Cargo Claims under Indonesian Shipping Law and Implementing the Limitation of Liability
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Overview
In this client update, ARMA Law sets out its observations on the legal framework governing cargo claims, limitation of liability, and their exceptions under Indonesian law. We highlight the principal rights and obligations of carriers and cargo interests, including the circumstances in which carriers may be held liable for cargo loss or damage, the available limitations of liability, and the applicable time bar provisions for bringing claims.[1]
A proper appreciation of these issues will assist shipowners, carriers, cargo interests, insurers, and other maritime stakeholders in assessing their rights, liabilities, and risk exposure when cargo disputes arise in connection with Indonesian trade or Indonesian law-governed carriage arrangements or even carriage globally.
The General Regulatory
Indonesia has not ratified the Hague Rules, the Hague-Visby Rules, the Hamburg Rules, or the Rotterdam Rules ("the Global Framework"). Instead, cargo claims in Indonesia are primarily resolved under Indonesian law, which is predominantly governed by the Indonesian Commercial Code ("Commercial Code"), the Indonesian Civil Code, Law No. 17 of 2008 on Shipping along with its subsequent amendments (the "Indonesian Shipping Law"), and other applicable technical regulations.[2]
The Substantive Basis of Liability
1. Title to Sue
Article 510 of the Commercial Code provides that the lawful holder of the bill of lading has title to sue. In practice, this often extends to several categories of claimant, which are, among others, the shipper, the consignor, the cargo owner, or the cargo insurer acting by way of subrogation, since the insurers who have identified the cargo owner then step into the owner's position to seek recovery from the carrier. This last category — the subrogated cargo insurer — is, in fact, the claimant type most frequently encountered in actual Indonesian cargo claim litigation.
The Supreme Court has recognised the important role of marine cargo insurers in cargo recovery proceedings. In Supreme Court Decision No. 1203 K/Pdt/2017, the Court confirmed that, following indemnification of the insured cargo owner, a cargo insurer is legally entitled to pursue recovery against the carrier through the doctrine of subrogation as recognised under Article 284 of the Commercial Code.
There are three main functions of the Bill of Lading, which are considered as a receipt for the cargo, evidence of a contract of carriage, and it may itself constitute the contract of carriage, and it guarantees its holder an exclusive right to claim delivery of the cargo (document of title). In Supreme Court Decision No. 716 K/Pdt/1984, the Indonesian Supreme Court has confirmed the bill of lading's status as a binding contract of carriage.
2. Carrier's liability: What the Carrier Owes
Article 466 of the Commercial Code defines the carrier as anyone who commits, by time-charter, voyage charter, or other agreement, to transport goods by sea. The Commercial Code further imposes the carrier's core duty to take good care of the goods from the moment of receipt until delivery, and the carrier is liable for failure to deliver all or part of the goods, or for damage to the goods. This is, on its face, a strict and demanding standard - the carrier is presumptively liable for any damage or loss unless they can prove that the non-delivery or damage was due to circumstances beyond their control, inherent defects of the goods, or the consignor's fault.[3]
In the Supreme Court Decision No. 363 K/Pdt/1984, the Court reaffirmed that the statutory presumption of liability imposed on carriers under Article 468 of the Commercial Code is not absolute. The Court accepted that a carrier may be relieved from liability where it can establish that the cargo loss or damage resulted from unavoidable perils of the sea or other circumstances constituting force majeure beyond its reasonable control. Accordingly, the decision demonstrates that the burden of proof rests upon the carrier to establish the applicability of such defences before liability may be excluded.
A contractual defence arises where the bill of lading is qualified. If the bill of lading states that the content, nature, amount, weight or size is unknown, or a similar clause to this effect, the carrier is relieved of liability for the corresponding cargo claim — unless the carrier actually knew or should have known the true condition and type of the cargo, or the cargo had already been quantified in the carrier's presence. Therefore, the issuance of a bill of lading with detailed information regarding the cargo is paramount, as it aligns with the nature of the bill of lading outlined in Article 506 of the Commercial Code and is essential for ensuring the right to file a cargo claim with the carrier.
3. Limitation of Liability
Under the Commercial Code, the carrier is permitted to stipulate a fixed monetary cap on its liability per item or per unit of cargo carried, but only where the carrier was not informed the nature and value of the goods before or at the time they were received by the carrier. Further, the contractual cap cannot be set below f. 600 or 600 guilders.[4] The carrier may also stipulate that it owes no compensation at all where the shipper deliberately misrepresented the nature and value of the goods. Where the carrier is also the shipowner, liability for damage sustained by cargo carried on board the vessel is capped at f. 50 or 50 guilders for each cubic meter of the vessel's net tonnage.[5]
In the use of the above colonial-era currency figures, the judge at the Indonesian courts often exercises wide equitable discretion, and in some cases, judges disregard the strict statutory limits in favour of awarding damages based on the actual, proven material loss suffered by the cargo owner.
Given the above statutory regime, in practice, commercial parties typically negotiate limitation clauses in the contract of carriage, charterparty, or bill of lading. These are generally enforceable provided they do not violate Indonesian public policy or the doctrine of good faith.
In Supreme Court Decision No. 716 K/Pdt/1984, the Court recognised the enforceability of contractual limitations of liability contained in a Bill of Lading. The Court held that where the shipper failed to declare the value of the cargo prior to shipment and such value was not incorporated into the Bill of Lading, the carrier's liability could validly be limited to the maximum amount agreed under the contract of carriage. Although Indonesia is not a party to the Hague-Visby Rules, this decision illustrates that Indonesian courts generally uphold contractual limitation clauses based on the principle of freedom of contract, provided that such provisions do not contravene mandatory provisions of Indonesian law.[6] This judicial approach is broadly consistent with the package limitation mechanism commonly adopted in international carriage of goods by sea.
Further, in Supreme Court Decision No. 2665 K/Pdt/2022, this case originated from losses suffered by CV. Sumatera Sejahtera relates to a vital component of imported fishery products that regulates the container's internal temperature to keep the products frozen and fit for consumption, shipped from the Port of San Pedro, United States. The goods were transported in a refrigerated container owned by Hyundai Merchant Marine Co. Ltd., and the vital component went missing while the container was already in the custody and under the supervision of PT Pelindo at Belawan Port.[7]
As discussed earlier, under the Commercial Code, a carrier is generally subject to a presumption of liability. However, the pivotal point in this case is the moment at which the equipment went missing, not while the goods were aboard the vessel (where the liability would rest with the carrier), but after the goods had been discharged and were within the custody of the port authority. The judges at the Indonesian courts held that negligence in the physical supervision of goods within one's own area of authority cannot be shifted to another party and that one bears a duty of care.
4. Breaking the Limit
The right to limit liability is not absolute. Article 476 of the Commercial Code provides that a carrier loses these financial caps if the cargo interest proves gross negligence or wilful misconduct. This means the carrier deliberately caused the damage or acted recklessly, knowing damage would probably result.
5. Shipper's reciprocal liability
Liability is not one-directional. Under the Commercial Code, a shipper's liability is generally based on principles of fault and causation, whereby liability arises only to the extent that the loss or damage can be attributed to the shipper's acts, omissions, or misrepresentations.
In this regard, Article 468 of the Commercial Code provides that a carrier may be relieved from liability where the loss or damage to the cargo is caused by, among other things, the fault of the consignor. Consequently, where cargo loss or damage can be traced to the shipper's conduct, the risk may be shifted from the carrier to the shipper.
Furthermore, Articles 478 and 479 of the Commercial Code impose certain obligations on the shipper regarding the cargo and accompanying documentation. In particular, the carrier may seek compensation from the shipper for losses arising from the failure to provide documents required for the carriage of the goods. Likewise, the shipper may be held liable for losses resulting from inaccurate, incomplete, or misleading declarations concerning the nature, quantity, characteristics, or condition of the cargo.
The Commercial Code further recognises the carrier's right to take protective measures in respect of dangerous cargo where the shipper has failed to properly disclose its nature. In such circumstances, the carrier may unload, dispose of, or destroy the cargo without incurring liability, while retaining its right to seek recovery from the shipper for any losses thereby sustained.
The Commercial Code does not prescribe a separate statutory limitation regime or monetary cap applicable to a shipper's liability. Instead, a shipper's liability is determined by reference to the relevant provisions of the Commercial Code and the general principles of Indonesian civil law governing breach of contract, fault, causation, and recoverable loss. Consequently, the extent of a shipper's liability will depend upon the particular facts and circumstances of each case.
6. Time Bar
The governing provision for time-barring a cargo claim is Article 741 of the Commercial Code, which provides a one-year period for any cargo damage or non-delivery claim, starting from the date of delivery of the goods, or, where delivery never occurred, from the date on which delivery should have taken place.
Practical Insights for Managing Cargo Claims
Carriers: Ensure that Bills of Lading accurately state the description, quantity, apparent condition, and any known reservations relating to the cargo at the time of shipment. If the carrier cannot verify the details provided by the shipper, appropriate qualifying clauses should be incorporated into the Bill of Lading for necessary protection in legal defences. Carriers should also draft clear limitation-of-liability clauses, particularly aligned with Indonesian law and internationally recognised contractual practices. Furthermore, keeping detailed records of loading, carriage, and discharge is necessary to reduce evidentiary risks should cargo claims subsequently arise.
Shipowners: Clearly define whether they are acting solely as vessel owners or also taking on the role of carrier, as different liability regimes may apply under the Commercial Code. Appropriate charterparty arrangements, indemnity provisions, and insurance programmes, including Hull & Machinery Insurance and Protection & Indemnity (P&I) Insurance, should be maintained to mitigate potential liabilities, especially arising from cargo damage and third-party claims.
Shippers: Ensure that all cargo declarations are complete, accurate, and supported by appropriate shipping documentation, especially when transporting dangerous goods or declaring cargo value to secure higher recovery limits. Submit all required customs documents promptly. In addition, carefully review the limitation of liability clauses contained in Bills of Lading and, if the limits are too low, either negotiate amendments or purchase comprehensive marine cargo insurance to protect against losses exceeding the carrier's contractual liability. Accurate documentation at the commencement of the voyage frequently becomes decisive evidence in subsequent cargo claim proceedings.
Ultimately, while Indonesian law outlines how risks are allocated among parties (carriers, shipowners, and cargo interests). The outcome of cargo claim disputes often relies heavily on three factors: the strength of the commercial contracts, the completeness of the shipping documentation, and the ability to clearly prove the facts and circumstances surrounding the loss or damage.
Footnotes
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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