Introduction
U.S. President, Donald J. Trump, recently declared a national emergency on account of persistent trade deficit, citing longstanding concerns about the lack of reciprocity in global trade and structural imbalances that disadvantage American producers. With the intent to 'abate and resolve' the disparate tariff rates and non-tariff barriers, the U.S. government introduced a new tariff regime under the International Emergency Economic Powers Act (IEEPA), introducing a 10% baseline tariff on all imports effective from April 5, 2025. Additionally, a 26% reciprocal tariff was announced specifically towards Indian exports, which came into force on April 9, 2025.1 While the additional 26% on India stands stalled till July 9, in view of the 90-day suspension, the universal 10% baseline tariff remains in place.2
The U.S. tariffs affect a range of key export sectors, including automobiles (25%), electronics (27%), steel and aluminium (10-25%), textiles and apparel (27%), and agricultural commodities, while exempting few like pharmaceuticals, due to their strategic importance in global health supply chains and public health.3
While much is said about the economic impact on international trade, a key legal issue warranting consideration is the impact of such sudden tariff changes on ongoing contractual obligations under commercial contracts. Specifically, whether parties invoke force majeure or change in law clauses to mitigate the impact of these tariffs or are left to bear the increased burden within the bounds of assumed commercial risk.
The Legal Framework Governing Force Majeure Clauses
Force Majeure is defined as an "event or effect that can be neither anticipated nor controlled...and includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).4 While the concept finds its roots in civil law, it was gradually adopted by common law jurisdictions as a purely contractual right rather than a universally applicable concept.5 Notably, the United States presents a marked divergence as unlike many civil law countries, force majeure is not implied in contracts and any such claim must arise from the specific language in a contract.6 Accordingly, in the international context, the enforceability of force majeure remains largely contingent on the specific wording of the clause incorporated in the contract.
The relevance and applicability of force majeure clauses in international commercial contracts is shaped by various sources including the UNIDROIT Principles of International Commercial Contracts (Article 7.1.7), the ICC Force Majeure Clause, and Article 79 of the United Nations Convention on Contracts for the International Sale of Goods (CISG). Each of these frameworks provides guidance on when a party may be excused from performance due to circumstances beyond its control, setting out standards such as unforeseeability, externality, and the causal link to non-performance.
Under the Indian law, the concept of force majeure finds its footing in two key provisions, viz, Section 32 and Section 56 of the Indian Contract Act, 1872. Section 32 governs situations where the clause expressly provides for force majeure events, treating the occurrence of the event as a contingent condition. Conversely, Section 56 addresses the doctrine of frustration, operating where the contract is frustrated by reason of a 'supervening impossibility or illegality' not contemplated by the parties, discharging the parties from further performance.7
- Cover-all and broadly worded clauses: Clauses using broad expressions such as "any cause beyond the reasonable control of the parties" or "including, but not limited to", are governed by the principles of Section 56 and are generally construed ejusdem generis, depending upon the width of the language used.8 Courts examine the nature of the contract and the surrounding circumstances to determine whether the foundation of the contract has been so fundamentally altered, either due to the destruction of the subject matter or prolonged disruption, that performance would effectively amount to discharging an entirely different contract than what was originally contemplated.9 Such clauses may provide more room to argue that events such as a global pandemic like COVID-19 or a sudden imposition of tariffs, being unforeseen and beyond the control of the parties, constitute force majeure.
- Specific clauses: Where a clause lists specific events, such as acts of God, natural disasters, riots, terrorism, or war, the same is governed by Section 32 and the principle of frustration do not apply.10 Such clauses are interpreted by the courts as is, and performance is relieved only upon occurrence of the event enlisted. Thus, if an event like an 'epidemic' or 'governmental action' is expressly included, the affected party may be excused from performance upon its occurrence. Absent such express language, a party invoking force majeure based on new tariffs would to rely on a catch-all clause excusing performance that was impaired or made impossible by unforeseen events outside of the party's reasonable control.
Analysing Trump's Tariffs as a Force Majeure Event under Indian Law
Whether the recent imposition of U.S. tariffs, including the baseline 10% duty and the proposed 26% reciprocal levy on Indian exports, can be characterised as a force majeure event under Indian law, hinges primarily on the specific wording of the contract. Indian courts have consistently recognized force majeure as a legitimate basis for excusing contractual performance in cases of impossibility or impracticality, rather than mere onerousness or economic hardship.11 A force majeure claim is more likely to be successful where the contract expressly sets forth specific events such as, changes in market prices or the costs of materials and raw materials or new or increased tariffs, duties or related costs, that corresponds to the declaration of force majeure.
In absence of such express stipulation, parties may seek recourse under the broad or catch-all expression under the force majeure clauses. However, the parties will be required to meet the high threshold of frustration of contracts, establishing that imposition of tariffs was not merely unforeseen and beyond the control of the parties, but such event also rendered the performance impossible or fundamentally altered the contract as contemplated. Through a consistent line of decisions, commencing from Satyabrata Ghose v. Mugneeram Bangur & Co.12 to Energy Watchdog v. CERC13, it is well-settled that a contract is not frustrated merely because its performance has become more onerous or commercially burdensome for a party. The doctrine of frustration is attracted only where an unforeseen event, beyond the reasonable control of the parties, either renders the performance of the contract impossible or radically alters its fundamental nature. While the imposition of tariffs is sudden, it may be arguable whether the same were unforeseen, particularly in sectors such as steel, electronics, and textiles, where long-term contracts are prevalent. Given the recent history of trade tensions and tariff fluctuations, the foreseeability of such measures may defeat a force majeure claim.14
It is further pertinent to examine the nature of the impediment and its impact on contractual performance. Even where new tariffs fall within the scope of a force majeure clause, performance may not be per se excused upon mere invocation. The core question to be determined is whether the imposition of tariffs amounts to a legal impossibility, such as prohibition of trade, or a mere economic hardship in the form of reduced margins. In international practice, changes in tariffs, while disruptive, are not per se force majeure events unless they render the performance unlawful or physically impossible. Certain contemporary contracts, particularly those governed by international instruments or containing ICC model clauses, also incorporate economic hardship provisions providing an avenue for renegotiation between the parties where continued performance becomes excessively onerous. Although Indian statutory law does not formally recognize economic hardship as a ground for frustration, such clauses may be contractually enforceable.
In Alopi Parshad and Sons Ltd. v. Union of India,15 while considering the impact of wartime exigencies during World War II on procurement charges for ghee, the Apex Court underscored that commercial hardship is not a just and reasonable ground to allege frustration of contract and thus cannot relieve performance. The imposition of tariffs, while potentially burdensome, does not automatically render performance impossible. The common thread running through all the judicial decisions is that the Courts have no general power to absolve a party from the performance of his part of the contract merely because its performance has become onerous on account of an unforeseen turn of events.16
Judicial Perspective on Force Majeure in International Commercial Contracts
During the COVID-19 pandemic, Indian courts adopted a fact-specific and restrained approach in assessing force majeure claims, particularly where clauses lacked express references to terms like "epidemic," "pandemic," or "disease." In several instances, courts relied on government-issued notifications and circulars classifying COVID-19 and lockdowns as force majeure events,17 but limited relief to cases where a clear causal link was established18. This requirement posed challenges in cases where the disruption did not directly stem from the pandemic but from consequential governmental actions such as lockdowns and movement restrictions. In Standard Retail Pvt. Ltd. v. G.S. Global Corp Pvt. Ltd.,19 the Bombay High Court denied relief where such a direct nexus was absent.
The Delhi High Court in Halliburton Offshore Services v. Vedanta Ltd.,20 clarified that every breach or non-performance cannot be justified or excused by invoking COVID-19 as a Force Majeure condition and has to be interpreted narrowly, basis the facts and circumstances of each case. The Court further reiterated that it is not the Court's domain to absolve parties from contractual obligations. There must be a 'real reason' and a 'real justification' which the Court would consider in order to invoke a Force Majeure clause. The COVID-era judgments essentially underscored that only those governmental actions which directly impede or strike at the root of performance may be considered force majeure.
Tariffs, in contrast, that typically affect the economic viability of the contract, may not be sufficient to sustain a force majeure claim. Accordingly, unless the impact of tariffs goes beyond economic disruption and results in fundamental impossibility or alteration of the contract as originally contemplated by the parties, courts are unlikely to excuse performance.
For instance, a contractor agrees to supply steel for a fixed-price infrastructure project. Before performance, an unforeseen and extraordinary government embargo on steel exports by the exporting country causes a severe domestic shortage, making procurement of the agreed quantity of steel commercially and practically impossible within India. In such a case, since the legal embargo directly frustrates the availability of the essential commodity, it constitutes a force majeure event excusing non-performance. Conversely, where an importer contracts to supply chemicals at a fixed price and subsequently faces a 25% increase in procurement costs owing to foreign tariffs, absent any corresponding legal or regulatory restriction in India, the increased financial burden, by itself, would not qualify as a force majeure event.
Whether the U.S. Tariffs can Trigger the Change in Law or Price Variation Clause
Change in law clauses typically address the impact of legislative changes on contractual obligations. While determining whether an event qualifies as a change in law, it is crucial to examine the scope of the clause, particularly, if it limits the change in law to the law of the contract or includes the law of the territory in which the contract is delivered. It may further be seen whether there is a limit to changes in law that are "unforeseeable". For instance, in Energy Watchdog v. Central Electricity Regulatory Commission ,21 the Supreme Court held that foreign law changes, such as tariffs imposed by Indonesia, do not trigger a change in law clause under Indian law. Therefore, the applicability of US tariffs under such clauses would depend on the language of the clause if it contemplates foreign legal changes. In cases where it doesn't, foreign tariff impositions are unlikely to trigger a change in law provision in absence of reciprocal domestic 'government policy' action.22
In such scenarios, the inclusion of a Price Variation clause may offer assistance in relieving a party from the burden of tariffs. In fixed-price contracts, the risk of price escalation typically rests with the importer or contractor, and courts are generally disinclined to alter contractual performance in case of price fluctuation, as it would undermine the implied purpose of the contract, viz minimizing the risk of price fluctuation.23 However, complex infrastructure and energy contracts often incorporate price adjustment mechanisms to address fluctuations in input costs. A carefully drafted price adjustment clause can mitigate termination risks by enabling parties to allocate tariff-related cost increases, thereby preserving contractual balance amid market disruptions.
Tariffs as a Material Adverse Change
Another category of clauses that operate similarly as force majeure are Material Adverse Change ("MAC") clause, which, unlike force majeure, may be invoked even in situations where contractual performance remains possible but is adversely affected by unforeseen circumstances. Commercial contracts are often negotiated and performed over extended periods, during which circumstances may materially change from those prevailing at the time of contracting. A MAC clause addresses this risk by allocating responsibility for such changes and providing a party with the option to terminate or renegotiate the contract where performance is not rendered impossible but materially altered.
Typically, in international contracts, MAC clauses specify particular events such as significant changes in financial condition, market circumstances, regulatory environments, or material disruptions to business operations that will qualify as "material adverse change", and courts give effect to those terms while deciding whether such a change has taken place. Although Indian jurisprudence on MAC clauses is limited, parties invoking such clauses must establish materiality by satisfying two ingredients, i.e., the substantial nature of the change and its durational impact on contractual performance.24 Depending on the construction of the clause and surrounding circumstances, a change in tariffs may trigger a MAC clause if it is established that the same materially and adversely affected the concerned business.
Recommendations
Ultimately, the lesson is clear: while commercial risk is inherent in trade, legal exposure can and must be mitigated through careful drafting of contracts. Whether the imposition of tariffs under the April 2025 directive excuses contractual performance will depend on the express language of the contract and the nature and extent of the impediment. In light of recent global disruptions, pandemic-related and now trade-related, contracting parties are advised to revisit their contractual framework, namely any force majeure, change in law, MAC or price variation clauses, to adequately address the risks posed by current and emerging regulatory developments. The following measures may be adopted while navigating such contingencies:
- Examine the Contractual Provisions: It is advisable for the parties affected by the imposition of tariffs to carefully scrutinize their agreements and decipher whether and how tariff impositions are addressed within force majeure, change in law, MAC, and price variation clauses. Based on this scrutiny, prompt and proper invocation of the relevant clause, in accordance with contractual procedures, is imperative.
- Measure the impact and establish a casual link: A clear and demonstrable causal nexus between the imposition of tariffs and the resulting non-performance is essential for successfully invoking force majeure or analogous contractual relief. Conversely, reliance on a MAC or price variation clause would typically require parties to establish the materiality of the event and its substantive and durational impact on the affected contractual obligations.
- Notice and other procedural requirements: Force majeure and similar clauses often prescribe specific procedural conditions for invocation, including issuance of notices within stipulated timelines and submission of supporting documentation. Even where the contract is silent, it is prudent for the affected party to formally notify its counterparty of the occurrence of the relevant event, its impact on contractual performance, and the steps being taken to mitigate the consequences, which is often emphasized as a condition precedent to seeking relief.
- Re-negotiate terms and conditions: After analysing the relevant contractual provisions, parties must proactively engage in 'without prejudice' negotiations to explore deferment, price adjustments, temporary suspension or realigning of obligations in terms of the altered circumstances. In hardship situations, invoking renegotiation or hardship clauses, where available, is prudent.
- Maintain Records: Parties should maintain detailed, contemporaneous records of all communications, steps taken to perform or mitigate non-performance, and the precise impact of tariff measures on business operations. In force majeure and related claims, courts and tribunals place significant reliance on documentary evidence to ascertain both the occurrence of the event and its direct effect on performance. Regular updates and transparent communication with counterparties will also demonstrate good faith and assist in preserving commercial relationships.
Footnotes
1. The White House, Presidential Actions: Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits (Apr. 2, 2025), https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff.
2. Emma Rossiter & Sam Hancock, US Pauses Higher Tariffs for Most Countries After Market Havoc, but Hits China Harder, BBC (Apr. 3, 2025), https://www.bbc.com/news/articles/c5y66qe404po.
3. Indian Pharma Stocks Defy Market Slump on US Tariffs Exemption, Reuters (Apr. 3, 2025), https://www.reuters.com/world/india/indian-pharma-stocks-defy-market-slump-us-tariffs-exemption-2025-04-03.
4. Black's Law Dictionary (11th ed. 2019).
5. CORE, Force Majeure and Commercial Impracticability, https://core.ac.uk/download/pdf/234650983.pdf.
6. International Bar Association, IBA Force Majeure Clauses in International Contracts, https://www.ibanet.org/MediaHandler?id=f02b56ec-6337-4a5d-8479-09cea69037bf
7. Satyabrata Ghose v. Mugneeram Bangur & Co., (1953) 2 SCC 437.
8. Md. Serajuddin v. State of Orissa, 1969 SCC OnLine Ori 4, TGV Projects & Investments Pvt. Ltd. v. NHAI, 2019 (173) DRJ 717, SAIL v. Mercator Lines Ltd., 2012 SCC OnLine Bom 1893.
9. Naihati Jute Mills Ltd. v. Khyaliram Jagannath, 1967 SCC OnLine SC 10.
10. Bangalore Electricity Supply Co. Ltd. v. Hirehalli Solar Power Project LLP, (2025) 1 SCC 435.
11. Naihati Jute Mills Ltd. v. Khyaliram Jagannath, AIR 1968 SC 52; Badri Narain v. Kamdeo Prasad, AIR 1961 Patna 41; Peak Chemicals Corporation Inc. v. National Aluminium Co. Ltd., 188 (2012) DLT 680.
12. Satyabrata Ghose v. Mugneeram Bangur & Co., (1953) 2 SCC 437.
13. Energy Watchdog v. CERC, (2017) 14 SCC 80.
14. Tariffs and Contract Performance: Can Tariffs Be a Force Majeure Event?, Kerr Russell, https://www.kerr-russell.com/tariffs-and-contract-performance-can-tariffs-be-a-force-majeure-event/.
15. Alopi Parshad and Sons Ltd. v. Union of India,1960 SCC OnLine SC 13.
16. Naihati Jute Mills Ltd. v. Khyaliram Jagannath, 1967 SCC OnLine SC 10.
17. MEP Infrastructure Developers Ltd. v. South Delhi Municipal Corpn., 2023 SCC OnLine Del 2088, Pravasi Legal Cell v. Union of India, 2020 SCC OnLine SC 799, Tuticorin Stevedores' Association v. Govt. of India, 2020 SCC OnLine Mad 20495.
18. Ananda Chandra Behera v. Chairman, Orissa State Electricity Board, 1996 SCC OnLine Ori 79.
19. Standard Retail Pvt. Ltd. v. G.S. Global Corp Pvt. Ltd., (2020) SCC OnLine Bom 854.
20. Halliburton Offshore Services v. Vedanta Ltd., 2020 SCC OnLine Del 2068.
21. Energy Watchdog v. CERC, (2017) 14 SCC 80.
22. Jaipur Vidyut Vitaran Nigam Ltd. v. Adani Power Rajasthan Ltd., (2021) 18 SCC 478.
23. South East Asia Marine Engg. & Constructions Ltd. (SEAMEC LTD.) v. Oil India Ltd., (2020) 5 SCC 164.
24. Akorn, Inc. v. Fresenius Kabi AG, 2018 Del. Ch. LEXIS 325 (Del. Ch. Oct. 1, 2018); Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005).
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