Tariffs and force majeure

We are starting to hear reports of businesses declaring the Trump Administration's Executive Order on tariffs to be a force majeure event under their contracts. Most of us now have rather more experience than we'd like to of force majeure clauses, given, Brexit, COVID and the invasion of Ukraine. However, in case you've mislaid your FAQs, or would like a reminder, we take a look at some of the factors to bear in mind if the relevant contract is governed by English law.

Is there a force majeure clause and, if so, has it been triggered?

You will need an express force majeure provision to assert force majeure (or, if appropriate, material adverse change). It is not something that is likely to be implied into a contract. Whether your provision is triggered will depend upon a close analysis of the language. This was often decisive when analysing claims in relation to COVID and the invasion of Ukraine.

What, exactly, is the relevant event?

This step ought to be simpler than it was for, say, COVID given you are likely to be referencing the Executive Order. But it may get more complex if the tariffs change and do so frequently.

Is the event within the scope of the clause, either expressly or by implication?

Most force majeure clauses contain a list of events which will constitute force majeure. Material adverse change clauses often do not list out what is in scope, relying instead on the general meaning of the words. Work out whether the event being relied upon as the basis for invoking the clause is caught.

Where there are lists of events, you can get into arguments about whether the event you are relying on needs to be of the same type.

It may be more difficult to show that an event is force majeure or that a change is material if it was foreseeable. In one sense, these tariffs were not a surprise. Indeed, they were arguably in plain sight, but was the reality foreseeable?

Has the event affected the ability to perform in the way required by the clause?

Most force majeure clauses require a party to show that, as a result of the event, performance has become physically or legally impossible, and not just more difficult or unprofitable. This is a high bar. A change in the market conditions that renders performance more expensive is not likely to be a force majeure event where impossibility is required. For a material adverse change clause, you will need to focus on the specific and not the general; “material” is also a high bar and the event will need to be on a more than temporary basis. 

Some clauses may have lesser requirements (e.g. that performance has become “impracticable” or been “hindered”).

The devil will be in the details. In some cases the position will be clear, but in others it may be difficult to say whether the event has had the effect on the ability to perform that is required by the clause.

What are the mechanics for invoking the clause and what are the consequences of doing so?

A failure to follow the mechanics for invoking a clause—for example by not complying strictly with notice requirements—could prevent reliance on it.

Understanding the consequences of triggering the clause is also key. Does it allow you to terminate the contract or suspend obligations? Does it explain how the relationship is unwound (if indeed it is)? 

Insured parties may find their insurers requesting that they invoke certain clauses if that would result in any loss being mitigated.

Is there an obligation to mitigate losses if you are unable to perform?

Even if there is a force majeure event, a force majeure clause usually requires the defaulting party to show that it used its reasonable endeavours to prevent, or at least mitigate, the effects of the force majeure.  And even if it doesn't say so expressly, such a requirement is likely to be implied.