The rapid deployment of COVID-19 has caused the World Health Organization (WHO) declares a public health emergency and making Indonesian government closes international borders for temporary. Business sectors have been affected because of contractual parties cannot deliver their obligations on time. Therefore, contractual parties are looking to their agreements or contracts to find ways to escape liabilities and not considered as the defaulting party because of non-performance of the obligations. The question is how the contractual parties’ act as a good faith for not being considered as the defaulting party because of non-performance due to this Covid-19 situation? Can the contractual parties use the Force Majeure clause in their agreements or contracts?

Article 1244 of Indonesian Civil Code (“Indonesian Civil Code”) stipulates that the affected party must pay the losses and its interest, if the affected party cannot prove that there is an unpredictable event (which are beyond the parties’ control) or Force Majeure which caused the effected party’ obligations are impossible to be performed. In practice, the agreements or contracts do stipulate about the Force Majeure clauses. However, recently the Force Majeure clauses are often considered as ‘boilerplate’ or ‘standard clause’. The parties are often not paying much intention on this clause. Therefore, it would be difficult if there is no clear definition and not stipulating the clear obligations to be conducted by the affected party to show there is a good faith in this Force Majeure event. 

The Force Majeure clauses at least must cover (i) the broader definition which covers all unforeseen circumstances; (ii) the obligations of the affected party such as notifying in writing the occurrence of Force Majeure event within certain time to the other party; (iii) the good faith of the affected party such as the effected party must using all reasonable endeavors to rectify its obligations; and (iv) the further consequences of the agreements or contract because of Force Majeure event. 

Hence, although our Indonesian Civil Code clearly states that the parties are not liable to pay losses and its interest in the occurrence of Force Majeure event, but the wording of the definition of the Force Majeure event shall clearly stipulate that COVID-19 or any pandemic events shall be considered as Force Majeure event, as well as the obligations of the affected party. Therefore, if the affected party fails to fulfill one of the requirements of the Force Majeure clause or unable to prove that such non-performance event was caused by Force Majeure, then such party may become liable to the losses and interest because of non-performance. 

Note: the content of this article does not constitute legal advice and should not be relied on as such.

 

Marcia Wibisono, SH, MH, LL.M
Partner, Yang & Co

Christian Jaya, SH, LL.M
Senior Associate, Yang & Co 

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