In business practice, commercial relationships are typically formalized through legally binding contracts. However, during the implementation of the contract, circumstances beyond the parties’ anticipation or the contractual scope may arise. These situations are frequently associated with force majeure, although not all such changes qualify as such in legal terms. Force majeure, also referred to as overmacht, refers to circumstance that may prevent a party or both parties from fulfilling their contractual obligations.
One common issue in practice is that the contracts often do not include clauses addressing any price adjustment or escalation as the mechanisms to respond to unforeseen events that significantly affect the cost of goods and services. For example, geopolitical conflicts may trigger substantial increases in global oil prices, which in turn lead to higher material and logistics costs, as well as supply chain disruptions and shortages. Such unexpected cost increases can create uncertainty for the parties, particularly in determining the available legal and commercial avenues to address the resulting imbalance.
The possibility of bringing a claim against the employer largely depends on the contractual provisions. In the absence of an escalation clause (price/value adjustment), the legal position of the affected party is generally weak. Arguments based on force majeure may be explored; however, increases in costs or economic hardship are generally not recognized as force majeure under Indonesian law unless expressly stipulated in the contract. As for claims against the Government, these are generally not feasible unless there is a direct legal relationship or a specific government policy that directly affects the contractual obligations.
From a judicial perspective, Indonesian courts tend to reject claims for price adjustments where the contract clearly stipulates a fixed price and does not provide for an escalation clause. Although, in exceptional cases, judges may consider principles of fairness and reasonableness, such considerations are not consistently applied and cannot be relied upon as a primary legal basis to justify price adjustment or contractual modification.
Pursuant to Article 1320 of the Indonesian Civil Code, one of the essential requirements for a valid contract is mutual consent between the parties, which explains the existence of the contract agreement. Upon the fulfillment of mutual consent, the agreement becomes binding upon the parties. In the practice of Indonesian law, the principle of good faith (pacta sunt servanda) is strongly upheld, as reflected in Article 1338 and 1339 of Indonesian Civil Code. These provisions affirm that agreements lawfully entered into shall bind the parties as law and must be performed in good faith.
Therefore, although the principle of good faith cannot serve as a strong standalone legal ground to compel price adjustment or compensation through litigation, it can provide a foundation for re-negotiation between the parties. The principle requires parties to act reasonably, which may be demonstrated through a willingness to negotiate equitable adjustments to the contract in light of actual circumstances, particularly where performance of the contract has become significantly more burdensome due to unforeseen events and may result in inequity if continued unchanged. During such re-negotiations, the parties may discuss cost compensation and/or contract price adjustments to maintain fairness in the execution of the contract.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Dewi Susanti