8B – A Note on Climate Risks and Contractual Obligation

By Pablo Baquero

Extreme climate events (such as hurricanes, floods, wildfires, earthquakes, extreme temperatures,
among other natural events) have been specifically significant in relation to the doctrine of force
majeure (according to the jurisdiction, this doctrine may have different denominations, such as
frustration, impossibility or impracticability) in contract law. In many legal systems, this doctrine
essentially establishes that, whenever extreme events beyond anybody’s control prevent the
performance of an agreement, the non-complying party cannot be held responsible for violating
contractual terms, unless there has been an explicit assumption of liability concerning this event.
In the past, extreme climate events were considered to constitute typical force majeure events.
With the unfolding climate crisis, however, that situation has changed a lot. In other words, extreme
climate events are no longer unforeseeable to the same extent as before but have become more
probable and, in some situations, even predictable.
This has two major implications on contract law:

1) Courts examining contracts will tend to require a higher standard to classify a climatic event
as sufficiently unforeseeable so as to be considered force majeure and to excuse the parties
for non-performance.

2) The contractual partners will have to invest more heavily in contract planning related to
climate change. Now, the phenomenon of climate change is increasingly forcing parties to
extensively plan for changing climates, allocating risks between them. More sophisticated
clauses are being included to govern force majeure events and to determine which of the
parties would bear the burden of a potential climate event.