With the issuance of Presidential Decree number 12 year 2020, Indonesia has officially determine COVID19 as a National Disaster. With this decree, obviously any party that engages in a contract that states national disaster as a Force Majeure event will have a strong basis to propose a force majeure in relation to the fulfillment of obligation under the respective contract.
Additionally, there are a lot of other issues that also provides a strong basis for COVID19 as a Force Majeure event. However, we are under the opinion that instead of arguing whether COVID19 is a Force Majeure or not, parties should acknowledge that the current situation shall have consequences towards the performance of contract. Should the Parties agrees to acknowledge that, the next step is to determine whether a performance of contract is still possible or not.
Where performance of contract is still possible, consider taking the following steps:
1. Negotiate a recovery plan
Force Majeure clause has never been a simple clause. Party invoking Force Majeure clause must always provide adequate prior notice. A recovery effort plan also usually must be composed and negotiated.
It is better for the parties to negotiate a recovery effort plan to ensure that the obligation shall be continued to be fulfilled after a certain period of time or after certain conditions are met.
2. Accept that delay is unavoidable
The parties should already aware and accept that delay in the performance of contract is unavoidable. We believe that entering into a legal dispute to argue for completion target date to be fulfilled and reject any delays will be a waste of time and money.
There will likely be no arbitrators in an arbitration panel or judge in a court of law that does not allow delays in relation to COVID19. It is therefore advisable to keep your head down and negotiate a solution to govern the consequences of the delay.
3. Determine a legally sufficient payment scheme
COVID19 as a force majeure and its consequences has numerous very strong basis. It will serve both parties well that instead of bitterly disputing the basis of force majeure, they should negotiate a payment settlement that will be legally accepted in accordance with the contract and prevailing laws and regulations. It is very important to re-examine the contract for any possible claims (i.e: claim on performance bond, disbursement of escrow etc. etc.) resulting in a payment disbursement.
You have to review the contract and the wordings to ensure your contractual obligations and requirements. No parties wants to accept non-payment while no parties will accept non-performance. Maintain communication and fulfill all outstanding contractual obligations including requirement to provide notices. Any commitment and promises must be in writing to strengthen the position of the parties.
4. Reach an agreement in a new Contract
As the famous saying goes: “This too shall pass”. We believe it will be under the best interest of the parties to negotiate a new contract with new terms, taking into account the conditions where COVID19 will no longer an issue and cause disruption in the performance of the parties.
Additionally, there are a lot of other issues that also provides a strong basis for COVID19 as a Force Majeure event. However, we are under the opinion that instead of arguing whether COVID19 is a Force Majeure or not, parties should acknowledge that the current situation shall have consequences towards the performance of contract. Should the Parties agrees to acknowledge that, the next step is to determine whether a performance of contract is still possible or not.
Where performance of contract is still possible, consider taking the following steps:
1. Negotiate a recovery plan
Force Majeure clause has never been a simple clause. Party invoking Force Majeure clause must always provide adequate prior notice. A recovery effort plan also usually must be composed and negotiated.
It is better for the parties to negotiate a recovery effort plan to ensure that the obligation shall be continued to be fulfilled after a certain period of time or after certain conditions are met.
2. Accept that delay is unavoidable
The parties should already aware and accept that delay in the performance of contract is unavoidable. We believe that entering into a legal dispute to argue for completion target date to be fulfilled and reject any delays will be a waste of time and money.
There will likely be no arbitrators in an arbitration panel or judge in a court of law that does not allow delays in relation to COVID19. It is therefore advisable to keep your head down and negotiate a solution to govern the consequences of the delay.
3. Determine a legally sufficient payment scheme
COVID19 as a force majeure and its consequences has numerous very strong basis. It will serve both parties well that instead of bitterly disputing the basis of force majeure, they should negotiate a payment settlement that will be legally accepted in accordance with the contract and prevailing laws and regulations. It is very important to re-examine the contract for any possible claims (i.e: claim on performance bond, disbursement of escrow etc. etc.) resulting in a payment disbursement.
You have to review the contract and the wordings to ensure your contractual obligations and requirements. No parties wants to accept non-payment while no parties will accept non-performance. Maintain communication and fulfill all outstanding contractual obligations including requirement to provide notices. Any commitment and promises must be in writing to strengthen the position of the parties.
4. Reach an agreement in a new Contract
As the famous saying goes: “This too shall pass”. We believe it will be under the best interest of the parties to negotiate a new contract with new terms, taking into account the conditions where COVID19 will no longer an issue and cause disruption in the performance of the parties.
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