The uncertainty caused by the imposition of 25% tariffs on Canadian products, combined with the Canadian government’s response, will certainly slow the pace of residential construction. Such a situation obviously undermines consumer confidence and impacts investment demand and housing starts. With US$2.5 billion worth of goods and services exchanged daily on both sides of the border, Canada and the U.S. are each other’s main trading partners.
Tariffs imposed between the U.S. and Canada will certainly have a significant impact on the Canadian construction industry, particularly in terms of material costs, supply chain disruptions and project delays. Faced with these challenges, developers and construction companies are finding it difficult to meet their contractual obligations due to factors beyond their control, such as delivery delays, rising material costs or other unforeseen consequences of the imposition of tariffs. Hence the question: can customs duties and their effects be considered as “force majeure”, thus exempting a party from fulfilling its contractual obligations?
To answer this question, we first need to look at the legal definition of force majeure. Article 1470 of the Civil Code of Québec (the ” CCQ “) defines this term as “an unforeseeable and irresistible event; it includes a foreign cause that has the same characteristics”. 1 . The first criterion implies that the event could not have been reasonably anticipated by an ordinarily diligent and far-sighted person. The second criterion is a dual requirement: the event must be both “unavoidable and insurmountable ” 2 . . The event must be inevitable in its occurrence and insurmountable in its effects 3 . The debtor must therefore establish that the event has made performance of the obligation “absolutely impossible”, not only for him, but for anyone else. The obligation must be unattainable, and not simply more difficult or onerous. It is therefore not enough to demonstrate the existence of inconveniences, no matter how serious 4 . In the case of tariffs, compliance with the obligation is not impossible, but rather more onerous. What’s more, it’s hard to argue that rate increases are unpredictable.
That said, the parties to a contract can always provide their own definition of “force majeure” 5 In this case, the contractual definition may be broader than that of the CCQ, and include the imposition or increase of rates. In this case, the CCQ definition is set aside and the contractual definition applies, which could allow contractors to avoid their contractual obligations. It’s also important to be aware of other clauses that may mitigate contractual obligations. For example, the contractor may have included a price adjustment clause based on increases in the cost of materials and components. Such a clause allows the guaranteed price of goods or services to be modified under certain conditions and in specific situations. In addition, contracts sometimes provide for a right of termination by either or both parties. These clauses could allow contractors to terminate the contract if the economic climate surrounding pricing makes it excessively costly to perform their obligations.
Navigating the intricacies of trade disputes and tariff challenges can prove tricky, and have a significant impact on the companies concerned. It is therefore essential for companies faced with these commercial tensions to be aware of the relevant clauses in their contracts and their application in this context, so as to fully master their rights and obligations.
1 Civil Code of Quebec, RLRQ, c. CCQ-1991, art.1470.
2 Gingras c. 9086-5767 Québec inc.2019 QCCQ 3537.
3 Lluelles, Didier and Moore, Benoît, Droit des obligations, 3rd ed. Montréal, Les Éditions Thémis, 2018, 2472 p.
4 Ibid.
5 Ensyn Technologies inc. v. IMTT Québec inc. 2023 QCCA 1369.
By: Me Audrey Robitaille and student Louisa Kouretas
