The recent imposition of tariffs by the U.S. government has introduced significant complexities in contractual performance and risk allocation. It is important to assess how these tariffs may influence material adverse change (“MAC”) and force majeure clauses within your contracts.
Material Adverse Change Clauses:
MAC clauses are designed to protect parties from significant unforeseen events that adversely affect the financial or operational conditions of a business. The imposition of tariffs can qualify as a material adverse change if they lead to substantial cost increases or operational disruptions. It is crucial to review the specific language of your MAC clauses to determine if tariffs are explicitly covered and to assess the materiality of their impact.
Force Majeure Clauses:
Force majeure clauses excuse contractual performance due to unforeseen events beyond a party’s control. The applicability of these clauses to tariff impositions is contingent upon their specific wording:
- Explicit Inclusion: Courts typically require that the event causing non-performance be explicitly listed in the force majeure clause. If tariffs or government actions are not specified, invoking force majeure may be challenging.
- Economic Hardship: Generally, increased costs or economic hardship alone are insufficient to trigger force majeure protections unless explicitly stated. Courts have consistently ruled that financial hardship, even due to significant price increases from tariffs, does not excuse performance under a contract.
Recommendations:
- Review Existing Contracts: Examine your current agreements to determine if MAC or force majeure clauses explicitly address tariffs or government-imposed trade barriers.
- Renegotiate Terms if Necessary: If existing clauses do not adequately address tariff-related risks, consider renegotiating terms to include specific provisions that allocate such risks clearly.
- Future Contract Drafting: In new contracts, explicitly include tariffs and similar government actions as triggering events in MAC and force majeure clauses to ensure clarity and enforceability.
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