The Product Regulation and Liability Review: Indonesia

Introduction to the product liability framework

The rules and policies on product liability in Indonesia are fragmented, in that they are regulated at different levels and under different authorities. That being said, the two main references on product liability in Indonesia are Law No. 8 of 1999 on Consumer Protection (CPL) and the Indonesian Civil Code (ICC). Although the ICC generally governs the basis of contractual liability and fault-based liabilities, the CPL further elaborates product liability.

The CPL employs a broad definition of 'business actor', which covers manufacturers, importers, intermediaries, resellers and other entities. In some provisions on advertisement, the CPL mentions advertising agencies as the subject of the prohibition relating to advertisement. On the other hand, the CPL narrowly defines 'consumer' and refers only to the 'end consumer', being a person who consumes the product for himself or herself or others and not for trading or to be used as part of the manufacturing process of another product.

Outside of the CPL and ICC, many detailed or technical rules and policies relating to product liability and consumer protection can be found in ministerial or state agency regulations. For instance, product liability, in terms of mandatory technical standards of products, can be found under the Indonesian National Standards (SNI), established by the Ministry of Industry. Likewise, consumer protection in the digital industry is regulated by the Ministry of Communications and Information Technology (MOCIT), which sets obligations and measures that an electronic system provider must comply with, including on protection of users' personal data. Meanwhile, consumer protection in the financial services sector is overseen by the Financial Service Authority (OJK).

Moreover, certain products may also be subject to additional rules. For example, the Ministry of Trade sets labelling requirements for certain electronics, building materials, automotive spare parts, textiles and textile products, and other products, whereas the National Agency of Food and Drug Control (BPOM) requires appropriate labelling for pharmaceutical products, traditional medicines, foods, processed foods and food supplements. Failure to comply with these technical regulations may subject the business actor to administrative sanctions not only under the regulations but also under the CPL.

Regulatory oversight

There are several authorities that oversee product liability in Indonesia. In general, the CPL specifies four authorities, each with different roles and authorities, that support the enforcement of the CPL – namely the Ministry of Trade, the National Consumer Protection Agency (BPKN), the Consumer Dispute Settlement Agency (BPSK) and the National Police.

i Ministry of Trade

The Ministry of Trade, through the Directorate General of Consumer Protection and Trade Compliance, is responsible for policymaking, law enforcement, consumer education and awareness-raising, as well as receiving consumer complaints. Recently, the Ministry of Trade has been focusing on, among other things, the e-commerce industry in Indonesia.

ii BPKN

BPKN's main role is to advise the government on consumer protection issues. To carry out this function, BPKN's duties are as follows:

  1. providing advice and recommendations to the government;
  2. conducting research and studies on the prevailing law;
  3. researching the consumer safety aspect of goods and services;
  4. encouraging the development of non-governmental consumer organisations;
  5. promoting consumer protection awareness;
  6. receiving consumer protection complaints from the public, non-governmental organisations and business actors; and
  7. surveying consumers' needs.

Recently, in line with the increase in consumer complaints in this sector, BPKN has been focusing on supervising the digital economy sector, including e-commerce and online lending applications. In 2021, BPKN also issued a recommendation to OJK regarding consumer protection in the online lending application business.

iii BPSK

BPSK is an out-of-court dispute settlement forum that facilitates mediation, arbitration or conciliation for consumer disputes. BPSK is established at the city or regency level.

The duties and function of BPSK are as follows:

  1. handling and settling consumer disputes through mediation, arbitration or conciliation;
  2. providing consultation;
  3. supervising the inclusion of standard clauses;
  4. reporting any violation of the CPL to the police investigator;
  5. following up any report from the consumer related to the alleged CPL violation;
  6. conducting research and investigation into the consumer protection dispute;
  7. summoning the business actor that allegedly violated the CPL;
  8. summoning and presenting witnesses or expert witnesses who are relevant to the CPL violation case;
  9. requesting assistance from the police investigator to summon any business actor, witness or expert witness who is unwilling to attend to a summons;
  10. obtaining and assessing documents or items of evidence related to the investigation;
  11. deciding on the existence of consumer loss;
  12. notifying its decision to the business actor; and
  13. imposing administrative sanctions on the violating business actor.

iv National Police

Under the CPL, a business actor may be subject to a criminal sanction for violation of the CPL. A criminal proceeding begins with an inquiry and investigation by the National Police or, in limited cases, by the civil servant investigator (i.e., a civil servant in a government institution who has the authority to act as an investigator).

Generally, criminal offences can be divided into general offences and complaint offences. The latter can be investigated and prosecuted only if there is a police report from the victim. Criminal offences under the CPL are classified as general offences, which means that the National Police can initiate a criminal investigation of the alleged CPL violation irrespective of a police report by the victim. In practice, the National Police plays an active role in monitoring and investigating alleged violations of the CPL, especially if there have been many complaints received against a product that is widely consumed by the public. For instance, in the past, the National Police has investigated an alleged personal data breach by a bank and the operation of illegal fintech lending companies.

The National Police also has duties outside of criminal offences, such as if BPSK requests its assistance to bring parties that did not honour a BPSK summons or in starting a criminal investigation against a party that fails to comply with a final and binding BPSK decision.

Product liability is also overseen by sectoral bodies such as BPOM, OJK, the Ministry of Transportation and MOCIT. In recent years, BPOM has been focusing heavily on monitoring and controlling the distribution of vaccines and medicines for covid-19. In this respect, BPOM actively ensures the safety and efficacy of covid-19 vaccines and medicines by authorising vaccines and medicines that are distributed in Indonesia.

Meanwhile, MOCI and OJK have been focusing more on the digital economy sector, particularly on financial technology. In this respect, MOCI has blocked access to more than 4,906 illegal online lending applications. Further, OJK has revoked the registration and licensing of several peer-to-peer lending service providers that were found to have conducted illegal activities that harmed many consumers in Indonesia.

Causes of action

The CPL regulates the general obligations of a business actor, which include:

  1. providing correct, clear and honest information regarding the condition and warranty of the products, and an explanation of their use, repair and maintenance;
  2. treating and serving consumers properly, honestly and non-discriminatively. A business actor must not give different service qualities to consumers based on their race, religious belief, culture, education, economic status or other social status;
  3. providing the opportunity to the consumer to test or try certain products, as well as a guarantee or warranty for the products; and
  4. providing compensation or a refund, or both, for any damage caused by the use, consumption or application of the goods or services or if the goods and services are different from what has been previously agreed.

Some of these business actors' obligations are reiterated as rights of the consumer.

A business actor must pay compensation to a consumer who suffers damages or losses resulting from the use of the product. A business actor that manufactures goods that can be used for at least one year or more is required to provide spare parts and after-sales service and fulfil the warranty offered to the consumer.

Prohibitions for a business actor under the CPL can generally be classified into three categories: unfair practices/product compliance; misleading advertisement/false representation; and standard clauses.

i Unfair practices/product compliance

In the first category, a business actor is prohibited from producing or offering products that do not:

  1. comply with the required standards or laws;
  2. conform to their label or product description, including in respect of their quantity, condition, efficacy or instruction to use;
  3. state the expiration date or best before date;
  4. follow the halal (permissible under the Islamic law) procedures when they are stated to be so;
  5. comply with the labelling requirements;
  6. provide a product description or manual in Bahasa Indonesia, if required; and
  7. give the full and correct information on defective or second-hand goods (if relevant).

If a business actor fails to meet the standards, requirements or protocols set by the government or any sectoral authority (e.g., mandatory SNI by the Ministry of Industry, labelling requirements by the Ministry of Trade or BPOM, and good manufacturing or distribution practice by BPOM), it runs the risk of violating this prohibition.

As one of the world's largest halal markets, halal products and certification are regulated in Indonesia. Recently, the government issued an updated implementing regulation on halal certification (i.e., Government Regulation No. 39 of 2021 on the Implementation of Halal Product Assurance). This regulation specifies that any products imported, distributed and sold as halal in Indonesia must be halal certified. This rule does not apply for products that originate from materials prohibited under the Islamic law (haram). Some products that are subject to this regulation are food and beverages, pharmaceuticals and cosmetics.

ii Misleading advertisement/false representation

The second category sets a general prohibition for a business actor from falsely or incorrectly offering, promoting or advertising products – particularly on prices and rates, efficacy, conditions and warranties, discounts or gifts – and negative side effects. The CPL breaks down this prohibition to cover prohibitions to offer, promote or advertise products as if they:

  1. had discounts or special prices;
  2. had certain characteristics;
  3. had sponsors;
  4. were available;
  5. did not contain any hidden defects;
  6. were complementary to other particular goods;
  7. were originated from a certain area;
  8. were harmless or without side effects; and
  9. offered certain promise.

iii Standard clauses

The third category deals with the prohibition on certain standard clauses that are unilaterally prepared and predetermined by a business actor. Standard clauses will be deemed null and void if they are difficult to see, read or understand or specify:

  1. the transfer of the business actor's liability;
  2. the right of the business actor not to accept returns or give a refund for the purchased product;
  3. that the consumer has granted an authority to the business actor to conduct any unilateral acts relating to goods being purchased in instalments;
  4. the rule to prove the loss of benefit of the purchased product;
  5. the right of the business actor to reduce the benefit of the purchased product;
  6. that the consumer must comply with any new, additional or amendment of terms made unilaterally by the business actor; and
  7. that the consumer has granted a right to the business actor to register any mortgage, pawn or guarantee right against the purchased product.

The CPL specifies the administrative and criminal sanctions for a business actor that violates the CPL. The maximum administrative sanction is 200 million rupiahs, and this fine can be imposed by BPSK against:

  1. a business actor that fails to pay adequate compensation in due time for the damages or losses incurred by the consumer;
  2. an advertising agency that breaches the CPL, particularly relating to misleading advertisement/false representation;
  3. a business actor that fails to provide spare parts or after-sales service or does not fulfil the warranty as agreed or promised; and
  4. a business actor that sells services that do not fulfil the agreed warranty or guarantee.

Criminal sanctions that may apply vary depending on the violation; the maximum is either five years' imprisonment or a 2 billion rupiah fine. Additional criminal sanctions may be imposed in the form of confiscation of goods, announcement of a judge's decision, payment of damages, an injunction to stop certain activities, obligation to pull out goods from circulation or revocation of a business permit. If the violation causes death, permanent disabilities or severe injuries, the Criminal Code may also apply. In addition to the administrative and criminal sanctions under the CPL, a consumer may lodge a civil lawsuit to seek damages with no ceiling amount.

Litigation

i Forum

A consumer dispute can be settled out of court – for instance through BPSK or BPKN – or in the court by filing a civil lawsuit or making a police report, or both. A consumer can pick one action or run several actions concurrently.

BPSK

The CPL stipulates that the consumer can choose an alternative dispute settlement forum by way of mediation, arbitration or conciliation in BPSK. To settle a consumer dispute, BPSK will establish a panel of commissioners consisting of an odd number of at least three members to represent the government, the consumer and the business actor. BPSK must issue a decision within 21 business days after it receives the consumer's claim. Further, the business actor must implement BPSK's decision within seven business days after receiving the decision. Otherwise, BPSK will submit the decision to the civil servant investigator to further investigate the case.

If a party is dissatisfied with BPSK's decision, that party may file an objection to the District Court. Based on Supreme Court Regulation No. 1 of 2006 on the Procedures to Submit Objections against BPSK Decisions, the District Court can annul BPSK's decision. Lastly, BPSK is not authorised to impose any criminal sanction, as this authority is reserved for the criminal court.

BPKN

In addition to BPSK, the CPL also specifies BPKN as a consumer protection agency that advises the government. BPKN consists of 15 to 25 members that come from the government, business, academia, non-governmental organisations and experts in consumer protection.

The CPL specifies that one of BPKN's duties is to receive complaints on consumer protection from the public, non-governmental consumer institutions and business actors. In responding to the complaints, BPKN will conduct an assessment and may invite the relevant parties, including the government, to discuss the matter. BPKN may also arrange a discussion forum between the consumer and the business actor to resolve the issue. This process is voluntary as BPKN does not have the authority to enforce parties to attend the forum or to impose sanctions. If a settlement cannot be reached, the case can proceed to BPSK. Lastly, although BPKN does not have the authority to issue a binding decision, it may issue a non-binding recommendation for the government to improve consumer protection in a certain sector or issue.

Civil court proceedings

A consumer may file a claim against a business actor to the District Court based on either tortious liability or contractual liability.

After the District Court issues its decision, a party can appeal against the decision to the High Court as the first level of appeal. In this respect, the High Court judges will review the District Court's decision based on questions of law and facts. After the High Court, a party could file a cassation to the Supreme Court. At the cassation level, the Supreme Court judges will review the case based only on questions of law (not facts). The Supreme Court's decision is final and binding.

As the last resort, a party may file a judicial review as an extraordinary legal remedy to the Supreme Court against a decision that has become final and binding. However, the grounds for judicial review are limited, and an application must be submitted within the specified period. In this respect, a judicial review can be submitted only if it satisfies one of the following conditions:

  1. the decision was based on fraud or false evidence, or both;
  2. there is new evidence, which was not found during the trial, that is considered substantial for the case;
  3. the judge granted something that was (1) not demanded or (2) more than what was requested in the trial;
  4. the judge failed to undertake legal consideration;
  5. there are contradicting judgments for the same legal matters with the same legal basis; or
  6. the judge manifests an error in their decision.

Criminal case

The investigation for any violation by the business actor will first be conducted by the National Police. Further, the prosecution process will be carried out by the public prosecutor.

ii Burden of proof

In a civil lawsuit proceeding, the burden of proof usually lies with the claimant. However, Article 28 of the CPL adopts a strict liability and requires the business actor to prove that there has been no fault or negligence in the consumer protection dispute. The business actor must also prove that the products sold to the consumer have complied with the required standard and regulations.

On the other hand, the ICC requires the consumer, as the claimant, to prove the damages or injury resulting from the use of goods or services due to the business actor's tortious act or contractual breach. The damages or loss suffered by the consumer can be used as the basis for the demand for compensation. In practice, it is less likely for the court to consider the claimant's compensation demand if the claimant relies only on their potential loss.

iii Defences

Under the CPL, a business actor may avoid liability for the consumer losses if:

  1. the business actor can prove that the goods should not have been or were not intended to be circulated;
  2. the defect to the goods emerges after the expiry of the relevant guarantee or warranty period;
  3. the defect to the goods occurred due to compliance to the goods qualification as set out by the government;
  4. the consumer has been negligent; or
  5. the four-year claim period (calculated from the date of purchase of the goods) or the agreed claim period has elapsed.

Further, the business actor may consider compliance to all required standards or regulations in producing or selling the product as one of the defences in a product liability cases. The ICC also recognises force majeure defences that may release a business actor from liability.

iv Personal jurisdiction

The CPL is silent on personal jurisdiction. However, Article 100 of the Civil Procedural Law stipulates that Indonesian courts have the jurisdiction to adjudicate any contractual breach over an agreement between an Indonesian citizen and a foreign citizen or business entity.

v Expert witnesses

In a court proceeding, the parties may summon expert witness to give statements or testimony related to the proceeding. The expert's statements can be submitted in writing (affidavit) or provided directly in court.

vi Discovery

Indonesian procedural law does not recognise discovery.

vii Apportionment

The CPL specifies that a reseller may not be held liable if it resells the product to the consumer without making any change to the product. Nevertheless, the effectiveness of this exemption remains to be seen.

In general, the liability for a defective product may extend to the manufacturer, importer, distributor, retailer and any relevant third party, depending on the gravity of violation. For instance, even though the CPL specifies that an advertising company or agency is responsible for its advertisements and consequences, the principal may be held liable if the misleading advertisement was based on an incorrect product description provided by the principal to the advertising company. Therefore, the liability depends on the facts and will be assessed on a case-by-case basis.

viii Mass tort actions

Article 46(1)(b) of the CPL allows a large group of consumers with the same concern about or interest in a consumer protection issue to file a class action lawsuit to the civil court. The main legal basis of the procedure for the class action lawsuit is regulated under Supreme Court Regulation No. 1 of 2002 on the Procedure for Class Action Lawsuits. Based on this Regulation, a class action lawsuit may be filed to the court if the following conditions are satisfied:

  1. there is a large number of consumers and, consequently, any individual claim becomes ineffective and inefficient if submitted separately;
  2. there is a similar fact, event and legal basis that is substantially used in the lawsuit, and there are typical claims among class representatives and their class members; and
  3. the class representative is fair and genuinely protects the interest of the class members being represented.

In a class action lawsuit, the judge will first examine and consider whether the requirements of a class action have been satisfied. If the class action lawsuit is valid, the judge will issue a court determination stating the validity of the lawsuit. Afterwards, the defendants are required to issue a notice to describe the possible class members belonging to the class definition. The notice should also detail how class members may opt out of the class membership. Members who decide to opt out will no longer be legally bound to the relevant class action lawsuit proceeding and judgment.

ix Damages

Article 19 of the CPL stipulates that compensation may be given in the form of a refund, exchange of goods or services of the same type or equal value, or healthcare or insurance coverage. As the CPL specifies a non-exhaustive list of the forms of compensation, the compensation given can be in different forms.

The CPL requires that compensation be given to the consumer within seven days after the transaction date. However, the CPL does not clarify the outcome in situations where, for instance, a consumer files a complaint six days after the transaction date. Does this mean that the business actor will have only one day to provide compensation? It is also unclear as to what obligation arises for a complaint submitted after the seven-day period.

Further, the ICC stipulates that the claimant may demand compensation that includes material or non-material damages, or both. Material damages are calculated based on the actual loss suffered by the consumer from consuming or using the product or services, whereas non-material damages can be claimed based on a non-economic aspect, which value might be difficult to verify, such as reputational damage, emotional stress, etc. The ICC does not prescribe a limit for non-material damages.

Year in review

Recently, the government and various sectoral authorities have issued a number of new or updated regulations relating to consumer protection, such as:

  1. Minister of Trade Regulation No. 25 of 2021 on Labelling Requirements for Goods, which amends the labelling requirements for certain products;
  2. Minister of Trade Regulation No. 72 of 2020 on BPSK, which clarifies the structure of BPSK; and
  3. Bank Indonesia Regulation No. 23/17/PADG/2021 on Procedures to Handle Consumer Protection in Bank Indonesia, which specifies, among other things, the procedure to file a consumer complaint against a payment system provider or other entities supervised by Bank Indonesia (Indonesia's central bank).

Furthermore, in 2021, the Ministry of Industry set a mandatory Indonesian standard (SNI) for at least six new products.

In respect of sectoral development, digital economy is one sector that has been growing rapidly. Thus, to strengthen consumer protection in this sector, the government has issued Government Regulation No. 80 of 2019 on Electronic Commerce (GR 80/2019), which requires, among other things, every e-commerce provider to uphold consumer protection and rights as stipulated in the CPL.

There are several provisions in GR 80/2019 that relate to consumer protection issues in e-commerce transactions. One of those provisions can be found in Article 13(1)(b) of GR 80/2019, which requires every e-commerce provider to provide correct, clear and honest information regarding the condition and assurance of the goods and services traded in e-commerce, including the electronic system used, based on the characteristics, functions and roles in the transaction. In addition to the physical goods, GR 80/2019 also acknowledges digital goods, which are intangible goods in the form of electronic or digital information, such as software, multimedia and electronic data.

Further, GR 80/2019 states the obligations of sellers or providers in an e-commerce transaction. In delivering products, the seller or provider must ensure the safety, condition, confidentiality, conformity and punctuality of the products.

GR 80/2019 also emphasises the obligation for the seller or provider in an e-commerce transaction to give the right for the consumer to exchange or cancel the purchased product within two business days after the receipt date. The exchange or cancellation of the product can be conducted if:

  1. the product delivered to the consumer is incorrect or different;
  2. the actual delivery period of the product is incorrect or different;
  3. there is a hidden defect;
  4. the product is damaged; or
  5. the product has expired.

In this respect, Article 68 of GR 80/2019 stipulates that the product's provider or seller must ensure that the digital products can be operated by the consumer. If a product causes loss to the consumer, the seller will be held responsible.

On a separate note, GR 80/2019 also requires every business actor to provide a channel to handle consumer complaints. The consumer complaint channel should include at least:

  1. the address and contact details of the consumer complaint channel;
  2. the consumer complaint procedure;
  3. the complaint handling mechanism;
  4. the competent officers to process consumer complaints; and
  5. the period for settling consumer complaints.

Any violation of GR 80/2019 may subject a party to the following administrative sanctions:

  1. a warning letter;
  2. inclusion in the list of prioritised monitoring;
  3. inclusion in a blacklist;
  4. temporary suspension of e-commerce operator services; and
  5. revocation of a business licence.

Footnotes

1 HMBC Rikrik Rizkiyana, Asep Ridwan and Farid Fauzi Nasution are partners and Wisnu Wardhana is a senior associate at Assegaf Hamzah & Partners.

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