Is Covid-19 Pandemic A Force Majeure in Indonesia?

In this article we will look at what force majeure means, types of force majeure, the consequences and finally does Covid-19 fall into force majeure category.

The COVID-19 virus, which continues to spread throughout Indonesia and is now considered a national disaster in Presidential Decree No. 12 of 2020 on the Stipulation of Non-Natural Disasters of the Spread of COVID-19 as a National Disaster.

Regions then scramble to implement Large-Scale Social Restrictions (“PSBB”) in order to contain the spread. The Governor of DKI Jakarta established Gubernatorial Regulation No. 33 of 2020 on the Implementation of Large-Scale Social Restrictions to Handle Corona Virus Disease (COVID-19) in the Province of Special Capital Region of Jakarta which is then followed by surrounding areas such as Bandung, Sumedang, Bekasi, Tangerang, and others.

In relation to PSBB, one of the restrictions imposed is in the form of temporary suspension of activities in the workplace / office or work from home with the exception of businesses engaged in the health, food, energy, communication and information technology (IT), finance, hospitality, logistics, strategic industries, basic services, construction, public utilities and industries designated as national vital objects and certain objects, and / or daily needs.

Then there is a call for physical distancing to suppress the spread of COVID-19. For businesses, these restrictions are costly for suppliers as well as distributors who depend on steady flow of supply. Distances between people can help stop the spread of COVID-19; however, this also limits economic potential for companies that rely on close proximity interactions with customers or vendors to be successful.

Many people have the opinion that Presidential Decree No. 12 of 2020 on Stipulation of Non-Natural Disasters of the Spread of COVID-19 as a National Disaster can be used as a basis for businesses to declare force majeure. Therefore we will take a look on its definition and if Covid-19 falls to said criteria.

Force Majeure in Indonesian Law

Article 1244 of the Indonesian Civil Code states:

“If there is any reason for such, the debtor is to compensate for costs, damages and interests if he cannot prove, that the non-performance or the late performance of such obligation, is caused by an unforeseen event, for which he is not responsible and he was not acting in bad faith.

Article 1245 of the Indonesian Civil Code states:

“No cost, loss and interest shall be reimbursed, if due to circumstances of coercion [overmacht] or due to an unintentional circumstance, the debtor is unable to give or do anything obligatory, or because of such reasons has committed a prohibited act.”

Based on the Articles outlined above, the elements of force majeure are :

1. Unforeseen circumstances;
2. There is no bad faith to the debtor;
3. Accidental circumstances;
4. The situation prevents the debtor from performing;
5. If the performance is implemented will be subject to a ban;
6. Circumstances arising out of the will and ability of the parties;
7. The circumstances cause harm to either party.

Usually the parties involved will include a clause regarding force majeure in the agreement in order to obtain legal certainty. The agreement will usually regulate the consequences of force majeure events.

 

Types of Force Majeure

Theoretically, there are two types of force majeure:

1. Absolute Force Majeure

Absolute force majeure occurs when the obligation is completely unenforceable, so the fulfillment of such performance cannot be carried out neither by anyone nor by the parties; and

2. Relative Force Majeure

Force majeure can relatively occur when an agreement is still possible to implement but with a very large sacrifice or cost on the part of the debtor.

 

Consequences of Force Majeure

If force majeure is declared then the consequences may be as follows :

1. Liability Delay

Delay of this Obligation occurs if the Force Majeure is temporary, e.g. PSBB has been revoked and the Company can resume operations;

2. Termination of Agreement

Termination of the Agreement in the event of such obstruction is permanent and with the expiration of the Agreement the counter-performance also terminates.

 

Can COVID-19 be Categorized as Force Majeure?

We’ll need to take a look at the agreement. In the event that the agreement expressly states that the outbreak or access closure (lockdown) is a state of force majeure then Covid-19 and the closure of access by the government can be applied as a reason for force majeure.

If the agreement does not mention the above matters then we need to consider the performance in relation to how related the performance is to the unexpected event.

For example, if the performance is an obligation that has nothing to do with outbreak or access closures such as paying debts, then the outbreak or access closure cannot invalidate the obligation, because ATMs are still functioning and there is mobile banking where payments can be made through online.

Furthermore, if the state of force majeure is temporary, then the debtor’s obligation is merely delayed as opposed to terminated unless affirmed otherwise in the agreement or both parties agree to do so. Thus, if the coronavirus outbreak ends or the government revokes the lockdown, the creditors can demand fulfillment of the debtor’s performance or may also choose to terminate the agreement with compensation. This is in accordance with the provisions of Article 1267 of the Indonesian Civil Code which states:

“The party to which the performance is not fulfilled, may choose; force the counterparty to comply with the agreement where such fulfillment is still possible, or demand the cancellation of the agreement, with compensation of costs, losses and interest.”

In practice, in the event of a performance fulfillment agreement, due to the coronavirus outbreak, the parties to the mutual agreement may reschedule the fulfillment of their performance either in terms of payment or other obligations.

Author: Ulfa Rachma, S.H.