Force Majeure and Unforeseen Circumstances in the Context of Global Trade War in the Netherlands

Under Dutch law, the concept of force majeure is defined by whether a breach of contract is attributable to the breaching party. Force majeure can be invoked if:

• the inability to fulfil a contractual obligation is not due a party's own fault; and
• the inability to perform is not for the account of the breaching party based on law, legal act or generally accepted public opinion.

In principle, the inability to perform is an (almost) absolute one; fulfilment of the specific contractual obligation should be (practically) impossible. A mere inconvenience to perform an obligation is not accepted as force majeure. A breaching party will be successful if it claims and, if necessary, proves that it is not personally to blame for the failure to fulfil the contractual obligation. If the failure is the result of an impediment or the consequences thereof that could or should have been prevented, reliance on force majeure will not be accepted. For example, if the underlying object of the obligation is substitutable by another identical object, force majeure will not be accepted.

The consequence of a successful appeal on force majeure is, primarily, that the breaching party is not held to pay any damages as a result of not fulfilling its obligations during the period the force majeure event continues. Termination based on breach of contract remains possible, however.

Reliance on force majeure is not possible when the failure to perform, which is not the fault of the breaching party, can still be attributed to him based on law, legal act or generally accepted public opinion. The following examples can be given:

• Based on law: the law stipulates that the impossibility to perform due to breaches by auxiliary persons, such as subcontractors, or breaches resulting from the use of materials in the performance of obligations, is for the account of the breaching party.
• Based on legal act: this is one of the most important elements for commercial contracts. The term 'legal act' should be read as 'contract'. The question here is whether the contract imposes the risk of the force majeure event on the party failing to render performance. Whether a circumstance making performance impossible is to be attributed to the breaching party, is a matter of contract interpretation. Force majeure clauses and warranties are relevant for this question.
• Based on generally accepted public opinion: this is an open norm and requires consideration of the courts. Generally accepted is that a failure to perform is attributable to the breaching party if i) the circumstances were foreseeable for the breaching party when the agreement was concluded or ii) the circumstances relate to personal circumstances of the breaching party (financial incapacity, inexperience, etc.).

Tariffs as such will generally not constitute force majeure under the Dutch Civil Code. First and foremost because it will not render performance impossible. Rendering performance in such cases will in general remain possible; but would most likely be more burdensome. This, in itself, does not excuse performance of the contract. Moreover, in case law it has been ruled that governmental measures will likely not result in force majeure if performance is still possible, although more burdensome.

Contractual clauses on force majeure can stipulate that tariffs and governmental measures do constitute force majeure. The Dutch legal framework on force majeure is not mandatory law and parties are free to deviate from the Dutch legal framework. This means that contractual clauses, such as force majeure clauses but also warranty provisions, could be relevant in determining whether the current geopolitical circumstances constitute force majeure. Moreover, the Dutch legal framework does not elaborate in detail on the consequences of a successful appeal on force majeure. The contractual mechanism could also take care of this.

Whether tariffs and geopolitical developments constitute force majeure under a contractual framework is a matter of interpretation. If the contractual force majeure definition includes tariffs, geopolitical developments, trade wars, governmental acts, etc., it could be that the current events constitute force majeure.

A party could request the court to change or (partially) terminate the contract based on unforeseen circumstances which render performance of the contract very onerous. It is also possible that due to a change in circumstances, the value distribution of the mutual performance is seriously disrupted or that the contract loses its meaning and/or purpose. In such cases, a party could also invoke the concept of unforeseen circumstances. This concept is internationally also known as imprévision and rebus sic stantibus.

The criteria for application of the doctrine of unforeseen circumstances are as follows:

• Prerequisite of unforeseen circumstances: according to the parliamentary memorandum, the question whether there are unforeseen circumstances, is not a question of whether the circumstances were foreseeable for the parties at the time of conclusion.

The only question that matters is what assumptions the parties made in their contract: whether they anticipated the possibility of such unforeseen circumstances occurring or at least tacitly took that possibility into account. In practice, courts will review whether a circumstance is anticipated in the agreement. If not, circumstances will be considered 'unforeseen'. The 'unforeseen circumstances' must occur after the conclusion of the agreement and must, therefore, lay in the future.

Unchanged continuation cannot be expected: the unforeseen circumstance must be of such a nature that the other party cannot expect the unaltered maintenance of the contractual legal relationship based on the principles of reasonableness and fairness. This will not be fulfilled quickly: after all, reasonableness and fairness demand, first and foremost, loyalty to the given word (pacta sunt servanda) and only allow deviation from it in very exceptional circumstances.

• The change of circumstances should not be for the account of the party invoking unforeseen circumstances: this criterion builds on the previous two and is, in itself, not significant. In short, the nature of the agreement could mean that an unforeseen circumstance is for the risk of the party invoking unforeseen circumstances. This could be the case in settlement agreements, which could deal with uncertain situations by nature. In such event, an appeal on unforeseen circumstances will not likely be honoured.

A trade war on tariffs could potentially be considered as an unforeseen circumstance. In (recent) case law, it has been ruled that the covid pandemic but also the effects of the war in Ukraine could be regarded as unforeseen circumstances making unchanged continuation of the agreement unreasonable. Similar rulings have been rendered in relation to significant changes in energy prices. It is crucial to assess whether the increased tariffs result in a change in the balance of the agreement and whether unchanged continuation of the agreement cannot, or should not, be expected in all reasonableness.

In general, however, the threshold to accept unforeseen circumstances is very high. In commercial contracts, courts will not be inclined to reallocate the risk distribution and courts will tend to rule that a party must bear the (business) risks of the contract. For contracts concluded after the tariffs have been announced, courts could rule that no event of unforeseen circumstances exists and that parties must bear the risks for not factoring in the tariffs in their contracts.

Under the Dutch legal framework, there could also be other grounds a party could request a court to limit the consequences of unforeseen circumstances. This is subject to the circumstances of the case and will need careful assessment of such facts. Contractual frameworks on hardship and governmental measures are examples that parties can use to address unforeseen circumstance. If such contractual framework exists, tariffs could potentially not be regarded as 'unforeseen' under the Dutch legal framework as they have been factored into the contract. The contractual framework will be leading.

To better manage the risk of sudden import tariffs and similar trade barriers, parties should consider including the following contractual provisions in future agreements:

1. Force Majeure Clauses:
   • Explicitly include tariffs, geopolitical developments, trade wars, and governmental acts as force majeure events. 
   • Define the scope and consequences of invoking force majeure, such as suspension of obligations, extension of time for performance, or termination rights.
2. Hardship Clauses:
   • Include provisions that allow for renegotiation or adjustment of the contract terms if tariffs significantly alter the economic balance of the agreement.
   • Specify the process for invoking hardship, such as notifying requirements and timelines for renegotiation.
3. Material Adverse Change ('MAC') Clause:
   • Include a definition of what parties consider a material adverse change and the consequences thereof on the contract.
4. Price Adjustment Mechanisms:
   • Incorporate clauses that allow for price adjustments in response to changes in tariffs or other trade barriers.
   • Defining the method for calculating adjustments and the circumstances under which they apply.
5. Termination Clauses: 
   • Include termination rights for either party if tariffs or trade barriers make the contract economically unviable.
   • Specify the conditions and procedures for termination, including notice periods and compensation.
6. Insurance Clause
   •  Include insurance requirements that insure against (trade) losses due to trade related government measures.
7. Governing Law and Dispute Resolution:
   • Choose a governing law that recognizes and enforces the agreed-upon provisions related to tariffs and trade barriers.
   • Include dispute resolution mechanisms to address conflicts arising from the imposition of tariffs. Such mechanism could include an expert who will render a decision only on the economic balance of the agreement and the correction thereof.