News & Events

COVID-19 A Basis to Argue Force Majeure. Are We Absolutely Sure?

Author: Bezaliel Basuki Erlan, Fri, Mar 27th 2020, 17:43

I just went through a LinkedIn timeline and read some of legal scholars and practitioners’ articles or write ups on force majeure or “FM” considering the COVID-19. I am now under the impression that there is a possibility that COVID-19 may very well serves as basis of FM. We need to ask ourselves however, is that the truth? At least from legal doctrine perspectives.

At the Common Law jurisdictions, perhaps, using COVID-19 as basis for an argument to invoke the rights to suspended performance in contracts under the FM is relatively easier to determine. Why? Stare-Decisis! There are probably more than tens of thousands of case-laws, which determines whether a pandemic is a FM and therefore a suspended performance is legitimate.

We are however, live in this beautiful country under a Civil Law system. While there are Supreme Courts Decisions known as jurisprudence, in practice, the same merely serve as guidance for judges to rule over the civil cases in dispute. This is true for all arguments, including the FM. Therefore, one must rely on and focus on the argument of what constitutes a FM. 

Now, what is FM under the Civil Law system particularly under the Indonesia’s Civil Law system? Like other scholars and practitioners, I must quote Article 1244 of the Indonesian Civil Code or “ICC” as follow:

“The debtor (note: Obligor, the person or the entity owing performance to the other party in a contract, just to give the readers a context that this is applicable to all performance in contracts as a matter of general principle not in just loan agreements.), shall, in the event that there are grounds therefore, be declared liable for compensation of costs, damages and interest, unless he can prove that the failure to fulfill or the late fulfillment of the contract was caused by unforeseen circumstances for which he cannot be held responsible, notwithstanding that no malice (note: Bad faith) existed on his part.”

Now, let us step back for a minute. The ICC historically was the Netherlands Civil Code dated back some hundreds of years ago. The Dutch use it to govern civil matters in Indonesia as part of their colonies may it be with Indonesian natives or traders from all over the world trading in the Netherland’s colonies, including Indonesia. 

To set the background, at that time people trade by boats or larger sea vessels to go on about their business and deliver or pickup the traded merchandises. A simple example of the application of Article 1244, is A using his sea vessels to deliver gold bricks to B a seller of spices in Indonesia. A’s vessels left the Amsterdam port on the 23 of March and arrived in Indonesia at 24 of April, the gold bricks are well received by B. B however, would not be able to deliver the spices on time to A because right before B’s vessels left the Batavia port on the designated time of schedule, a devastating hurricane hits the sea all the way to Batavia port, causing B to instruct his vessels captains to abort the delivery. The hurricane at that time, is obviously the unforeseen circumstances discussed in Article 1244 of the ICC, and therefore A should not be holding B liable for suspension of performance.

Another example, the weather is clear, the sky is blue, and the seagulls are singing. It was the perfect day to start a two months journey from the port of Batavia to Amsterdam and B’s vessels full of spices should reach Amsterdam port right on time, as agreed between A and B under the Spices Sales and Delivery Contract. B is aware however, in order to get the spices delivered on time, B’s vessels must take on South China sea route because the hard wind will help in increasing the vessels speed. That route is invested with pirates. B had knowledge from his fellow merchants however, that the pirates only have three vessels with no more than two hundred men and have no firepower. B then hire a three hundred mercenaries, put cannon on the vessels and send the vessels to go through the route. B unable to foresee that the pirates equipped themselves with poisonous arrows, long spears and blades. The pirates took over the vessels with ease, all the spices are stolen and neither the vessels nor the spices ever reached the Amsterdam port. 

In the above example, B should be able to invoke suspension of the performance due to FM. While he was aware of the pirates’ threat, and made necessary anticipation, he was unable to foresee the “poison” factor comes to play. How could have he known? Merchants do not mingle with pirates, ergo the unforeseen circumstance part should be satisfied. Conversely, B would fail to invoke suspension of the performance due to FM if he knew about the pirates and not taking precaution (i.e., refrain from hiring the mercenaries, and/or installing the cannons). Reason being he did not satisfy the unforeseen circumstance part as the main element of FM.

Going back to the COVID-19 pandemic. Using the analogy in the story of A, B, the hurricane and the pirates, COVID-19 was an unforeseen circumstance like the hurricane in the example. Now, however, it has become a foreseen circumstance like the merchants’ knowledge of the pirates in the example. Reason being, despite there are neither cure nor vaccine at the ready, is a matter of general knowledge on how to prevent exposure to it. Guidelines from WHO as well as respective governments has been publicized both worldwide and nationwide. Work from Home, if you must leave the house be very mindful of the 1-meter distancing, do not engage in a crowd, wash hands regularly for at least twenty seconds, and use more than 60% alcohol-based disinfectant. We must look and examine each case carefully where it relates to COVID-19 causing legitimate basis to best argue suspension of performance under the FM. Cross referencing between the timeline of the default when COVID-19 pandemic was an unforeseen circumstance or was it already become a foreseen circumstance is also crucial.

Furthermore, whether the obligors have exercised the general knowledge we have discussed as a matter of policy or not must also be investigated and proven thoroughly. Otherwise, why bother using the argument of FM due to the COVID-19 pandemic. Regardless of the complication of litigating in Indonesia, generalizing COVID-19 as basis for FM, with the hope to obtain legitimacy for the suspension of contract performance may likely be in vain. In a sales and delivery contract for example, COVID-19 may only become a valid argument that FM has occurred if the designated towns, provinces, or States as the recipient is locked down by the local government. But we all know, that even in lockdowns people are still able to deliver merchandises in and outside of the locked down areas. People need to live and they need the basic necessities.

Separately, as a matter of practicality, in this time of grieve, the parties in contracts should sit down and renegotiate about the performance requirements and insert a provision regarding “hardships” as commonly known in various international contracts. I believe this is more productive and considerate rather than to merely argue that COVID-19 is a cause of FM to obtain the legitimacy of performance suspension.

In the end, all of us are most likely parties in various business contracts, may it be in our role as obligors or performance recipients or both. I urge all of us to be extra careful in seeking legal representations so we will be well represented in this time of affliction. Always educate ourselves and challenge each counsels we received. We are living in a challenging and hard times, let us try our best to make it less challenging for mutual benefits.