The impact of Tariffs on international contracts in EUA

Under U.S. law, force majeure clauses are interpreted by courts according to their plain and ordinary meaning and will not be expanded to encompass conditions or events not provided.

Generally, an event will only excuse nonperformance if expressly listed in the contract’s force majeure provision.

The Court’s reluctance to expand the scope of such clauses is based on the principle that courts do not rewrite agreements, including bad bargains, to make the terms fairer.

If tariffs are not specifically included in the clause or within the scope of an enumerated event, a party cannot rely on force majeure to escape contractual obligations.

U.S. law does not recognize hardship as a legal doctrine or standard principle to suspend a party’s performance obligations.

The doctrine of unconscionability is the closest concept but is limited to facts existing when the contract was negotiated, not a developed post-contracting.

At the same time, the provision relating to hardship must not render the agreement illusory and lacking in a clear and specific promise.

Thus, the conditions relating to a hardship event excusing performance must be well-defined.

If parties include a hardship clause, it should clearly outline specific economic thresholds and provide a structured renegotiation process.

Parties should explicitly include tariff-related language to ensure that a force majeure clause effectively covers tariffs. Here are some key drafting considerations:

1. Specificity: The clause should explicitly list “government-imposed tariffs, duties, or trade restrictions” as force majeure events. A general reference to “government actions” may not suffice, as courts require explicit identification of excusing events.

2. Threshold Conditions: The clause should define the extent of tariff impact required to excuse performance. For example: “A tariff increase exceeding [XX]% imposed by any governmental authority that materially affects the economic feasibility of performance shall constitute a force majeure event.”

3. Impact on Performance: Consider specifying whether the imposition of tariffs will excuse performance entirely or just result in a price adjustment:

“In the event that a tariff of [XX]% or more materially increases the cost of performance, the affected party may suspend performance or renegotiate the terms in good faith. If no agreement is reached within [XX] days, the party may terminate the contract without liability.”

OR

“In the event that a tariff up to  [XX]% (”Threshold”) materially increases the cost of performance, the price of the goods will be adjusted to cancel out the tariff charged. If a tariff or equivalent measure results in a price increase above the Threshold, the interested party may suspend performance or renegotiate the contract terms in good faith. If no agreement is reached within [XX] days, the interested party may terminate the contract without any liability."

The content of a sales or purchase contract is crucial because US courts will enforce the agreement as written, and parties cannot rely on vague force majeure language to excuse performance due to rising costs.

To mitigate risks, contracts should clearly outline how tariffs affect obligations, whether through force majeure provisions or hardship/price adjustment mechanisms.