7th April 2025
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And why it depends on what a particular contract says
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This morning we said “Hello!” to Force Majeure.
As as the second Trump presidency runs out of constitutional law topics for legal pundits, it now moves onto contract law.
(Soon it will be, no doubt, moving onto insolvency law and civil emergency law.)
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The reference to Force Majeure was in this Guardian live blog news item:
The Reuters news report mentioned is here.
That report says:
“Pittsburgh-based Howmet said in the letter to customers that it has declared a force majeure event, a legal practice that allows parties to a contract to avoid their obligations if hit by unavoidable and unpredictable external circumstances.
“Howmet will be excused from supplying any products or services that are impacted by this declared national emergency and/or the tariff executive order,” Howmet wrote in the letter.”
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When this news broke, some pundits earnestly opined on whether Trump’s tariffs were indeed a Force Majeure event or not.
But their opinions on this have no weight, unless they have actually seen the Force Majeure clause in the relevant contract (as well as the contract as a whole).
For a Force Majeure event is whatever the parties to a contract agree it to be.
And the consequences of that Force Majeure event is also what the parties to a contract agree it to be.
Some contracts have wide Force Majeure provisions, some have narrow ones, some have none at all (and I have even seen one with two such provisions, contradicting each other, in a Frankenstein monster set of terms and conditions which had been cobbled together by thoughtless copy-and-paste over years).
So let this blog try to explain what Force Majeure means in contract law.
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To start with: a contract is the means by which two or more parties agree how a transaction is to be carried out.
Many – perhaps most – contracts are simple: you want to buy a chocolate bar and somebody sells it to you, ownership of the confectionery going one way, and cash going the other.
But as contracts become more complex, the parties agree more provisions: what happens if a party does not pay? what happens if the chocolate bar is not delivered? And so on.
The more important or complicated (or, frankly, expensive) a transaction, the more of these allocations of risk are agreed between the parties.
Until you have pages and pages of clauses and clauses covering various possible situations.
In this way, many contracts do not exist for when a transaction goes well – indeed the terms and conditions are then soon forgotten.
The contract instead exists to regulate the consequences of a contract going badly. The parties – or a court – can then look at what was agreed and say: this is what the parties agreed what would happen in this eventuality.
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But.
A contract cannot cover all possible eventualities.
Some events that could affect the ability of a party to carry out their obligations are unforeseeable or outside the reasonable contemplation of the parties
Other events are simply outside the risks which the parties could reasonably allocate in that particular contract.
What then happens if and when such an event occurs?
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Well.
Unless the parties have agreed otherwise, the effects of such an external event would be left to general contract law.
In England, that would usually be the aspect of contract law known as Frustration – which really should have this name because it is a frustrating area of law.
In essence, it may be uncertain what will happen when court applies the doctrine of Frustration.
And so the parties in most complex contracts agree not to leave it to the courts, and they instead agree what would happen next in the event of such an event.
These provisions are usually called Force Majeure clauses.
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A Force Majeure provision typically is comprised of two parts.
The first part of a Force Majeure provision lists the events what the parties agree would be Force Majeure events. Usually these include “Acts of God” and natural disasters, as well as riots and rebellions, and so on.
But some lists go on to include many possible events outside the control and/or reasonable contemplation of the parties.
(Once when I was acting for HM Treasury I was told – somewhat fairly – by the other party in a contract negotiation that the UK joining the Euro could not be a Force Majeure event as it would be in control of the UK government.)
Sometimes the clause will (also) provide a defintion of what would constitute a Force Majeure event.
The second part of a Force Majeure provision, which is sometimes overlooked in practice, is what then happens in the event of a Force Majeure event.
Sometimes it is that certain specific obligations do not need to be performed, sometimes it is that the entire contract falls away. Badly drafted provisions can inadvertently mean that parties can get away with not paying anything from before the Force Majeure event.
It all depends.
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When a lawyer says “it all depends” that lawyer should be able to instantly, if challenged, say what the dependencies are.
And with a Force Majeure clause, it should depend on what the parties have agreed such an event to be, and then what will happen.
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In practice there are two common problems when a party seeks to invoke a Force Majeure clause.
The first problem is such clauses are often not properly reviewed before an agreement is signed. This is because such clauses are seen as boilerplate, copied over from on contract to the next, without any proper consideration. “There is a a Force Majeure clause,” it is thought, “no need to actually read it as long as it is there. Next.”
The second problem is such clauses cannot and should not be read in isolation. I have known one case where an attempt to invoke a Force Majeure clause was defeated by the extensive flowery recitals to a contract setting out what the parties did envisage. (Whoopsie.)
Other Force Majeure clauses do not cohere with (and sometimes even contradict) provisions dealing with the effects of termination, and this causes all sorts of problems.
No Force Majeure clause is an island.
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And so: can Pittsburgh-based Howmet (or anyone else) declare a Force Majeure event?
Can Howmet be “excused from supplying any products or services that are impacted by this declared national emergency and/or the tariff executive order”?
It depends.
It depends on what the parties agreed would be a Force Majeure event at the time the contract was entered into.
It depends on what the parties agreed what would happen in the event of a Force Majeure event.
It depends on how well drafted the Force Majeure clause is, and how it sits within the contract as a whole.
And it depends on whether this really is a sensible thing for a party to a contract to invoke.
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In one way, Trump raising tariffs was an entirely foreseeable event.
It is one thing – maybe the only thing – he has never lied about.
Whether this is enough to release business form their existing contractual obligations will depend on the contract.
But it certainly should be enough to get business anxiously checking their existing contracts.
And who knows, it may mean that parties will put more thought into Force Majeure clauses in future.
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“It is one thing – maybe the only thing – he has never lied about.”
That’s the point, no one can ever take him at his word because he lies with every other breath, so you could argue that it was not forseeable on that basis. You can’t know what he will do.
I don’t think that’s a very compelling argument. When it comes to risk assessment and contingency planning, you have to prepare for foreseeable risks, based on an assessment of both the level of risk, and the level of potential impact. I don’t think you could reasonably conclude that there was a very low risk of Trump implementing these tariffs, especially since he’s been putting tariffs in place almost from day 1.
I don’t think anyone can realistically argue that they were blindsided by the tariffs. There’s definitely some uncertainty around the level of the tariffs, and the business impact, but responsible business planning should account for all possibilities and have contingencies and mitigations ready to go in all circumstances.
I’m no expert in contract law, but on the face of it I’d say the responsibility lies with the business for failing to prepare for an event they were warned about in advance. Perhaps there’s a little bit of wriggle-room in Trump’s description of the situation as a ‘national emergency’ since this does potentially frame the tariffs as a reaction to something unforeseen. But I’ve no idea how well this would hold up.
Trump’s description of this as a national emergency is essential for him to invoke the law enabling him to impose tariffs. There was nothing unforseen about the trade imbalances that exist and such things do not constitute an emergency.
I assume Howmet’s problem is that it needs to import components to make its products for Boeing and Airbus. Thus its costs increase due to tariffs and it needs to increase the price to maintain profits. MAGA protectionism clashes with the connected world of trade.
Force majeure generally means something outside of the control of one of the contracting parties that affects their ability to fulfill the contract. Not necessarily something unpredictable. Tariffs certainly were entirely predictable but the scale of the effect was unknown. Also, the contract was probably signed long before Trump became President. Howmet could have inserted a clause to allow for a price increase in the event of tariffs being imposed, but determining how the price might vary would depend on too many unknowns. So force majeure makes sense.
Trump’s tariffs rely on a national emergency to be legal. That was intended to mean a state of war. The ultimate force majeure event. In this case the only national emergency is one created by the President himself.
If Force Majeure provisions are designed to in part apply to unforeseeable events, but also contain clauses that describe the events that may trigger them, that seems a difficult circle to square.
Howmet makes parts for jet engines.
If Howmet does not deliver on its contracts, jet engines cannot be finished.
If jet engines cannot be finished, aeroplanes cannot be finished.
If aeroplanes cannot be finished, Airbus and Boeing will stop buying parts from their other suppliers, including those that did not invoke Force Majeure.
Howmet also makes bits for trucks and rockets.
“… Force Majeure events. Usually these include “Acts of God” …”
I wonder what Mr Trump would say if someone asked him whether his decision to impose tarrifs was an act of god?
If you find yourself in a contractual relationship with a convicted felon the best legal advice must be to watch your back if you cannot get out of the relationship and have a plan B in place for days like this.
What is happening now was always foreseeable.
The Stock Market has been too high. A few people will today be richer ;it is called shorting the market. Many more people are going to be poorer.
As you so rightly observe, without sight of the contract or contracts between Howmet and its customers, it is impossible to be certain as to whether Howmet is entitled to be released from an obligation to its customers.
As I understand it from White House “Fact Sheets” issued on 2 April and 1 February, both the “reciprocal tariffs” announced last week and the earlier “fentanyl tariffs” are imposed under the International Emergency Economic Powers Act (IEEPA) of 1977.
I believe that an order under IEPPA can be rescinded by resolutions passed by both the Senate and the House of Representatives and that
the Senate has passed such a resolution in respect of the Fentanyl Tarff on Canada although the House of Representatives has not and it appears that some procedural manoeuvre may prevent it even considering such a resolution.
The IEEPA, like our 2004 Civil Contingencies Act, was introduced to bring up to date and provide a degree of Congressional/Parliamentary control over powers originally introduced in wartime (WWI and WWII) and also used in the Cold War.
One might expect a prudent legal adviser to a firm manufacturing advanced equipment that could easily be subject to an Order under IEEPA (or CCA) would include provisions in contracts protecting the firm should the government make orders which impinged on the firm’s ability to meet its contractual commitments.
As you rightly observe one needs to know what the clause says. A clause which released a firm from having to meet the terms of the contract if an order having an impact on the supply of components (which a tariff obviously does have as it affects the cost of the imported components) would obviously have a different effect from a clause which only released the firm from having to meet the terms of the contract if an order under IEEPA prevented the import of components or export of finished goods, which a tariff does not do even if it makes the transaction unprofitable.
Trump’s orders do not prevent trading with countries targeted with tariffs.
“And it depends on whether this really is a sensible thing for a party to a contract to invoke.”
The invoking party might, until recently, have reasonably judged that it was, but to expect “sensible” in the current judicial climate of the USA suggests too much reliance on past experience amid the bitter winds of realistic hopes.
David, in the instance you mention of your counterparty making a fair point about the UK adopting the euro, you don’t quite say that your instructions were to get this written into the contract as a force majeure event. But were they? Quite an extraordinary and unreasonable condition for HMG to be seeking to impose, if so.
A lot of suppositions in your question, which render it unanswerable. Sorry.
The tale of the mesanger. Non fiction.
There are eleven flavours of “incoterms” that buyers and sellers use to define the nature of their trade relationship.
The least risky for UK Widget PLC is “ex-works (EXW) (“you can come and pick it up from the factory gate”) to the most risky “delivered duty paid (DDP)” (you’re on the hook for the customs, tax etc). Consequently DDP is avoided because who in life has the time (or inclination) to learn the US customs rule-book.
So I’d infer from the article that a whole load of US companies have just received the good news that they will need to pay the duty to have their goods released from this day onwards.
Ignore the up/down variations in the stock-market, this is the huge spanner that has been thrown in the works …
Your point is salient.
Having been involved in the process of buying and selling goods that form parts of finished goods and systems on behalf of American corporations outside the USA, I have no idea how things might pan out legally in country. I can confirm that any downstream factory or customer that I had made commitments to supplying on a duty paid basis would fairly insist that I had obviously calculated the cost of that and built it into my price to them. I would most definitely have had to write the risk of change in the tariff environment out of the contract explicitly. It seems absurd to me for a customer who passes you that risk in contract let you write it back out.
I also know that a significant result of the sort of change we have just seen will be apoplectic rage back up American management lines that have had contracts rendered undeliverable in practice. It is a fact that one does not win significant supply contracts on a duty paid basis if one prices in the risk of some nutter in the White House doing what Mr Trump just did.
I think that Tangerine Dream released an album entitled “Force Majeure”
https://en.wikipedia.org/wiki/Force_Majeure_(Tangerine_Dream_album)
The collision of the tangerines.
And wait for the ricochet.
Surely the question of Trump’s tariffs and whether or not they could be expected given his track record is moot. For all we know these contracts were in place long before DT ran for office. We may be in uncharted waters now, but those waters were, pre-Trump, charted to general satisfaction.
When it comes to God, of course, we cannot really begin to speculate about his waters, but it would be interesting to see how someone who affirmed Trump’s presidency to be itself an act of God would fare with a Force Majeure argument in the event .. [text ends due to author being struck by lightning]
It’s amazing how many complex contracts are pasted together by junior attorneys. I once spotted a bank form contract which contained an elaborate security agreement, but never bothered to define an event of default. At least in US law, it is the event of default that triggers all the secured party’s rights.
It had been in force and revised for several decades: fortunately uncontested.
David, forgive me–this is a vestigial point. But you said ‘an attempt to invoke a Force Majeure clause was defeated by the extensive flowery recitals to a contract setting out what the parties did envisage’. In my experience most significant commercial contracts include a provision that the recitals do not form part of the contract, precisely to avoid the terms of the recitals affecting the interpretation of other provisions. I take it that in your specific case the draftsman had omitted this?
Recitals are indeed not terms of the contract, but that is what such a clause as you describe usually provides. But recitals certainly are aids to interpreting a contract, and they are likely to be so regardless of any attempt to exclude them. Just don’t put in recitals if you don’t want them to have an impact.
And so your dissing of the draftsman is perhaps misplaced.