The impact of Tariffs on international contracts in France

In case there is no specific force majeure clause in the contract, the status of force majeure in an agreement governed by French law will be ruled either by French civil law, or by the 1980 UN CISG if it is a supply agreement where the parties did not exclude this CISG.

Under French civil code

According to Article 1218 of the French Civil Code, force majeure is an event that:

1. is beyond the control of the debtor,
2. could not have been reasonably foreseen at the time of contract formation,
3. cannot be avoided through appropriate measures and prevents performance of the obligation.

While tariffs increase meet the criterion of externality, they may fail the unforeseeability criterion depending on the date of conclusion of the agreement: If trade tensions already existed at the time of contract formation, the increase might not be deemed unforeseeable. The irresistibility test may fail as well, as courts generally rule that increased costs (or any financial burden) alone do not constitute force majeure since performance is not rendered absolutely impossible. However, a case-by-case analysis must be conducted, especially when other contractual undertakings are at stake (e.g. the non-respect of a minimum purchase commitment).

Under the 1980 US Convention on the International Sale of Goods (CISG)

Article 79 of the CISG provides for exemption in cases of "an impediment beyond a party’s control, which could not reasonably have been taken into account at the time of contract formation, and which could not be avoided or overcome."

Given the similarity to the French force majeure criteria, it is unlikely that tariff increases alone will constitute force majeure under CISG.

Unless there is a specific so called hardship clause to refer to in the agreement, parties may apply article 1195 of the French Civil Code which allows for contract renegotiation or termination if:

• there is an unforeseeable change in circumstances; and
• performance becomes excessively burdensome ; and
• the debtor did not accept this risk when the contract was signed.

A mere increase in costs is insufficient; the burden must be excessive. For example, a 80% increase in paper costs was deemed sufficient for unforeseeability in a recent court case. The burden of proof lies with the party invoking hardship, requiring financial documentation to demonstrate change of circumstances and consequential excessive cost increases.

If hardship is established, the affected party can request renegotiation. If negotiations fail, either party may ask the court to revise or even terminate the contract. However, parties must continue to respect the agreement during the renegotiation period. See more practical details in our previous article on Legalmondo.

Two scenarios exist:

• renegotiation of a fixed-price agreement (either a stand-alone or a framework): Price renegotiation of an ongoing contract is not possible, unless specific renegotiation clause can be invoked, or hardship can be implemented.
• renegotiation of price in a business relationship: Either party may claim for prices adjustment (increase or decrease depending on the place in the supply chain) to take into account increase in tariffs for the next contracts/orders. But if the relation is governed by French law, a reasonable prior notice must be granted before the effectiveness of the price modification (or modification of volume of orders). Under Article L. 442-1.II of the French Commercial Code, failure to give adequate written prior notice before price modification may be considered a "partial" abrupt (sudden) termination of the commercial relationship, leading to potential damages.

The main characteristics of this legal mechanism (mandatory under French law) are:

• The business relationship must be well-established.
• The increase must be significant (e.g., 10% or 25% rather than 1%).
• The length of the notice period must be assessed on a case-by-case, given the business history and dependence between parties.

Therefore, any party seeking to renegotiate prices due to tariff increases must carefully assess the prior notice, having in mind that this legal commitment to provide such a notice does not apply in case of force majeure or breach of contract by the other party and also, according to some caselaw, adverse external cause. See more practical details in our previous article on Legalmondo.