Since taking office, President Trump has pursued an aggressive trade policy and announced a number of trade actions that will have a profound impact on global commerce. These have included tariffs on imports from Canada, China and Mexico (with the tariffs on Canada and Mexico later being suspended), expanded tariffs on steel and aluminum imports, and a proposal to seek reciprocal tariffs on U.S. trading partners. The scope and speed at which the new administration is moving means affected companies must remain apprised of their legal rights to mitigate financial losses. In light of these actions, and potential reciprocal actions by impacted countries, parties should carefully review contractual language and assess both vulnerabilities to legal action as well as avenues for relief under the contract and applicable law. We discuss possible recourse parties may have both in arbitration and U.S. litigation below.
Force MajeureClauses
Significant changes in trade regulations'including tariffs'could trigger a force majeure clause if they are contemplated by the parties and/or are sufficiently severe. Force majeure clauses permit parties to suspend, delay, or otherwise excuse performance in the event of unforeseen contingences. These provisions usually enumerate certain triggering events, such as acts of war, labor strikes, natural disasters, or epidemics, and might contain a "catchall" provision designed to capture other contingencies.
A force majeure clause may excuse performance if tariffs are included as a contingency contemplated by the parties. This is a high burden to meet, however. For example, courts have enforced contractual obligations where COVID-19 caused steel prices to rise unexpectedly because the parties'force majeureclause excluded price increases as a contingency.1 Whether a force majeure clause would govern a sudden increase in tariffs will turn primarily on whether a court believes the parties contemplated the clause covering increased tariffs or whether it is excluded based on an explicit clause requiring payment of duties by a party. While the clause likely does not need to specifically use the term "tariff", a court will likely rely on a variety of factors to ascertain the parties' intentions including: first and foremost, the language of the contract, the parties' practices and prior course of dealing, and judicial decisions considering similar language.
Frustration of Purpose, Impossibility, and Commercial Impracticability
Although distinct doctrines, both frustration of purpose and impossibility excuse performance in the event of an unforeseen event that destroys the purpose underlying the contract. As its name implies, commercial impracticability is a similar concept, which carries a slightly lesser burden. It is codified in the Uniform Commercial Code (UCC), which governs contracts for the sale and purchase of goods. To obtain relief, a party must show (i) an unforeseen contingency occurred that renders performance impracticable, and (ii) the non-occurrence of the contingency was a basic assumption of the contract. For contracts not subject to the UCC, these avenues for relief may still be...
