On 2 March 2020, President Jokowi announced 2 Indonesian citizens were positive Corona Virus Disease (Covid-19) and this number is continuing to increase until now. According to the Ministry of Health of the Republic of Indonesia (“MoH”) by 6 April 2020 there had been 2.273 positives cases of Covid-19 where 164 people had been recovered and 198 people had sadly died It is forecasted that the number will continue to grow. The Covid-19 outbreak moved quickly and spread to other regions in Indonesia and therefore has prompted the Government to call for #WorkFromHome program and social distancing measures, which has taken slowing down effects such as reduced of office activities, change of the operating hours of malls and factories and reduced of working hours.
Amidst Covid-19 outbreak, community activities to leave their home has also significantly decreased. The community has started to be aware and followed the instructions of and announcements from the government in relation to the current development of Covid-19. Such conditions have certainly impacted to trade flows and the implementation of business contracts signed before the outbreak.
In the economic sector, almost all of industries have shown a sharp decrease in their activities. As a result weakening of the Rupiah against the US Dollar has been unavoidable. By 1 April 2020 the exchange rate of USD had sky rocketed to IDR16,430 per USD from 1 month before the outbreak occured recorded around IDR 14,000 per 1 USD. This has also been influenced by external factors where the economic slow down is also hitting almost all countries in the world.
In light of the above, bussineses need to reschedule their commercial contracts as they may not be able to carry on their activities as normal. Thus, many of them may wish to enforce Foce Majeure clause in their contract.
Force majeure (Keadaan Memaksa) is a condition where there is an event that occurs after an agreement / contract has been made, which prevents the debtor from fulfilling the contract. In this case the debtor can not be blamed and does not have to bear the risk because the debtor can not predict at the time the agreement was made that this force majeure event will occur. Force majeure is regulated in Article 1244 and Article 1245 of the ICC:
Article 1244 ICC:
An Obligor shall be required to provide compensation for costs, losses and interest if Obligor cannot prove that the non-performance or the late performance of Obligor’s obligation is the result of an unforeseen event for which Obligor was not responsible, provided Obligor was not acting in bad faith.
Article 1245 ICC:
No compensation for costs, losses and interest shall be payable if Obligor, because of an act of God or an accident, was prevented from delivering or performing an obligation that Obligor was obliged to deliver or perform, or Obligor was compelled to do something that it was prohibited from doing.
Based on the ICC, there are 3 (three) elements that must be fulfilled for force majeure, consisting of:
In the event force majeure occurs and meets number 1 and 3 above, then this is known as an abolute distress (“overmacht”) or an objective force majeure with a basic concept, the impossibility to fulfill the obligations because the object of the agreement disappears or is destroyed whereas if an overmacht meets the number 2 and 3 above, this situation is known as relative overmacht or circumstances that are subjective nature of this force majeure is the difficulty to do the obligations because there are events that prevent the debtor to do.
Disaster Management Law is governed by In Law No 24 of 2007. According to this law are 3 classification that can be categorized as disaster:
Based on this regulation, it is clear that COVID 19 phenomenon shall qualify as a non-natural disaster. Accordingly, on 14 March 2020 President Jokowi declared that the Covid-19 outbreak is a national non-natural disaster.
In making an agreement the parties can freely determine the contents of the agreement as long as it does not conflict with public order, decency, and regulations prevailed. From the agreement made by the parties will create binding rights and obligations and act as a law for the parties as stipulated in Article 1338 of the Indonesian Civil Code.
Although Indonesia has stated that Covid-19 is a non-natural disaster, this may not necessarily be a reason for applying force majeure for the parties to the agreement, especially if this agreement does not include an epidemic clause or disease outbreak as a force majeure event in the agreement.
Many contracts/agreements may define standard force majeure clause where this is defined as “events such as natural disasters, navigation damage, fire, hostility, war (whether announced or not), blockades, employee strikes, strikes, riots, insurrections, revolts, civil movements, earthquakes, epidemic, government restrictions or confiscations or other causes beyond the reasonable control of the Parties that occurs”
In the case of an epidemic or disease outbreak clause is not clearly regulated in the contract/agreement, a principle of “good faith” may apply to rechedule the rights and obligations in the contract following the state law.
As a matter of best practice, a good faith shall be carried out trough notifying the conditions of their difficulties in performing certain obligations to other parties. The other parties shall consider these reasons and also avoid breach of dispute in court. The parties in the agreement shall also have a good faith to try to fulfill the agreement and be able to prove that they have done their best and mitigated the risk to carry out the obligations in the agreement but the obligations still cannot be carried out in normal fashioned.
In light of the above, it is to conclude that communication and good faith are important measures to adapt to current situation and these shall be the ingredients for rescheduling and/or cancelling part or all of contractual rights and obligations. The law has provided space where this shall take place.
Last but not least, kindly be advised that the above is the general review of the laws concerning the matter. Should there be any doubt, kindly rest assure that consulting to the right party shall be needed. Hence, we will be delighted to assist further.