Can Covid-19 Pandemic be Qualified as Force Majeure Although Not Specified in the Agreement?

“Basically it is not only the COVID-19 pandemic which may be considered as a force majeure event, any current  overnment policy that may cause one party unable to carry out its obligations can be qualified as a force majeure.”

In a contractual relationship each party that enters to an Agreement is obliged to carry out all the provisions ontained in the Agreement. The parties must fulfill their obligations and able to obtain their rights set out in the Agreement.

How about the current condition, in which the COVID-19 outbreak that devastated all social structures and especially business operation? As we all know, in the event of the COVID-19 outbreak, the Government implemented various policies ranging from the relaxation of medical equipment imports to the limitation of large-scale social interaction (“PSBB”). This phenomenon has hit business operators by rendering them unable to operate their business normally.

In the context of agreement, what if the condition renders one party to unable to fulfill its obligations. In the perspective of Civil law, of course, the party whom cannot carry out their obligations can be qualified to perform “default of commitment” or “negligent in carrying out their obligations”. The legal implication is clearly regulated in Article 1243 of the Civil Code which in essence regulates the obligation to compensate for losses arising from the non-fulfillment of an Agreement.

However, on the contrary, referring to Article 1244 and 1245 Civil Code, in essence, the two Articles stipulates that in a forceful circumstance, a negligent party can be released from their obligations to compensate for damages arising from the non-implementation of an agreement. If so, reflecting on the current conditions, can the COVID-19 outbreak qualify as a force majeure? Another question that arises is what if COVID-19 or a pandemic is not regulated
under a force majeure clause of an agreement?

Introduction of Force Majeure

In an agreement, the force majeure clause is a common subject that is usually considered in the Agreement. Force Majeure itself is etymologically derived from the French language which means “greater power”. In the context of civil law, force majeure is a condition where a person cannot perform obligations not because of his/her intentional or negligent, but because there are matters that are beyond the person’s power and the condition cause the not to be able to perform his/her obligations (overmacht).

The meaning of forceful condition can be observed from several regulations, including Article 1 paragraph (52) Government Regulation Number 16 of 2018 on Procurement of Government Goods and Services which states:

“Kahar state (beyond the power of any parties) is a condition that occurs beyond the expectation of the parties to the contract and cannot be predicted in advance, thus the obligations specified in the contract cannot be fulfilled”

Whereas in Article 57 of Law Number 2 of 2017 on Construction Services, it can be interpreted that a forceful situation is an event that arises beyond of the wish and ability of the parties that cause harm to either party.

Furthermore, in practice, in the Supreme Court jurisprudence the forceful condition must meet certain elements which are also stated in the Supreme Court Decision No. 409K/Sip/1983 dated October 25, 1984 in the case between Rudy Suardana v. Local Shipping Company PT Gloria Kaltim, in summary, the Panel of Judges is of the opinion that a forceful condition must meet the following elements:

1. beyond expectation;
2. cannot be prevented by parties who must fulfill obligations or perform the agreements;
   and
3. beyond the fault of the parties.

At a glance, if interpreted narrowly, force majeure is indeed identical with natural events (act of god) which causes a party to unable to perform their obligations on the grounds of a disaster. However, in its development, force majeure is also broadly interpreted, this can be seen in the decision of the Supreme Court No. 3389K/Pdt/1984 in which one of the fundaments that can be taken is to state that the administrative actions of the authorities in the sense of a sudden Government policy that cannot be predicted by the parties can also qualify as force majeure.

Therefore, it should be understood in general the forceful condition or force majeure is a condition where one party cannot perform its obligations not because of their intention or intentionality but the events that render them unable to perform the obligations.

Consequence of Force Majeure Law

Upon examination, force majeure naturally has the same implication, namely the inability of one party to perform its obligations. Therefore, the juridical implications of non-performance of obligations, that is, the Party experiencing the loss may ask for compensation as a result of the aforementioned non-performance of obligations of either party. However, Article 1244 in conjunction with Article 1245 states as follows:

Article 1244 Civil Code

“In the case of there is a reason the debtor must be sentenced to compensate the costs, losses and interest, if the party unable to prove, that the non-fulfillment or delay of fulfillment of an obligation on time in accordance with the agreement, due to an unexpected event, in which such event could not be accounted upon the party, all of the aforementioned only if there are no malice intent of the party.”

Article 1245 Civil Code:

“Any cost, loss and interest shall not be compensated, if due to a forceful condition (overmacht) or due to an unintentional situation, the debtor is unable to provide or perform something that is required, or due to the aforementioned the debtor has done prohibited acts.”

Thus, it can be concluded that the two Articles above affirm to waive the obligation to compensate the parties who cannot perform their obligations due to force majeure. In addition, other legal consequence that may occur is the amendment/addendums to the agreement regarding the performance of obligations at other times upon agreement by the parties depending on the contents of the agreement clause itself.

However, it also needs to be emphasis that in a forceful condition, the discretion of the parties in addressing the conditions shall be the precedence. Each party must wisely realize that there are other things that can be put forward such as bearing the losses together for the losses experienced by one of the parties. Or in the event of the forceful condition obstructs one party to perform their obligations, the other party can provide discretion in the form of compensation to their counterparts to perform their obligations at the amended agreed time.

COVID-19 Force Majeure Clause is not Considered in the Agreement

The problem that arises in connection with the description above is, if the Parties do not consider COVID-19 or a pandemic as force majeure in the Agreement, can the event still qualify as force majeure? Of course there are many opinions that regard if the condition is not stated in the Agreement, thus such condition could not be regarded as force majeure.

To answer the abovementioned questions, let’s first review the provisions of the applicable legislation. Referring to Article 1 paragraph (3) of Law Number 24 of 2007 regarding Disaster Management (“Disaster Management Law”), it is stated that:

“Non-natural disasters are disasters caused by non-natural events or series of events which include technology failures, modernization failures, epidemics, and disease outbreaks. “It can be noted that in the Disaster Management Act, epidemics and disease outbreaks can qualify as non-natural disasters caused by a series of non-natural events. However, is this definition sufficient to qualify COVID-19 as a non-natural disaster? A statement from the institution/agency that has the authority to declare that COVID-19 is an epidemic or an outbreak is needed. Consequently, in this case, it is very relevant to use the statement of the World Health Organization which declares that COVID-19 is a pandemic. The declaration was also corroborated by Presidential Decree Number 12 of 2020 concerning the establishment of COVID-19 as a national disaster.

Please note that there are differences in definition between outbreak, epidemic and pandemic. (1) Outbreak is a disease that is spreading but can still be anticipated. (2) Epidemic is a disease that is spreading to a large number of individuals in a population within a geographical area. (3) Lastly, pandemic is a disease that is spreading to various geographical areas beyond national borders.

Therefore, we can define that COVID-19 is a non-natural disaster. However, the description above still not able to confirm COVID-19, which is a non-natural disaster, can be qualified as a force majeure. The last important point to know is to see that the element of the forceful condition, which is the pandemic, is not desirable. The pandemic can prevent one party from performing their obligations, and the last is the absence of an element of intent or negligence that makes either party unable to perform their obligations.

Hence, it can be concluded that COVID-19 that occurs and spreads can be qualified as a force majeure. Even though it is not considered in the Agreement, taking into account the nature and elements of COVID-19, it can be qualified as a force majeure.

Covid-19 Effects in relation with Ability to Perform Obligations

Although COVID-19 may qualified as a force majeure, it is not adequate to prove that one of the parties in the agreement can be released from the responsibility of compensation due to their inability to perform their obligations caused by force majeure.

This is the phase where experts and legal practitioners must comprehensively examine to conclude that the non-fulfillment of obligations of one party occurs caused by force majeure. For example, it is necessary to distinguish between the forceful condition caused by COVID-19 and the forceful condition in the form of government policies determined based on the COVID-19 outbreak.

The analogy is as follow: does a factory can become inoperable due to COVID-19? The answer is certainly no, because, in the case of one or several workers in the factory are infected with COVID-19, the work can be transferred to other workers. Using this analogy we can see that there is no reason for a manufacturer to claim their inability to perform their obligations to produce their counterpart goods.

In the other hand, it will be different if the COVID-19 pandemic caused the government to make a policy closing access to an area which prohibits anyone from entering or leaving the area. Therefore, referring to the previous example, a manufacturer is unable to deliver the goods that they have produced to their partners/distributors due to limitation of access by the Government.

Hence, basically, what needs to be understood is that it is not easy to prove COVID-19 pandemic can release one party from the obligation to compensate or justify the other party not to perform its obligations. Therefore, it is necessary to prove the existence of a real cause-and-effect relationship between the event of COVID-19 pandemic and the inability to perform obligations. Of course to find this correlation requires an in-depth study of the agreement, the process of cooperation/transactions/business of the parties as well as an analysis of the rules of law that apply.

Conclusion

COVID-19, which has been determined by the Government as a national disaster, can qualify as a force majeure, even though it is not considered in an Agreement. Nevertheless, this is not adequate to be established as the basis that one of the party to the agreement can suspend the implementation of their obligations. In this case, it is necessary to prove a direct causality relationship between the COVID-19 pandemic with the Government’s policy in overcoming COVID-19 which results in the party’s inability to perform obligations of the agreement.

 

Author: Muhammad Iqra Bilmaruf

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