Recently, due to the COVID-19 outbreak, a number of our clients have been approaching us with some concerns. Among the various questions raised to us, we note that most of them share the same concern, which is the growing number of customers/debtors using the outbreak as an excuse on the ground of Force Majeure to delay or even to forgive their payment obligations.

One of our retainer clients who had this concern asked if their agreement is sufficiently protecting them from this situation. Our client operates a nation-wide car rental business and given their business structure and that they primarily rent cars to its customers in fleets (not units), their concern is justified. We re-assured them that when we reviewed their business agreements, the Force Majeure provisions have been specifically equipped with an exclusion which exempts payment obligation performance from being delayed due to Force Majeure. In other words, their customers have agreed that they (the customers) may not invoke Force Majeure as an excuse to delay their obligatory payment.

It is common to include such exclusion in an agreement given that the premise of payment obligation (under Indonesian law) is that payment obligation is guaranteed by all of debtor’s assets (pursuant to article 1131 of the Indonesian Civil Code). Therefore, unless the debtor is legally insolvent, nothing should prevent the debtor from complying with its payment obligation. Further, J. Satrio S.H., a renowned Indonesian civil law expert asserts a similar position in his book “Hukum Perikatan: Perikatan Pada Umumnya” page 259 which we quote (in translation) as follows:

"3. Force majeure for an obligation constituting an obligation to pay

To claim from being discharged for an obligation to pay moneys based on force majeure is not permitted. (footnotes omitted)".

In any case, Force Majeure does not necessarily discharge an obligation as it normally only delays the obligatory time of performance of such obligation.

As a final note, force majeure clause in an agreement may often be seen as boilerplate (standard/general) clause, but it pays to scrutinize this clause a step further in order to bring it into context. For example, in an agreement with government (or state-owned enterprise), change of law may not be an event of Force Majeure for the government (or state-owned enterprise) to avoid engineered force majeure event (as the government (or the state-owned enterprise) may have a say in the change of law in triggering a force majeure event).

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The above is a summary prepared by Solis Advisors – Attorneys and Consultants (“Solis”), an Indonesian based Law Firm. It is only intended to inform generally on the topics covered and should not in any way be treated as legal advice or relied upon when making investment or business decisions. If you have any questions/comments on the matter set out above, or other subject(s) you wish to inquire, please contact your usual Solis contact or email us at consult@solis.consulting.