TheCorporateCounsel.net

Karl Marx famously said that history repeats itself – the first time as tragedy, and the second time as farce. That thought popped into my head when I read this BakerMcKenzie blog and realized that our self-inflicted tariff trauma requires us to revisit a topic that we last blogged about (see 2nd blog) at the onset of the pandemic. I’m talking about the possibility that force majeure clauses may be triggered allowing contracting parties to avoid performing their obligations. This excerpt addresses how the new tariffs may implicate these contract clauses:

The specific language of the force majeure clause will dictate its scope, applicability and effects. States’ approaches to force majeure clauses vary. Some (e.g., New York) interpret force majeure clauses narrowly, excusing non-performance only if the clause explicitly refers to the event in question, while some (e.g., California) uphold force majeure clauses even if the clause does not refer to the event at issue, as long as the event was unforeseeable when the contract was made.

If the clause expressly refers to new “tariffs” or “import duties” as force majeure events, the clause squarely applies to the White House’s recent trade measures. If the clause refers to “emergencies”, the clause may also apply because the White House declared a national emergency and relied on emergency powers to impose its latest tariffs in Executive Order 14257.

Given how frequently the media refers to the current situation as a “trade war”, companies might also argue that certain tariffs constitute “acts of war”, although the likelihood that this argument gains purchase is uncertain. The more clearly the language of the force majeure clause demonstrates that the parties intended to grant a party relief in a particular situation, the more likely a court will be to excuse a party’s non-performance if that situation arises.

That last argument about the trade war being an act of war seems pretty implausible, but then again, finding ourselves in a farcical situation like this one seemed pretty implausible less than a month ago too.

– John Jenkins