Expert Guide on Force Majeure and Unforeseen Circumstances in the Context of Global Trade War in England and Wales

Import tariffs would likely not qualify as force majeure events.

Force majeure clauses typically cover unforeseeable events beyond the parties’ control that make performance impossible or impracticable. However, English law has long held that economic or market-driven changes do not meet this threshold, as they lack a direct causal link to a party’s inability to perform. Import tariffs, being regulatory tools designed to influence trade, are generally seen as commercial risks rather than external, unforeseeable events.

English courts interpret force majeure clauses narrowly, requiring a clear, direct impact on contractual performance rather than general financial hardship. Unless explicitly covered in a contract, tariffs are unlikely to trigger force majeure. To ensure the effectiveness of such a clause, the clause should clearly define which tariffs or regulatory changes would qualify, along with a specific tariff threshold as English courts scrutinise contractual language closely and may reject force majeure claims if tariff hikes were foreseeable or publicly signalled in advance. Parties should also consider drafting force majeure clauses to include express government actions which could potentially include newly imposed tariffs.

Case law supports this view. In Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm), the court ruled that the 2008 financial crisis did not constitute force majeure, as economic downturns are not seen as beyond the parties’ control. Similarly, in Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm), the court held that market fluctuations, even if they affect profitability, do not qualify as force majeure events since they are inherent business risks.

For a full summary of whether Import Tariffs can be considered force majeure events under English law, you can read this earlier Law-Now Update

If the imposition of an import tariff does not qualify as a force majeure event, the parties have several legal options to address its impact. Some of these options are outlined below:

1. Frustration of Contract
   
   The doctrine of frustration may apply if an import tariff makes performance substantially different from the original contract. In Davis Contractors Ltd v Fareham UDC [1956] AC 696, the court held that frustration requires an uncontrollable event making performance impossible or fundamentally different. However, it sets a high bar, applying only when the contract’s purpose is entirely undermined, not just due to financial hardship. Davis confirmed that increased costs alone do not qualify.
    
2. Material Adverse Change (“MAC”) Clause
   
   In the context of an acquisition, MAC clauses allow contract termination if circumstances change significantly between exchange and completion. In Travelport Ltd v Wex Inc [2020] EWHC 2670, the court emphasised textual analysis, noting carve-outs for pandemics, tax and regulatory changes. If a MAC clause covers tariffs or economic shifts, the buyer may terminate the sale and purchase contract without either party having any liability to the other – that is effectively both parties walk away from the deal.
    
3. Renegotiation Clause
   
   Parties may include a renegotiation clause, allowing contract adjustments or termination if a trigger event occurs. This can involve modifying prices or other key provisions to reflect new economic realities. Such clauses emerged after Brexit to address newly imposed tariffs, making them a likely tool for mitigating the impact of the 25% tariff on cars announced by the Trump administration. The enforceability of such clauses was upheld in Associated British Ports v Tata Steel UK Ltd [2017] EWHC 694 (Ch), where the court ruled that a renegotiation clause triggered by significant physical or financial changes was not void for uncertainty.
    
4. Hardship Clause
   
   Hardship clauses act as a "safety net" for severe economic disruptions (Superior Overseas Development Corp v British Gas Corp [1982] 1 Lloyd's Rep). They allow renegotiation in long-term contracts if market changes cause hardship, with options for termination or expert review if no agreement is reached. As Superior Overseas is the only reported English case dealing directly with a hardship clause and pertains to fluctuations in oil and gas prices, its relevance to tariffs remains uncertain.
    
5. Price Adjustment Clause
   
   Price adjustment clauses periodically adjust contract prices based on agreed indices, such as inflation or commodity prices, helping mitigate tariff impacts. If the indices account for tariff-related cost increases, the contract price adapts automatically. The importance of clearly defining price adjustment mechanisms was reinforced in Manchester Airport v Radisson (2020), where the court highlighted the need for precise comparators in price review clauses to avoid disputes over price increases.

Parties should consider including the clauses below:

1. Force Majeure Clause
   Explicitly include tariffs and trade barriers as force majeure events. 
    
2. MAC Clause
   Include a MAC clause that allows for contract termination if significant changes occur, such as the imposition of new tariffs.
    
3. Renegotiation Clause
   Include a clause that provides for renegotiation or termination if the imposition of tariffs or trade barriers causes economic strain.
    
4. Hardship Clause
   Provide for renegotiation or termination if the contract becomes excessively onerous due to new tariffs.
    
5. Price Adjustment Clause
   Allow for adjustments to the contract price to reflect changes in tariffs.
    
6. Termination for convenience 
   If the deal becomes economically unfeasible due to changes in tariffs, the parties may be able to terminate the contract by relying on a termination for convenience clause. This provision allows termination without the need for any specific grounds and is typically enforced in situations where a contract becomes economically unviable to perform. It is not usually implied by the English courts, so the clause must be explicitly included in the contract, and written notice must be given.