Foreign investors in Indonesia face contractual risks shaped by supply chain shocks, regulatory shifts, currency volatility, and global disruptions. When a contract breaks down, the question is not only who bears the loss, but also which legal path is open: invoking force majeure or seeking relief under hardship. Indonesian courts draw a sharp distinction between impossibility and severe burden, and choosing the wrong approach can compromise both legal protection and business strategy.
Force Majeure Under Indonesian Law
Force majeure is anchored in Articles 1244–1245 of the Indonesian Civil Code, which release parties from liability if non-performance results from unforeseeable, unavoidable, and external events. Courts apply a high threshold: the event must render performance objectively impossible, not merely costly or inconvenient.
During the COVID-19 pandemic, Presidential Decree 12 of 2020 classified the outbreak as a non-natural national disaster, and many businesses relied on it to suspend obligations. Yet when the government declared the pandemic status ended in June 2023, courts no longer treated COVID-19 as an automatic justification for force majeure.
Recent decisions confirm that claims succeed only when performance is blocked entirely, such as when port closures halted exports. For investors, the lesson is that force majeure protection depends on precise contractual drafting and strict evidence of impossibility.
Hardship as an Emerging Remedy
Hardship is not codified in the Civil Code but is increasingly used in Indonesian contracts influenced by international standards such as the UNIDROIT Principles. It applies where performance remains possible but becomes excessively burdensome due to unforeseen events. Currency collapses or global commodity spikes are typical examples.
Courts rarely enforce hardship without an explicit clause, but arbitral tribunals and renegotiations between joint venture partners have upheld hardship mechanisms. For investors, hardship is attractive because it preserves operations and commercial relationships rather than terminating contracts outright.
Decision Matrix for Investors
The choice between force majeure and hardship is not abstract. It is a strategic decision that depends on the disruption, the contract language, and the investor’s long-term goals.
| Factor | Force Majeure | Hardship |
|---|---|---|
| Nature of Disruption | Performance is objectively impossible due to external events such as government bans, port closures, or natural disasters. | Performance remains possible but is commercially unsustainable due to factors such as currency collapse or commodity price surge. |
| Legal Standing | Based on Civil Code Articles 1244–1245; implied but narrowly interpreted. | Not in statute; only effective if expressly drafted into the contract. |
| Outcome | Suspension or termination of obligations, with liability waived if proven. | Renegotiation or adjustment of terms, with obligations continuing under modified conditions. |
| Court Attitude | Conservative, requiring strict proof of impossibility. | Deferential to contract language; enforced mainly in arbitration or if clauses are clear. |
| Investor Objective | Protect against liability when performance is impossible. | Preserve long-term relationships while adapting obligations to survive disruption. |
| Sector Exposure | Manufacturing, infrastructure, and mining face greater exposure to force majeure. | Consumer goods, services, and finance are more vulnerable to hardship triggers. |
Sector Scenarios in Practice
Energy and Mining
A coal mining company faces an export ban imposed by the Indonesian government. Deliveries are legally impossible. This is a classic force majeure case, where suspension or termination is unavoidable.
Consumer Goods
A multinational food distributor continues operations but sees the rupiah depreciate sharply, doubling import costs. Performance is still possible, but the contract terms become unsustainable. Here, hardship provisions enable renegotiation.
Infrastructure and Logistics
A port development project halts when an earthquake destroys construction facilities, making performance impossible and falling under force majeure. In contrast, if steel prices spike due to supply chain shocks, hardship mechanisms would be the appropriate tool.
Strategic Use of Each Remedy
Force majeure is most effective where obligations cannot be performed under any circumstances. Investors drafting contracts in Indonesia should avoid broad boilerplate clauses and instead specify sector-relevant triggers. Hardship, by contrast, works best where operations continue but financial sustainability is under threat. Clauses should set out triggers, negotiation procedures, and fallback options such as arbitration to ensure enforceability.
Jarji Zaidan & Partners – Protecting Your Contracts
Jarji Zaidan & Partners advises foreign investors on drafting enforceable clauses, renegotiating agreements, and defending interests in Indonesian courts and arbitration. Contact us today at info@jarjizaidan-partners.com  or on WhatsApp +62 821-9000-3273 / +62 813-1403-8907 to secure the right remedy for your investment.
