Tuesday, February 21, 2017
Comprehensive Legal Due Diligence Processes Seen as Key to Avoiding Land-Procurement Challenges
Nanda Narendra Putra/Elizabeth James
The process of land procurement invariably carries its own unique challenges. Regardless of whether the parties concerned include state bodies or private business owners, controversies surrounding the release of land are likely to require strategic solutions. Therefore, the most important elements to take into account are the relevant preventive measures, in order to mitigate the risk of any problems emerging during the procurement process.
Sartono, a partner in the litigation division at the Hanafiah Ponggawa & Partners (HPRP) law firm, has stated that the key to successful land procurement begins with the implementation of appropriate and precise risk-mitigation strategies. There are at least three important elements that make up the foundation of these strategies, specifically: compliance with legal procedures and requirements; complete and accurate documentation (including comprehensive land assessments); and an approach that prioritizes family connections and which recognizes the importance of such ties within the context of land ownership.
“Risk mitigation is very important and should be implemented right at the beginning of any land-procurement process. It must also be seen to be correct,” explained Mr. Sartono during a presentation that he made at a recent Hukumonline.com training program entitled: “Obstacles and Solutions for Businesses and Investors in Land Procurement and the Land-Release Mechanism.”
By way of example, Mr. Sartono explained that risk mitigation through the monitoring of legal and procedural requirements may be undertaken by checking whether the rights to the land in question have been correctly certified. It is also important to ensure that the legal requirements for any such certification have been met in full.
Mr. Sartono went on to explain that a simple determination of whether particular certificates for land had been correctly issued would not be sufficient, since it was vital to uncover all of the relevant facts underlying the process which was implemented during the certification of the land in question. This is seen as necessary in order to minimize any potential challenges emerging from parties who may be attempting to “gain entry” into the procurement process as regards cases in which the correct procedures may not have been followed in full at the time at which the relevant certificates were issued.
“The first [and] most important step to be undertaken is to implement a process of due diligence so as to determine whether or not there are any problems relating to the plot of land concerned,” Mr. Sartono asserted.
According to Mr. Sartono, due diligence measures, which from a legal perspective are commonly known as Legal Due Diligence (LDD), will often uncover important facts that may be vital as regards future mitigation efforts. Of course, legal due diligence does not only involve the cross-checking of one document against another. Indeed, Sartono emphasized the fact that due diligence in this context also requires that investigations into the records held by land agencies and which relate to the areassurrounding the land concerned be undertaken.
Mr. Sartono also stressed that in addition to the investigation of land certificates, there was a second practice which law firms commonly followed when implementing due-diligence processes. Normally, a team from the law firm concerned will undertake a process of fact checking in order to directly confirm the validity of the relevant documents with the regional agency responsible for their issuance in the first place. Sharing some of his experiences, Mr. Sartono claimed that fact-checking processes may well end up yielding surprising results, as often land-procuring parties undergo procedures that seem legally correct but which could potentially prove problematic in the future.
“We must undertake investigations at a number of issuing bodies. We should also send people to view the locations in question and to meet with the related land agencies in order to inquire into the status [of the relevant land]. We often find areas of overlap between forests and mining areas. This is common in fact,” Mr. Sartono explained.
Mr. Santoro’s colleague, Al Hakim Hanafiah, added that every time a firm undertakes a process of due diligence, it invariably encounters unusual factors and information. For example, one firm’s due diligence team once came across documents which had been provided to a client and which ostensibly referred to the purchase of an area of land for mining. However, the documents in question were later revealed to comprise a purchase agreement for an area next to the mine-site in question. As a result, the client immediately voided the transaction.
“An individual LDD [legal due diligence] process sometimes requires significant authority, [including up to] 10 to 12 power of attorney letters. This is because separate requests need to be made to the BPN [the National Land Body - Badan Pertanahan Nasional], the local courts and a number of other institutions. These [letters] are sent to each relevant location. This is important with respect to land, because the process is usually a very complex one. Moreover, in our experience, peculiarities are often encountered. For example, we once had one client who nearly made a down-payment upon [what was believed to be] a mine site. It turned out that the reports provided [concerning the land and the supposed mining area] were actually reports for a plot of adjacent land. We discovered this discrepancy as a result of the care that we exhibited during our due diligence process. Indeed, we always strive to be thorough,” the partner in the Resources and Infrastructure division of the HPRP Law Firm affirmed.
As of February of 2017, the HPRP Law Firm’s records reveal that is has dealt with at least five major categories of issues relating to the process of land procurement for business activities in Indonesia, as follows:
Issues relating to government projects:
Issues arising between plantation and/or mining businesses and local communities:
Problems involving overlap in land ownership:
Land-ownership disputes, both civil and administrative, can occur when:
Issues relating to the legal rights of indigenous peoples
Mr. Hanafiah went on to explain that his law firm would always stress to their legal consultants practicing in the field that their investigations must extend to the checking of even the smallest details, such as the dates on which legal certificates are issued. Indeed, the firm has had experience of cases originally coming to light through the due diligence process where authorities claiming to have issued a certificate on a particular date could nothave done so, because the date in question fell on a public holiday.
“One company wanted to acquire land and it was important that such seemingly small or trivial matters were carefully considered. It is not enough for documents to be complete and for issuing bodies to verify that certificates are original copies. Occasionally, we also need to tune into local rumors and gossip relating to whether a given plot of land may or may not have any potential problems attached to it. Sometimes we can ask for more complete information off the back of such gossip from the relevant competent authority. Information that maybe previously [he or she] may not have provided,” Mr. Hanafiah explained.
Because of this, it is not unusual for any due-diligence reports which are issued to clients to reach up to thousands of pages in length, due to the number of attachments which have to be included. Mr. Hanafiah recognizes that sometimes clients find the length of these due-diligence reports to be oppressive and in an attempt to alleviate this problem, the HPRP law firm usually writes summaries. These summaries are presented at the beginning of reports, so that clients can quickly survey any potential challenges that have been identified.
“Ten years ago, our LDD reports may have been only around 10 pages in length, however today our clients may feel excessively challenged, as we provide them with 100 pages or more, complete with photos, maps and information concerning mapping overlaps. We provide everything in fact. So because of this, we also publish summaries at the front of our reports, so that our clients do not become too fatigued by reading them,” Mr. Hanafiah explained.
When Legal Disputes Become Inevitable
Efforts to mitigate risk may not always succeed however. Whether it is by choice or not, the final stages in resolving a given land dispute may necessarily involve legal action, either through litigation or an alternative means of dispute resolution. Mr. Sartono himself emphasizes the need to pursue peaceful means whenever possible, even when conflicts over land arise. Conciliation between parties may be achieved through the implementation of a number of mechanisms, including consultations, negotiations, mediations, conciliations and the seeking of expert opinions, to full engagement in an arbitration process.
“The rule-of-thumb [that we always follow] is that a peaceful resolution is always the best solution. [However] when a dispute has reached a deadlock, then I think that there are no other means available: either we sue or we are sued,” Mr. Sartono explained.
Based on his experience, when business-related disputes arise, Mr. Sartono usually tries to conciliate by seeking assistance from the relevant authority, such as the relevant local branch of the National Land Body (Badan Pertanahan Nasional BPN) or other related agencies. In cases where a dispute involves multiple authorities, Mr. Sartono attempts to seek resolution by attempting to triangulate between the agencies in question. This may include, for instance, the regional branch of the Ministry of the Environment and Forestry. However, in cases where conciliatory efforts do not yield any useful results, then whether it is by choice or not, the litigation route must be pursued.
“We convey this to the client and certainly we must consider our position carefully at first, [whether] our documentation is correct and whether our position is strong or not. So prior to entering into any discussions, we have to ascertain whether or not our case is built upon a strong foundation. In the business world, of course there is always the possibility that in the future we will be engaging in business with the party that we are currently battling. However, if a case goes to court, even when there is still peace between the disputing parties, then it often becomes psychologically more difficult to conduct business together in future,” Mr. Sartono continued.
During the training program, the HPRP Law firm also addressed some of the benefits and costs involved in engaging in dispute resolution, both outside of court and through the court system, and these various benefits and costs are set out in the following table:
|Resolution Outside of Court|
Savings in time and financial costs;
Expert opinions may be sought; and
|Uncertainty: With the exception of arbitration, decisions, these lack binding authority and their implementation depends on the good will of the parties involved.|
|Resolution Through the courts|
|Power of execution; and parties may request that the court execute the decision.||
Lack of efficiency;
The poor reputation of the Indonesian judiciary;
The existence of patterns of cases which have been won/lost;
Cases may be assessed by those who are not experts in the field.
In cases where court-based solutions become necessary, Ministry of Agrarian Affairs and Spatial Planning/Head of the National Land Agency Regulation No. 11 of 2016 on Land-Dispute Resolutions (“Regulation No. 11/2016”) sets out two primary mechanisms through which resolutions to land disputes can be sought, specifically through the civil court or through the State Administrative Court (Tata Usaha Negara TUN) systems. The country’s civil courts are appropriate for lawsuits which address direct violations of the law, whereas the State Administrative Courts are used in relation to disputes addressing decisions of the Ministry of Agrarian Affairs and Spatial Planning/National Land Agency which have allegedly placed one party at a disadvantage.
Importantly, Regulation No. 11/2016 states that the Ministry of Agrarian Affairs/National Land Agency may issue decisions involving land disputes that revoke, alter or strengthen existing land rights. The most problematic of these powers understandably involves decisions to revoke land rights. Following such decisions, aggrieved parties have 90 days in which to make further submissions to the State Administrative Court. On the question of what avenues may become available following this 90-day period, Mr. Sartono explained that:
“The 90-day period is crucial. However, what happens when a party learns of a decision only after this time period has passed? There is ongoing debate as to whether court decisions ought to be followed [in such administratively challenging cases]. In some cases, parties may write to the court asking for confirmation concerning a particular decision. This will depend, however, on whether or not a judge can hear the case within 90 days of the issuance of the original decision, or whether the concerned party has been made aware that the decision has been released within the appropriate time period.”
In addition to the two court-based options described above, there are also options to pursue resolutions through the criminal-justice system. In this context, Mr. Sartono stated during his address that although it is not made explicit in Regulation No. 11/2016, it is possible in practice to submit criminal challenges relating to land offences, such as offences involving the unlawful use of land or land rights, occupation without appropriate certification, the planting of crops on land owned by others, and/or damage to land or property owned by other parties.
“Criminal aspects [relating to the use of land being disputed by two parties] may be found, depending on the case,” Mr. Sartono explained.
The head of the Bureau of Law and Public Affairs at the Ministry of Agrarian Affairs and Spatial Planning, Aslan Noor, did not deny that the whole land-procurement process continues to be plagued by problems. For instance, as many as 225 Nationally Strategic Projects, as well as the State-Electricity Company (PLN) mega-project involving the development of 35,000 megawatts of electrical power infrastructure between 2015 and 2019 continue to face a number of polarizing challenges as regards the required procurement of land.
“It is believed that only 30% of the land required by the 225 nationally strategic projects as well as by the PLN mega-project has currently been made available,” asserted Mr. Noor.
Mr. Noor went on to identify at least four primary challenges underlying the current land-procurement crisis, specifically the problem that land itself is in short supply and the fact that there is no “land bank”; disharmony and lack of synchronization between existing land laws; conflict and seemingly never-ending land disputes; and the reality that in any particular region, there may be not a single square inch of land that does not currently fall under some form of legal ownership or control.
In relation to land supply, the previous Minister of Agrarian Affairs/National Land Agency, Sofyan Djalil, asserted that this year’s target would be to form a body responsible for the creation of a land bank. One important mandate with respect to this land bank will be to monitor land prices, so that they do not end up becoming excessively inflated as a result of disproportionate claims being made by speculators.
“The difficulties as regards the availability of land for development cannot be separated from the long history of Indonesia’s legal system and culture, and a legacy of negative land-acquisition practices which have historically been unsympathetic to land-rights holders. As such, it is has traditionally been common for rights holders and land owners to endure hardship after the release of their lands,” Mr. Noor concluded.