Disclaimer:
In this Legal Update we attempt to provide latest information available on the COVID-19 related regulations issued by the Government of Indonesia. Although we make every effort to ensure the accuracy of such information, we cannot guarantee its correctness and completeness.
People all over the world are shaken by the presence of the figure of the vicious little creature that has been plaguing the human body. Many people are infected and the number of deaths worldwide continue to increase. Indeed, the appearance of the Corona Virus Disease 2019 (COVID-19) has led to massive disruptions that are hurting the global economy. The impact of COVID-19 is not only felt in the economy, but also in political, social, cultural, defense and security aspects, as well as the welfare of societal aspects in unavoidable circumstances.
Societies are struggling to sustain itself while large corporations to small and medium-sized enterprises (SMEs) are driving strategic decisions to survive in the midst of this difficult moment and to determine the fate of their employees. The transactional business that may be delayed or, even worse, cancelled as the basis of considerations to prevent the spread of this pandemic of COVID-19 is certainly frustrating to the entrepreneur.
While the COVID-19 pandemic appears to be subsiding, the enterprises should consider to reshape their strategy in order to maintain their business continuity in responding to this tragedy. What should companies do to respond to all of this, particularly as to whether certain circumstances as the above-mentioned can be categorized as a disaster and can be used as the reason in terms of cancellation and/or delays in the contract under the force majeure clause?
Let鈥檚 take a look at the definition of disaster and public health emergency according to World Health Organization (WHO):
Disaster
鈥�1. A serious disruption of the functioning of a community or a society causing widespread human, material, economic or environmental losses which exceed the ability of the affected community or society to cope using its own resources (ISDR). 2. Situation or event, which overwhelms local capacity, necessitating a request to national or international level for external assistance (CRED). 3. A term describing an event that can be defined spatially and geographically, but that demands observation to produce evidence. It implies the interaction of an external stressor with a human community and it carries the implicit concept of non-manageability. The term is used in the entire range of risk-reduction activities, but it is possibly the least appropriate for response鈥�.
Disasters and Natural Hazards
鈥淚n the 2005 Secretary-General Report 鈥淩elief to Development鈥�, the expression 鈥渘atural disasters鈥� was purposely not used, as it conveys the mistaken assumption that disasters occurring as a result of natural hazards are wholly 鈥渘atural鈥�, and therefore inevitable and outside human control. Instead, it is widely recognized that such disasters are the result of the way individuals and societies relate to threats originating from natural hazards. The nature and scale of threats inherent in hazards vary. The risks and potential for disasters associated with natural hazards are largely shaped by prevailing levels of vulnerability and measures taken to prevent, mitigate and prepare for disasters. Thus, disasters are, to a great extent, determined by human action, or lack thereof. The expression 鈥渄isasters associated with natural hazards鈥� should therefore be used, in line with the Hyogo Framework for Action adopted at the World Conference on Disaster Reduction held in January 2005 in Kobe (Hyogo, Japan). Natural Hazards comprise phenomena such as earthquakes; volcanic activity; landslides; tsunamis; tropical cyclones and other severe storms; tornadoes and high winds; river floods and coastal flooding; wildfires and associated haze; drought; sand/dust storm; infestations鈥�.
Public Health Emergency
鈥淎 public health emergency (the condition that requires the governor to declare a state ofpublic health emergency) is defined as "an occurrence or imminent threat of an illness or health condition, caused by bio terrorism, epidemic or pandemic disease, or (a) novel and highly fatal infectious agent or biological toxin, that poses a substantial risk of a significant number of human facilities or incidents or permanent or long-term disability (WHO/DCD, 2001). The declaration of a state of public health emergency permits the governor to suspend state regulations, change the functions of state agencies鈥�.
Meanwhile, since 1984, Indonesia has had a regulatory provision relating to infectious disease outbreaks in Article 1 Law Number 4 of 1984 concerning Infection Disease Outbreak which reads as follows:
鈥淥utbreaks of infectious diseases, hereinafter referred to as outbreaks, are the outbreaks of infectious diseases in a society where the number of sufferers has increased significantly in excess of the circumstances prevalent at certain times and regions and can cause havoc鈥�.
Further, the definition of disaster as provided by Article 1 of the Law Number 24 of 2007 concerning Disaster Management is elucidated as follows:
鈥淒isaster shall mean an event or a series of events threatening and disturbing the community life and livelihood, caused by natural and/or non-natural as well as human factors resulting in human fatalities, environmental damage, loss of material possessions, and psychological impact鈥�.
鈥淣atural disaster means an event or a series of events caused by nature such as earthquake, tsunami, volcanic eruption, flood, drought, typhoon, and landslide鈥�.
鈥淣on-natural disaster means a non-natural event or a series of non-natural events such as technological failure, modernization failure, and epidemic鈥�.
鈥淪ocial disaster means an event or a series of events caused by humans, which include social conflicts between community groups, and terrorism鈥�.
As part of the global population, Indonesia is committed in making efforts to prevent the occurrence of a public health emergency that disturbs the world as governed by Law Number 6 of 2018 on Health Quarantine Service in its Article 1 paragraph (1), paragraph (2), and paragraph (11) below:
- (1) Health Quarantine Service is an effort to prevent and ward off the exit or entry of the diseases and/ or public health risk factors that have the potential to cause public health emergencies.
- (2) Public health emergencies are extraordinary public health events marked by the spread of infectious diseases and / or events caused by radiation nuclear, biological pollution, chemical contamination, bioterrorism, and food that pose health hazards and potentially spread across regions or countries.
- (11) Large-scale social restrictions are restrictions on certain activities of residents in an area suspected of being infected with a disease and / or contaminated in such a way in order to prevent the possibility of spreading the disease or contamination.
In a follow-up with the current situation, the Indonesian government has imposed Large-Scale Social Restrictions (Pembatasan Sosial Berskala Besar - PSBB) in several regions under Government Regulation Number 21 of 2020 on Large-Scale Social Restrictions in Accelerating Corona Virus Disease 2019 (COVID-19) Mitigation (鈥淩egulation 21/2020鈥�) as defined in Article 1 of this regulation, which reads:
鈥淟arge-scale social restrictions are restrictions of certain activities of residents in an area that is suspected of being infected by the Corona Virus Disease 2019 (COVID-19) in such a way as to mitigate the potential spread of the Corona Virus Disease 2019 (COVID-I9)鈥�.
Latterly, the Indonesian Health Ministry has issued Regulation Number 9 of 2020 on Guidelines to Large-Scale Social Restrictions in Accelerating COVID-19 Mitigation as the derivative to regulation No. 21/2020. In this regulation, the PSBB means restriction of public activities in one certain region which is suspected of being infected by the Corona Virus Disease 2019 (COVID-19).
In the meantime, Indonesian Civil Code (鈥淚CC鈥�) stipulates on Force Majeure event in Article 1244 and Article 1245, which read as follows:
Article 1244
鈥淚f there is any reason for such, the debtor must be punished to compensate for the costs, damages and interests, if he cannot prove that the fulfilment, or the unpunctual fulfilment of the agreement was caused by an unpredictable fact, and cannot be alleged on him, all of which if he has no bad faith鈥�.
Article 1245
鈥淭here shall be no compensation of costs, damages and interests, if the debtor because of a force majeure or because undeliberate situation unable to give or to do something, he is obliged to, or because of the same reason has done something forbidden鈥�.
Moreover, the following elements must be fulfilled to be categorized as force majeure event:
- The event is unpredictable
- The unpredictable event is not under the control of the affected party
- The failure to perform is not due to the debtor's fault
- The failure to perform cannot be charged to the debtor.
Based on the above explanation, to determine that the party is categorized as force majeure event affected by the COVID-19 pandemic can be seen among others as follows:
- Whether the contract mention the force majeure event clause
- Whether the pandemic, epidemic, disaster, or disease mentioned in the contract falls under the force majeure clause
- Whether the unexpected events are genuinely beyond the parties鈥� control
- Requires an assessment of each cases since the provisions of the contract might differ from one another.
For instance, many countries have decided to lockdown or implement a large-scale social restrictions to prevent the spread of the COVID-19, which causes a decrease in air travel since airlines are suspended or passengers are forced to cancel flights; in this case the airline companies must refund the payment to the affected passengers.
Other example like delays in delivery of main raw materials used in manufacturing tires, pharmaceutical or cosmetics, etc. - they reserve the right to withdraw from the shipment clause in the contract utterly or partially, or prolong the delivery period by the duration of the impediment.
The parties to a contract are always free to waive their rights under a force majeure clause in a good faith and plausible reason. If the Force Majeure event can be proven as a stumbling-block of the affected party then the affected party on the basis of good faith should notify shortly to the other party in respect of negotiation the provision(s) of the contract. The parties in this regard, are convinced that any action cannot be pursued by any whatsoever effort.
Re-negotiation(s) can be about to amend the period of contract that would lead to a delay or a termination, the payment method, and the consequences of the event or other related provisions. The results of the new consensus will be subsequently set forth in the amended contract. This is in line with the elucidation of Article 1338 of the Indonesian Civil Code that adheres to the principle of freedom of contract, also known as 鈥淧acta Sunt Servanda鈥� in an agreement, which states:
鈥淎ll agreements that are made legally shall apply as the law between the parties thereto validly entered into shall serve as law to the parties thereto. An agreement is not revocable except with the consent of both parties, or for the reasons that by the law are sufficient therefor鈥�.
However, both parties collectively shall conduct an in-depth analysis to take a decision that the force majeure event can be executed at the absence of a well-developed precedent system in Indonesia, or constrains to be applied over an uncertain events.
The effects of the current pandemic is inevitable. No one can reliably predict what the future holds. Nonetheless, we can still prepare and consider in the contract that unforeseeable event might occur. In addition, the contract drafter shall be more precautious in drafting the agreement to mitigate the negative impact of abnormal conditions.[1]
Interested to know more?
Please contact:
Ms. Cassandra Ismail : cassandra(at)ekonid.id
Ms. Indah Lestari : indah(at)ekonid.id
Mr. Kefin Fariz : kefin.fariz(at)ekonid.id
[1] Legal basis:
- Kitab Undang-Undang Hukum Perdata (Burgerlijk Wetboek Voor Indonesie or BW) translated by Rany Mangunsong, S.H, BRM Office, PT. Gramedia Pustaka Utama, 2008
- Law Number 4 of 1984 concerning Infection Disease Outbreak
- Law Number 24 of 2007 concerning Disaster Management
- Law Number 6 of 2018 concerning Health Quarantine Service
- Government Regulation Number 21 of 2020 on Large-Scale Social Restrictions in Accelerating Corona Virus Disease 2019 (COVID-19) Mitigation
- Minister of Health Regulation Number 9 of 2020 on Guidelines to Large-Scale Social Restrictions in Accelerating COVID-19 Mitigation