Various sectors may face scarcity, high prices and long delivery times for the supply of various raw materials as a result of Russia's invasion of Ukraine and the subsequent far-reaching economic sanctions. To what extent can you, as a supplier, pass on price increases to your customers and what happens if you cannot (temporarily) deliver as agreed? What do you need to watch out for?
Starting point: the agreement
Often, parties (in a B2B relationship) are free to deviate from Dutch law in the agreement. Consequently, the correct order of business is always to first check what has been agreed with the customer. For example, concerning the possibility of interim price changes, delivery times, etc. In addition, the agreement may contain force majeure and/or hardship provisions.
Force majeure
If a party is no longer able to fulfil the agreements made, they are in default of the fulfilment of that agreement. The basic principle is that the party who fails to perform is liable for the ensuing damage. However, the debtor can invoke force majeure under certain circumstances. This means that the debtor cannot prevent the inability to fulfil their obligations. The shortcoming cannot be attributed to the debtor and the debtor is not liable for the damage.
Before a plea of force majeure can be considered, it must first be clear which contractual obligations have been entered into. After all, a possible invocation of force majeure is only relevant if the debtor fails to fulfil their contractual obligations.
Many contracts contain a force majeure clause. This clause often contains a list of specific events that are or are not considered to be force majeure. Whether the debtor can justifiably invoke it depends on the exact wording of the force majeure clause and the specific circumstances of the case. For example, must the debtor be unable to perform (on time) or is an impediment to performance sufficient?
A plea of force majeure does not always prevent all hardship for the defaulting debtor. If the debtor rightfully invokes force majeure, the creditor may not be able to claim any damages, but they may be able to rescind the (entire) agreement. Again, this depends on the exact wording of the force majeure clause in the contract. If force majeure is wrongfully invoked, there may still be an obligation to pay damages.
Hardship
An agreement may also contain a so-called hardship clause. Such a provision often provides for the possibility to amend (temporarily) an agreement - after renegotiation - if unforeseen circumstances arise. Just like a force majeure clause, the hardship clause may list the specific events that do or do not qualify as unforeseen circumstances. However, such provisions are often formulated in a more general way and are based on 'changed circumstances' or 'unforeseen circumstances' in a general sense. Hardship clauses usually contain an obligation to renegotiate an amendment to the contract. Such an obligation to renegotiate must then be observed by the parties in good faith, but does not oblige the buyer(s) to reach agreement on an amended contract, depending on the specific wording of such a provision.
Options based on the law
If the contract does not contain any provisions for (unilateral) price changes, or if the contract does not contain a (generally formulated) hardship provision, or if a hardship provision is included in a contract but, after renegotiations, no agreement is reached with the customer on an amended contract (price), you fall back on the law.
Force majeure
In principle, invoking force majeure has a chance of success only if the debtor is actually prevented from the (timely) execution of the performance itself (e.g. delivery of products). This is not the case if performance is possible in practice but has become more or less difficult for the debtor (e.g. due to an unforeseen change in the value of his performance). An absolute impossibility may exist, for example, if products cannot be delivered due to an export or import ban.
Unforeseen circumstances
The law offers a party the possibility - in court - to claim (temporary) amendment of an agreement in the event that unforeseen circumstances arise which are of such a nature that the other party (the customer), according to standards of reasonableness and fairness, may not expect the agreement to be maintained unchanged.
Unforeseen circumstances exist if, after the conclusion of the contract, circumstances arise that were not taken into account in the contract. The criterion is not whether something was actually foreseeable. What matters is whether the parties have taken this risk into account in the agreement. In addition, the unforeseen circumstance must be so serious that the other party may not expect, according to standards of reasonableness and fairness, that the contract will be maintained unchanged. The basic principle in Dutch contract law is "an agreement is an agreement", which means that the judge must exercise restraint as regards the possibility of changing or dissolving a contract on the grounds of unforeseen circumstances.
How to proceed?
Depending on the nature of the agreement, the parties and the financial interests of both parties, several solutions may be conceivable.
For further information please contact Nysingh advocaten - notarissen, Rob Klein or Thijs van Tilburg.
