CAN COVID-19 BE CONSTRUED AS A FORCE MAJEURE IN THE AGREEMENT?

The COVID-19 not only affects human health but also spreads to business sectors in Indonesia. The government has issued several regulations in response to COVID-19, for instance, companies are required to operate at a minimum operation level. Furthermore, due to COVID-19 and government requirements, numerous performances in agreement are either delayed or cancelled. Given the above, the issue of COVID-19 as a force majeure is also increasingly discussed. However, before declaring COVID-19 as a force majeure, the parties should consider the governing law of the agreement, the conditions, and the clause of force majeure in the agreement. Recently, the Bengkulu District Court also made a decision on the Case No. 3/Pdt.G.S./2020 in which the defendant argued that its performance could not be held due to COVID-19. Hence, this study will discuss the concept of force majeure under Indonesian law and whether COVID-19 fulfil this concept.


A. Introduction
particularly as a countermeasure to the spread of COVID-19. 6 As a follow up to the regulations above,

2) The Principle of Pacta Sunt Servanda
This principle relates to the consequences of the agreement and is concluded in the sentence of "applies as a law for those who make it" in Article 1338 ICC. Thus, agreements made legally by the parties bind them as the law. Therefore, it means that an agreement that is duly and validly executed is legally binding. 19

c. Event of Default
Based on Article 1243 of ICC, default is the debtor's failure to fulfil his obligations in accordance to the agreed agreement. 20 Subekti stated that the event of default may be implemented in four conditions, namely: 21 1) The promise is broken by the debtor; 2) Debtor performs its promise, but does not correspond to the promised; 3) Debtor performs its promise, but not in timely manner; and 4) Debtor does some action which violates 15 Subekti, Hukum Perjanjian (Jakarta: Intermesa, 2005), p. 1. 16 Ibid. 17 Indonesian Civil Code, art. 1338. (Kitab Undang-Undang Hukum Perdata) 18 Ahmad

3) Legal Doctrine
Sri Soedewi Masjchoen who cited from Dr. H.F.A Vollmar, distinguishes the consequences of force majeure based on its temporary or permanent nature. If it is temporary, then force majeure may only be delayed and its obligation will arise again as soon as the force majeure no longer exists. However, if the obligation is no longer meaningful to the creditor, the agreement may be cancelled. For example, a taxi was ordered to take a passenger to the station, because there was a traffic accident, the taxi could not arrive on time, and when the traffic conditions were smooth again, the passenger could no longer catch up on the train schedule. 44

COVID-19 as a Force Majeure
As already mentioned above, the  Accordingly, under Indonesian law contracting parties are free to choose its governing law, which will affect the law applied to the agreement.
Furthermore, as mentioned above, this study will only discuss force majeure under Indonesia law perspective. Therefore, this explanation only applies to agreements with Indonesia law as its governing law.

b. The Conditions of Force Majeure
First thing first, the party must consider whether COVID-19 fulfilled the force majeure threshold sets out in the ICC (see our explanation on point 2b).
In essence, the conditions of force majeure are as follow: a) The event that caused the force majeure must be unexpected by the parties; 46 b) The party who has to carry out the obligation (the debtor) may not be given responsibility for the event; 47 c) The event that caused the force majeure was beyond the debtor's fault; 48 d) The event that caused the force majeure was not a deliberate event by the debtor; and 49 e) The debtor is not in a bad faith. 50 Given the threshold sets out in ICC on force majeure. Generally, COVID-19 may be categorized as force majeure (subject to terms of the agreement and good faith of the debtor) with the following reasons: a) COVID-19 is an unprecedented event and no one is able to predict its occurrence or its effect, either to health or business; and b) The occurrence of COVID-19 may not be placed upon the debtor's responsibility.
In addition, the definition of the fifth condition (The debtor is not in a bad faith) is extremely vague, thus we suggest that the party must review and see if there is any special requirement under the agreement to establish some event as force majeure.
As to the consequences of COVID-19 as force majeure, as mentioned above, one of the consequences of force majeure is cancellation of the agreement. However, we are of the view that COVID-19 not necessarily cancel the agreement as COVID-19 only cause a delay of performance from the debtor.
Alternatively, COVID-19 could be used as a legal basis to request for rescheduling and restructuring. As Suharnoko stated before, rescheduling and restructuring may be considered as the debtor's good faith. 51 The aim of rescheduling is to extend the maturity of the agreement. 52 While restructuring usually gives debtors more relaxation, amongst others: (a) lowered interest rate, (b) nullification of interest rate, (c) nullification owed interest rate. Usually, a party has to send a written notification to the counterparty in order to establish an event as force majeure and further requests for rescheduling and restructuring.
Therefore, in general, COVID-19 may be constituted as force majeure, however, in order to fully assess this matter, we shall refer back to the agreement and analyse it. In light of the above, it is necessary to review the relevant agreement before declaring that the contracting parties are able to indicate COVID-19 as force majeure. Further explanation about force majeure will be discussed next.

1) Agreement Includes COVID-19 as a Force Majeure
Agreement explicitly states outbreak or lockdown by government as a force majeure event, then COVID-19 or lockdown by the government may be used as a reason for force majeure. 55 If this is the case, a contracting party has an absolute legal basis to declare COVID-19 as force majeure.

2) Agreement has a Force Majeure Clause but does not Explain Particular Events that may be Declared as Force Majeure
Whether it is stated explicitly or explicitly in the agreement, which must be considered is the obligation, not just the event. Then, the event is also an unexpected event before the agreement is made. For example, if the obligation is a debt service obligation, then an outbreak  or lockdown may not be the reason to delay the payment obligation, because the debtor may still be able to transfer money through an ATM, unless the payment system is interrupted. 56

3) The Agreement does not Stipulate Anything Related to Force Majeure
In the event where the agreement does not explicitly stipulate regarding force majeure. It is Indonesian law principle that the agreement will be governed by ICC.
Therefore, particularly related to force majeure, it will refer to 1244 and 1245 ICC. Court decisions as reference in order to constitute COVID-19 as force majeure, despite the exemption of force majeure clause. Decision No.409K/Sip/1983 dated 25 October 1984 which essentially held that: 57 (i) a force majeure event must fulfil the elements of a condition that is unforeseen and unpreventable by the party that is obliged to perform obligations under an agreement, and is not attributable to such party; and (ii) the force majeure event is caused by a disaster that could not have been prevented by such party. Therefore, having this in mind it is worth to note that broad events could be constituted as force majeure.

4) The Party Decides to Exempt The Force Majeure in the Agreement
In addition, Rahmat S.S. Soemadipradja also supports the view that policies or regulations set by the government could be used to indicate force majeure, 58 where in this case might be GR 21/2020 which adversely affect the debtor's performance.
In view of the foregoing, the relevant law and regulations could be argued to help a contracting party to constitute these circumstances as force majeure. However, as mentioned in the above, that whether or not such a request is granted by the panel of judges, it is still the panel of judges' discretion.  In this case, the debtor is not in good faith, namely by using COVID-19 as a force majeure, whereas in this case the instalment loan is due in 25 October 2019. Therefore, as stated by the panel of judges, there is no relevance between Case No. 3 and COVID-19. In order to declare COVID-19 as force majeure, a contracting party must prove that the cause of its breach of performance is solely by COVID-19. Furthermore, the panel of judges held the solely discretion to reject or grant COVID-19 as a force majeure with its own consideration.