Handling Increased Tariffs from a Contractual Perspective

In this Tariff and Trade Alert, we discuss how this trade policy landscape might affect existing and future contracts and what businesses can and should consider doing in this situation.

As discussed in our Tariff and Trade Alerts from April and May 2025, Trump's increased tariffs have led to a series of countermeasures and tensions. An increase in tariffs will affect the vast majority of businesses. While it may only lead to small changes that can easily be overcome for some, it can have a dramatic impact, and in the worst case threaten the existence of the business, for others. All businesses should therefore use the pause to thoroughly assess how various tariff scenarios may affect their operations and what measures that can be taken to mitigate adverse consequences.

An important part of such an analysis is to identify how new and adjusted tariffs may impact the company's contracts. What consequences can (and should) increased tariffs have for existing and future contracts? How do changes affect the company's own contractual obligations? Will an increase in tariffs create a risk that the contractual counterpart will no longer fulfil the agreement? Is there a risk that your own business will not be able to fulfil its obligations?

When the tariff and trade landscape is subject to constant changes, a clear understanding of the legal room for maneuver may be crucial.

Existing Contracts

The first question is what impacts new and adjusted tariffs might have on existing contracts.

The contractual risk and responsibility for increased tariffs must be determined on the basis of on an interpretation of the individual agreement. Thus, the first thing businesses should do is to review all agreements with this in mind.

It is not uncommon that the agreement explicitly regulates the parties' responsibilities regarding tariffs and customs clearance. The parties may, for example, have used standardised contracts or agreed on standard terms regulating the responsibility. Where standard terms are not used, the parties might still have explicitly addressed the issue of tariffs. If the agreement is silent, the agreed delivery terms or the agreed pricing mechanism may be relevant.

Regardless of the agreement's risk regulation, an increase in applicable tariffs may alter the fulfilment of an agreement. It can become more expensive to either deliver or receive the goods or services. The question is therefore whether there are mechanisms that can be used to modify or change the agreement, either in order to mitigate the adverse consequences or in order to maintain the contractual balance sought when the parties entered into the agreement. Such mechanisms might be found both in the agreement itself and in general background law supplementing it.

Force Majeure

Force majeure clauses are found in most agreements. Various versions of such clauses exists, both with respect to conditions and consequences. In brief, however, a force majeure clause typically allows a party to suspend its contractual obligations if an extraordinary event beyond the party's control, which the party could not have reasonably foreseen, prevents the party's fulfilment in accordance with the contract. 

Unexpected increases in tariff rates do not constitute typical force majeure events. It remains fully possible to deliver and receive goods; increased tariffs just make it more expensive. In extraordinary situations, however, the financial burden itself may constitute a force majeure event (so-called economic force majeure), but the threshold for invoking this as a basis for suspending contractual obligations is high.

For contracts entered into after April 2, 2025, the parties should have been aware of the tariff-related risks at the time of the conclusion of the contract. Such agreements will therefore be in a somewhat different position with regard to a force majeure assessment.

Hardship/Renegotiation Clauses

Another mechanism that may be relevant is so-called hardship clauses or renegotiation clauses. Such provisions often explicitly define circumstances that give the right to request a renegotiation of the contract. When the right is invoked, a renegotiation duty is imposed on both parties.

For such clauses to be applicable in cases of increased tariffs, the wording of the clause must cover such situations. Even if it does so, such provisions does not necessarily constitute very effective safety mechanisms. The specific wording will naturally be decisive for the specific obligations that the provision imposes on the parties, but generally, a duty to renegotiate primarily requires the parties to loyally and in good faith negotiate changes in the contractual terms. It generally does not imply a duty to agree to any changes to the contract. On the contrary, the general premise for contractual negotiations remains unchanged in re-negotiation situations: The parties must safeguard their own interests, and the renegotiation duty does not entail any particular obligation to care for the other party.

Price Regulation Clauses

Many agreements contain specific clauses regarding regulations to the agreed remuneration for services. This is typically included in contracts where payment is to be made continuously over a longer period of time, or where payment is due far into the future.

Such price regulation clauses typically have another primary purpose than addressing sudden changes in the circumstances for fulfilling agreed payment obligations. The purpose is rather to ensure that the agreement's remuneration level is upheld despite general price changes over time.

The price regulation clause is often tied to a relevant price index (for example, the consumer price index). A sudden increase in tariffs will not immediately be reflected in such indexes, and to what extent tariff increases will be reflected is also unclear. Thus, it is not given that price regulation options will fully account for the consequences of increased tariffs, and certainly not as quickly as might be needed.

Cancellation Clauses

Contractual provisions granting a cancellation right may, of course, be relevant if increased tariffs change the factual conditions for contractual fulfilment. Cancellation clauses are often found in continuing contractual relationships, where fulfilments take place repeatedly. However, also contracts regarding so-called single- or instalment performances, i.e. situations where fulfilment is meant to take place at one specific time, may include a right to cancel.

Such provisions are often general in their wordings and can often be used without further justifications. In such cases, they can naturally also be used if it becomes economically more burdensome to fulfil the contract due to increased tariffs. They can, however, also serve another important role, namely as means to force negotiation and as pressure to strengthen a party's position in a negotiation process.

Failed Contractual Assumptions and Invalidity

Finally, one might ask whether uncodified rules about invalidity and/or contract revision are applicable with respect to increased tariffs.

An agreement is always entered into on the basis of certain assumptions. If these assumptions fails, the affected party may, in some cases, demand the agreement to be modified or set aside based on the doctrine of failed assumptions.

A related and somewhat overlapping legal basis for revision/invalidity is Section 36 of the Norwegian Act Relating to Conclusions of Agreements. This provision is often referred to as a "safety valve" in cases where whole or partial upholding of a contractual obligation would be "unreasonable".

The threshold for demanding revision or invalidity of an agreement is generally high, especially for agreements between professional parties. The clear starting point is that each party carries the risk for its own assumptions and fulfilment of its contractual obligations, even if the world develops differently than the parties could have imagined when entering into the contract. However, should a truly extraordinary situation arise due to  increased tariffs, such as a trade war between the USA and the EU where Norway ends up outside the EU's internal market, it might raise the question of whether the legal grounds for revision of a contract can be used. Similar to force majeure, agreements concluded after April 2, 2025 will be in a somewhat different position with regard to such assessments.

Future Contractual Relationships

The prevailing uncertainty around tariffs is something all businesses should take into account when entering into new agreements. It is important to be conscious about what risk one is willing and has the capacity to take on, and to seek to include provisions that ensure that the business remains within these limits. 

This can be done in different ways, such as explicitly stating how an increase in relevant tariffs should affect contractual obligations or agreeing on a general cancellation right. What provisions one should and can include will, however, depend on the nature of the agreement, the scope and duration of obligations, the balance of negotiation power between the parties, etc. 

Before signing, it is in any event important to assess what risks you are actually taking on through the negotiated outcome.