer protection and bankruptcy). A combination of both of these factors has led to an increase in the number of financial litigation cases.
Is there an independent complaints procedure that customers can use to complain about financial services firms without bringing court claims?
The dispute resolution mechanisms other than courts that customers can resort to are explained in question 11.
In addition to such mechanisms, it is worth noting that POJK 1/2013 requires financial services firms to establish an internal unit or function to investigate and resolve customer complaints. While such a unit or function is administered by the financial services firms themselves, they are also required to file customers’ complaints received by the OJK through the OJK’s integrated reporting system. The OJK can then monitor incoming complaints, noting how they are processed and how they are resolved by the financial services firms. POJK 1/2013 also set certain timelines for the handling of customer complaints.
Customers need not go through the above procedures or mechanisms before commencing a court action against a financial services firm.
Recovery of assets
Is there an extrajudicial process for private individuals to recover lost assets from insolvent financial services firms? What is the limit of compensation that can be awarded without bringing court claims?
The only extrajudicial process is recovery from the deposit insurance scheme (LPS), which guarantees up to 2 billion rupiah of savings in customers’ accounts in each Indonesian bank that meet the prescribed requirements.
Other than the above, private individuals will have to rely on the court insolvency proceedings to submit their claims as unsecured creditors.