These past few weeks have been a busy week for the Indonesian government as it continues to battle the spread of Covid-19. Some of the regulatory measures that were issued in recent days include regulations on public health emergency, massive social restrictions and state finance and financial system (Presidential Decree No. 11 of 2020, Government Regulation No. 21 of 2020 and Regulation in lieu of Law No. 1 of 2020, respectively).
Almost all industries have been impacted, and businesses are struggling to maintain their operation, and some are even being forced to close temporarily. In light of this, many business players have begun assessing their existing contracts, especially whether this outbreak can be considered as a force majeure event to relief affected parties.
Below we discuss the concept of force majeure under Indonesian law and whether Covid-19 satisfies this concept.
Force Majeure (Keadaan Memaksa) under Indonesian Law
Articles 1244 and 1245 of Indonesian Civil Code (“ICC“) defines force majeure as an unforeseeable situation that caused a debtor to be unable to perform its obligation as there is nothing that the debtor can do to rectify the situation. A force majeure provision provides relief for the defaulting party from paying penalties due to non-performance.
Apart from the ICC, regulations governing force majeure are scarce. Some of these regulations are those in the banking, oil and gas, construction and employment sectors.
Under the freedom of contracts principle acknowledged by the ICC, parties are bound by matters that they have agreed on. Accordingly, they will also need to refer to the force majeure provision under their contract to check on the effect of the occurrence of a specified event that may obstruct the performance of certain obligations.
Can Covid-19 be Considered as a Force Majeure?
As there is no definitive answer under the regulations whether the Covid-19 outbreak itself can constitute a force majeure event, we have to examine the impact of this outbreak on business performance, as well as the force majeure provision in the contract. Then, we should ask the following questions:
Before invoking a force majeure event or conversely, responding to a force majeure declaration, the parties should take the following actions:
After completing the above steps, you may end up in a re-negotiation of the contract. Here, you may wish to propose a new timeline for contractual performance, accept or offer relief to the counterparty or terminate the contract.
But you may also end up in a dispute, in which the parties will need to go through dispute settlement process that has been agreed in the contract. During the dispute settlement process, the court or arbitration body will examine whether the force majeure arguments are justified and determine further consequences for the parties.
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Yogi Sudrajat Marsono
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Muhamad Kamal Fikri
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AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of AHP Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.