Can You Vary Or Terminate A Contract Because Of Trump Tariffs?

Under the doctrine of absolute contracts, developed in the case of Paradine v Jane (1646) Aleyn 26, the general rule is that if a contract becomes difficult or even impossible to perform, the non-performing party is liable to pay damages. In light of this, the recent chaos in the global financial markets and the continued uncertainty around ‘Trump’s Tariffs”, not to mention what looks like a trade war between China and America, may have sent you hurtling to dig out your commercial contracts to see if you had any protection if you become unable to meet your obligations. The most common safeguard for such events is a force majeure clause, however, frustration of contract may also be considered.

What is a force majeure clause?

A well-drafted commercial agreement will include a clause that excludes one or both parties from performing the contract in cases where an event happens which is outside the parties’ control. Performance can be suspended or cancelled completely, depending on the wording of the force majeure clause with no legal liability to the non-performing party.

Although the above description of a force majeure clause sounds straightforward, in practice, like most legal concepts, it is anything but. The first and most important thing to note is that how the Courts interpret an event outside the parties’ control and how normal people would label such a happening are worlds apart. For example, in Metropolitan Water Board v Dick Kerr & Co [1918] AC 119, the House of Lords ruled that a force majeure clause to cover one party for performance delays ‘however caused’ did not include delays resulting from the outbreak of World War I. More recently, In 2 Entertain Video Ltd v Sony DADC Europe Ltd [2020] EWHC 972 (TCC), it was concluded that the Defendant warehouse operator’s attempt to rely on the force majeure clause because of the 2011 UK riots failed because the warehouse operator could and should have prevented the fire started by rioters by taking reasonable security precautions. Therefore, the fire was not a circumstance beyond the warehouse operator’s control, and the force majeure clause offered zero protection. To illustrate how costly a failed force majeure clause can be, in the Sony case, the warehouse operator was required to pay for loss of profits, business interruption, increased working costs, plus legal costs.

When it comes to drafting, a force majeure clause should be as tight as a sailor’s knot.

How can I draft an effective force majeure clause?

One reason it is crucial to have a Contract Disputes Solicitor draft a force majeure clause is to manage the risk relating to the rule of contract interpretation known as expressio unius est exclusio alterius (the expression of one thing is the exclusion of another). An example of this is if you draft a force majeure clause to cover non-performance due to burn damage from a fire, the clause may not protect you from smoke damage.

To avoid getting caught by expressio unius est exclusio alterius, contract drafters will usually include a catch-all phrase such as ‘any other unforeseen event’ to ensure the force majeure clause protection is not limited to specifically listed events. However, this can pose another problem, ejusdem generis (Latin for ‘of the same kind’), which means a general word will be interpreted by looking at preceding words which are of a common category. The issue is that ejusdem generis is not always used by judges when they are interpreting a contract. Instead, they will seek to understand what the parties intended when creating the contract and, where possible, give words their wider, natural meaning.

A good example of this is the case of Tandrin Aviation Holdings Ltd and Aero Toy Store LLC and others [2010] EWHC 40. Aero Toy Store failed to complete the purchase of a plane from Tandrin Aviation, arguing that the sweep-up phrase ‘any other cause beyond the Seller’s reasonable control’ in the force majeure clause included the 2007-08 financial crisis and subsequent economic downturn. The judge held that the sweep-up phrase had to be read in the context of the entire clause and noted that while there was no requirement to construe it ejusdem generis with earlier specific examples of force majeure events mentioned in the force majeure clause, it was telling that none of the listed examples related to economic downturn.

Frustration of contract

Frustration of contract is where one party can discharge its contractual obligations because an unforeseen event that strikes at the heart of the agreement makes contract performance impossible, illegal, or completely different from what was initially contemplated by the parties at the time the agreement was made.

The Courts view frustration of contract extremely narrowly. If the contract can be performed in an alternative way, the event was foreseeable, or a seller is let down by a supplier will not give rise to frustration. And importantly, neither will the fact that due to particular circumstances, the contract becomes more expensive (but still possible) to perform.

Wrapping up

Given the narrow way the Court interpret force majeure clauses and frustration of contract, it is unlikely that the impact of the Trump tariffs will allow for a contract to be varied of terminated via a force majeure clause or the doctrine of frustration.

Given that President Trump made clear his views on how he believes that tariffs are positive for the American economy and free trade with  as far back as the 1980s and he brought in significant tariffs on some Chinese goods in his first term, it is hard to argue that the 2025 tariffs were unforeseeable. In addition, although the tariffs will make certain contracts much more expensive to perform, performance is still possible. Therefore, frustration cannot be relied on.

The only way to ensure a force majeure clause will cover increases in tariffs is to specifically reference such an event in the clause itself. This is why it is crucial to have all your commercial contracts drafted and/or checked by a Virtual In-House Legal Counsel. They have the expertise and experience required to ensure a force majeure is drafted in a way that unambiguously states events that can trigger a force majeure clause, minimising the risk of a contract dispute.

To find out more about how our team can assist with all SRA compliance matters, please email us at [email protected] or phone 0121 249 2400.

The content of this article is for general information only.  It is not, and should not be taken as, legal advice.  If you require any further information in relation to this article, please contact 43Legal.

“Melissa Danks is the founder of 43Legal. She has over 20 years’ experience as a solicitor working within the legal sector dealing with issues relating to risk management, dispute resolution, and advising in-house counsel in SMEs and large companies. Melissa has extensive expertise in providing practical, valuable, modern legal advice on large commercial projects, joint ventures, data protection and GDPR compliance, franchises, and commercial contracts. She has worked with stakeholders in multiple market sectors, including IT, legal, manufacturing, retail, hospitality, logistics and construction. When not providing legal advice and growing her law firm, Melissa spends her time running, walking in the countryside, reading and enjoying downtime with close friends and family.”