Force Majeure: Reason for Non- Performance?
ADCO Law
ADCO Law
Force Majeure is a condition rarely heard about in our daily activities. However, in practice, Force Majeure is something that has a great influence on business activities carried out by business actors once it happens. Thus, Force Majeure clauses are usually agreed upon in advance by the parties, and set forth in an agreement.
In every agreement, the parties have rights and obligations that must be fulfilled. However, the implementation or fulfillment of rights and obligations in an agreement does not always run smoothly, which could be due to a condition or situation that arises outside the will of the parties, and that is often used as an excuse for not fulfilling the agreement (non-performance) agreed upon by the parties.
Understanding Force Majeure
In general, Force Majeure is a condition that prevents one of the parties from fulfilling its performance after the parties make an agreement. According to Prof. Subekti, Force Majeure is a debtor’s defense to show that the non-performance of what was agreed is caused by unexpected circumstances or events that are completely unpredictable or undone so that the unexpected event can be concluded as a reason to release the debtor from the obligation to pay compensation on the basis of default proposed by the creditor.
Read More: Juridical, Sociological, and Philosophical Basis
Force Majeure in the Civil Code
Provisions regarding Force Majeure can be found in Article 1244 and Article 1245 of the Civil Code:
Article 1244 of the Civil Code:
“The debtor must be punished for compensating costs, losses and interest if he/she cannot prove that the non-performance of the engagement or the inaccuracy of the timing of performing the engagement was caused by something unforeseen, which cannot be insured.”
Article 1245 of the Civil Code:
“No compensation for losses and interest if due to compelling circumstances or due to coincidences, the debtor is prevented from giving or doing something that is required, or performing an act that is prohibited for him/her.”
Based on the provisions above, the main elements causing a Force Majeure situation include:
- Unexpected events;
- Obstacles that make performance impossible to carry out;
- An inability that is not caused by the debtor’s fault;
- An inability that cannot be borne by the debtor.
Conditions Categorized as Force Majeure
Force Majeure conditions that can generally be found in agreement are as follows:
- Natural disasters or events that occur beyond human control, including but not limited to fires, volcanic eruptions, earthquakes, droughts, tidal waves, and floods;
- War, hostilities (whether war is declared or not), invasion, mobilization, or civil war;
- Radioactive contamination of any nuclear fuel or of any nuclear waste from the combustion of nuclear fuel, radioactive toxic explosives, or other hazardous properties of explosive nuclear assemblies, or nuclear components of such assemblies;
- Riots, strikes, delays, closures, or chaos;
- Acts or threats of terrorism;
- Pandemic or disease outbreak; or
- Other unforeseen circumstances beyond the control of the parties, which is unreasonable for the affected parties to avoid or to take preventative measures even with the best efforts.
In the light of the above, the debtor is freed from the obligation to compensate for default if the debtor can prove the existence of Force Majeure causing the debtor to be unable to carry out its performance.
Verification of Force Majeure
The first step to verify that a Force Majeure event has occurred is by issuing a statement/notification of Force Majeure by the debtor to its creditors by referring to the Force Majeure clause stipulated in the agreement. Departing from that, it is necessary to analyze whether the Force Majeure situation is really a situation that occurs beyond the control of one of the parties and does not contain elements of bad faith or the like.
Furthermore, pursuant to Article 1244 of the Civil Code, there are three conditions that must be proven by the debtor so that the Force Majeure situation is considered to occur, as follows:
1) Unforeseen circumstances that cannot be predicted;
2) Circumstances beyond the will and power of the debtor; and
3) No bad faith from the debtor.
These three conditions must be met so that there is a causal relationship between the Force Majeure that occurs and the non-performance of obligations that should be made by the debtor.
Force Majeure needs to be clearly defined because it is often used as a justification for the non-performance of obligations of one of the parties in an agreement. Therefore, it is necessary to clarify what events or situations are categorized as Force Majeure so that the parties do not make their own understanding but agree to specifically regulate Force Majeure clauses acceptable to both parties.
***
ADCO Law earns the trust to represent clients from multinational companies to emerging entities across a wide range of industries to achieve their business objectives in Indonesia.
ADCO Law as a Law Firm in Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing, and securing investments as well as establishing new foreign companies in Indonesia.
Should you have more queries regarding this matter, please do not hesitate to contact us
ADCO Law
Setiabudi Building 2, 2nd Floor, Suite 205C
Jl. H.R. Rasuna Said Kav. 62, Setiabudi Karet
Jakarta Selatan, 12920, Indonesia.
Phone : +6221 520 3034
Fax : +6221 520 3035
Email : [email protected]
Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.
