Framing Climate Change as a Contractual Risk: Rethinking Force Majeure Clauses Amid Constant Uncertainties

Framing Climate Change as a Contractual Risk: Rethinking Force Majeure Clauses Amid Constant Uncertainties

“The only thing that is constant is change”

– Heraclitus

The relevance of this adage is more pronounced today than ever, as climate change and its severe impacts are no longer distant or abstract concerns. Countries have been facing irreversible adversities due to climate change. Recent data indicate that Indonesia recorded temperatures reaching 38.4°C in October 2024 and faced 6,827 climate-related disasters between 2023 and 2024, affecting more than 13 million people. Inevitably, events of this scale create substantial obstacles for private parties in performing and fulfilling their contractual obligations. In circumstances such as these, an effective mechanism for risk allocation becomes essential, requiring a clear and responsive approach within the framework of contract law.

Conventionally, the allocation of risks arising from natural disasters and other changes of circumstances in contracts has been managed through force majeure clauses. However, as extreme climate events and transition impacts grow more pronounced, paralleled by improvements in scientific understanding, these risks may become progressively less unforeseeable. This raises a question about the application of traditional force majeure clauses, since events such as disasters or extreme weather that used to be considered unpredictable can now be anticipated with increasing clarity. Taking these developments into account, this article aims to outline considerations for rethinking how contracting parties should approach force majeure clauses in the era of the climate crisis.

1. Risks Associated with Climate Change

Risks associated with climate change can be understood to be categorized as follows:

a. Physical Risks

Physical climate risks are defined as the potential for damage and disruption to people, property, and productivity caused by growing exposure to climate hazards. These risks can create financial impacts for organizations through direct asset damage and indirect effects such as supply chain disruption.

Physical risks are categorized as acute and chronic risks. Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods. Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise, drought, or chronic heat waves.

b. Transition Risks

Transition risks arise from the economic and regulatory changes needed to reduce greenhouse gas emissions and shift toward renewable energy. Depending on the pace and focus of these changes, transition risks can create different levels of financial and reputational exposure for organizations.

In a legal context, transition risks arise as businesses are required to adapt to evolving climate policies aimed at reducing environmental impacts and strengthening resilience. Concurrently, climate-related litigation is increasing, driven by failures to mitigate emissions, adopt adequate adaptation measures, or disclose material financial risks. As climate-related losses grow, this litigation risk is expected to escalate further.

Transition risks can also include reputational and market risks, as consumer and community perceptions of a company’s role in moving toward a lower carbon economy affect demand for its products, services, and commodities.

2. Force Majeure based on Indonesian Civil Law

Force majeure is generally understood as an unforeseen event occurring after a contract is made that prevents a debtor from fulfilling their obligations without fault or risk. In practice, force majeure contracts in Indonesia are drafted by contracting parties in light of the concept regulated under Articles 1244 and 1255 of the Indonesian Civil Code, stated as follows:

Article 1244 Indonesian Civil Code:

“If there is any reason for such, the debtor is compensate for costs, damages and interests if he cannot prove, that the non-performance or the late performance of such obligation, is caused by an unforeseen event, for which he is not responsible and he was not acting in bad faith.”

Article 1245 Indonesian Civil Code:

“The debtor needs not compensate for costs, damages or interests, if an act of God or an accident prevented him from giving or doing an obligation, or because of such reasons he committed a prohibited act.”

Although Indonesian Civil Law does not specify the details of what occurrence qualifies as force majeure nor the degree of unforeseeable events, Indonesian scholars have identified the key elements that constitute force majeure. Purwahid Patrik explains that force majeure requires (1) the presence of an impediment to fulfilling an obligation, (2) that the impediment does not arise from the debtor’s fault, and (3) that it is not caused by circumstances falling within the debtor’s own risk. Similarly, R. Subekti states that a situation qualifies as force majeure when it is (1) beyond the debtor’s control and compelling in nature, and (2) could not have been known at the time the agreement was formed or, at the very least, its risk is not borne by the debtor.

Moreover, the degree of unforeseeable events can be categorized based on the legal implications to contracting parties, including:

• Impossibility: A party cannot perform the contract because an event outside its responsibility makes performance no longer possible.
• Impracticability: An event occurs without fault of either party, and although performance is still possible in theory, it would require unreasonable cost, time, or effort, making the contract impractical to carry out.
• Frustration: An event beyond the parties’ responsibility prevents the purpose of the contract from being achieved, even though performance is still technically possible, causing the contract to lose its purpose.

3. Discussion

Force majeure clauses serve to allocate risk between contracting parties when unforeseen events disrupt contractual performance. Their purpose is not to dictate how risks should be shared, but to excuse a party from liability when circumstances beyond their control prevent fulfillment of their obligations. However, when such clauses are drafted in vague, generic, or ambiguous terms, they create uncertainty, heighten the potential for disputes, and expose the parties to significant litigation risks. In the context of climate change, such broadly worded clauses become less effective, as many climate-related risks are increasingly predictable and therefore no longer fit comfortably with the notion of “act of God” as a threshold of unforeseeable event.

Past Indonesian court jurisprudences have examined whether situations with a level of severity comparable to climate risks, such as disasters or changes in government policy, can amount to force majeure, as illustrated in the following examples:

Number	Ruling related to Force Majeure
Supreme Court Judgment No. 587/PK/Pdt/2010	The Supreme Court in the Judicial Review affirmed the cassation ruling that flooding could not be justified as force majeure, as it did not meet the criteria of force majeure.
DKI Jakarta High Court Judgment No. 727/Pdt/2016/ PT.DKI	The High Court ruled that forest fires in that case could no longer be classified as force majeure because such incidents had been shown to occur repeatedly by credible sources, and should therefore have been anticipated.
Medan High Court Judgment No.91/PDT/2018/PT.MDN	The High Court reaffirmed the ruling of Gunung Sitoli District Court that flooding does not constitute force majeure as the invoking party was not able to demonstrate appropriate evidence that exhibits flood as an obstruction to their contract performance.
Supreme Court Judgment No.3389K/Pdt/1984	The Supreme Court recognized that administrative actions by authorities, including official orders and binding decisions, as well as sudden uncontrollable events, may affect contractual obligations and fall within the scope of force majeure.

Based on these examples, it is clear that the determination of whether a situation constitutes force majeure is made on a case-by-case basis. Several Indonesian courts, as stated in the above-mentioned jurisprudence, have shed light on the predictability of several types of disasters, where invoking it should also require appropriate evidence from the contracting party. This should be considered for industries prone to experiencing physical climate risks. On the other hand, based on Supreme Court Judgment No.3389K/Pdt/1984, courts may recognize an abrupt change of laws and policy to fall under force majeure. The key factor remains whether the event satisfies the established conditions for force majeure.

Taking the abovementioned jurisprudence into account, it is crucial to carefully draft contracts tailored to the specific business relationship and industry involved, taking into account evolving risks and legal interpretations. This applies especially to industries that are pronounced to be prone to climate risks, for example, including agriculture, fisheries, and real estate in disaster-prone locations.  

4. Conclusion and Recommendation

Sooner or later, the realities of climate change and its escalating risks must be accepted as the new normal, necessitating fundamental adjustments in how contracts address unforeseen events. A key legal challenge emerging now is determining to what extent climate-related incidents remain truly unforeseeable, and how far parties must go to anticipate and mitigate these risks while fulfilling their obligations.

Businesses must navigate this shift by carrying out efforts of climate risk prevention and incorporating appropriate mechanisms in their contracts. Private Parties must denote their respective risks in drafting force majeure clauses, and include the following component:

• Articulate clear and objective criteria that determine when an event qualifies as force majeure;
• Set out a comprehensive, sector-specific list of unforeseeable events, tailored to the evolving climate-risk landscape faced by both contracting parties;
• Require prompt and transparent notification upon:
  • Identification of risks that may escalate and hinder contract performance; and
  • Force majeure events.
• Impose a duty to undertake all reasonable efforts to mitigate loss or disruption arising from such events;
• Mandate continued performance to the fullest extent possible, even during a force majeure situation, consistent with the nature and severity of the disruption; and
• Define with precision the legal consequences of invoking force majeure, ensuring clarity on rights, remedies, and potential adjustments to contractual obligations.

Apart from that, transparency between contracting parties from the pre-contractual phase through the performance of obligations is essential to building trust. This begins with openly disclosing each party’s climate-related risks during initial negotiations, ensuring that all parties gain a clear and comprehensive understanding of potential vulnerabilities. Transparency can then be carried forward into the contractual stage through obligations such as timely risk assessments and ongoing due diligence, which strengthen the parties’ ability to anticipate and manage emerging risks more effectively.

Bibliography:

• Indonesian Civil Code.
• Supreme Court Judgment No.3389K/Pdt/1984.
• Supreme Court Judgment No. 587/PK/Pdt/2010 dated 25 January 2011.  
• DKI Jakarta High Court Judgment No. 727/Pdt/2016/ PT.DKI dated 3 March 2017
• Medan High Court Judgement No.91/PDT/2018/PT.MDN  dated 7 May 2018.
• Purwahid Patrik. Dasar-Dasar Hukum Perikatan. Bandung: Mandar Maju, 1994.
• Subekti. Hukum Perjanjian. Jakarta: Intermasa, 2005.
• Johannes Ibrahim and Lindawati Sewu. Hukum Bisnis dalam Persepsi Manusia Modern. Bandung: Refika Aditama, 2004.
• The World Bank Group and Asian Development Bank. Climate Risk Country Profile: Indonesia. Washington, DC & Manila: The World Bank Group and Asian Development Bank, 2021.
• Task Force on Climate-related Financial Disclosures, 2017 TCFD Report: Final Report (TCFD, 2018).
• Global Climate Risks.Climate Pressure on Indonesia: Heat, Disease, and Disaster. April 10, 2025, available at https://globalclimaterisks.org/insights/blog/indonesia-heat-disease-disaster/ (accessed December 4, 2025)

Authored by Irene Amadea Rembeth (amadea@fwp.co.id)

This article is intended to provide a broad summary and general information on certain recent legal developments in Indonesia. It is not intended to constitute legal advice, nor should it be treated as such. FWP disclaims any responsibility or liability for any inaccuracies, interpretations, or omissions contained in this update. For any specific legal concerns or actions that may impact your legal rights and responsibilities under Indonesian law, it is highly recommended that you seek advice from a qualified Indonesian legal professional.