War in Ukraine is unforeseen circumstance

In a recent ruling (Aug. 25, 2022, No. 37,382), the Board of Arbitration ruled that the War in Ukraine is to be considered an unforeseen circumstance. A contractor facing price increases (due to this war) can therefore claim an adjustment of the contracting agreement.

Introduction

The legal figure of unforeseen circumstances (Article 6:258 BW) must be distinguished from the so-called cost-increasing circumstances (Article 7:753 BW, §47 UAV 2012 or another similar contractual provision). A reliance on cost-increasing circumstances has a "lower threshold" than that of unforeseen circumstances. Reasons enough to first consider the figure of cost-increasing circumstances.

Cost-increasing conditions

In case of explosive price increases, a contractor will first have to investigate whether cost-increasing circumstances can be invoked (Article 7:753 BW) or (for example) the UAV 2012 (§ 47). Under these articles, a contractor can pass on cost-increasing circumstances to his principal. This requires (in brief) that the contractor did not know or should not have known these circumstances when concluding the building contract.

The big drawback? However, these articles (in the Act and the UAV) are of regulatory law. Parties can therefore choose to disapply them. This happens - on the initiative of the client, of course - regularly. This was also the case in the case that led to the present RvA ruling. The way for the contractor to invoke cost-increasing circumstances was closed. However, the contractor invoked unforeseen circumstances.

Unforeseen circumstances

The big advantage? Recourse to contingencies is not contractually excludable (mandatory law).

Incidentally, in the case underlying the RvA ruling, the parties had included a contractual provision regarding contingencies. This is somewhat similar to the statutory regulation. The considerations of the RvA can therefore also be of importance for a possible appeal to the statutory regulation (i.e.: for everyone). The RvA considered as follows.

"31. The war in Ukraine and its consequences for (inter alia) the construction, in the opinion of the arbitrators, are (now) to be regarded as an external extreme unforeseen change of circumstances which, according to objective standards, makes a further unchanged performance of the contract for the contractor no longer reasonably justifiable."

Unfortunately, this ruling does not yet show how the pain will be distributed. After all, the arbitrators only rule that the contractor has successfully invoked the (contractual provision regarding) unforeseen circumstances. However, arbitrators do provide some guidelines: stay close to the agreement and limit damages as much as possible.

So: the war in Ukraine allows reliance on 6:258 BW?

The correct answer is: it could. Two comments.

Explanation 'unforeseen'

Unforeseen should be understood as: not factored into the contract. If the parties have provided for a certain situation (for example, by including a provision about war in the contract), that situation is, by definition, no longer unforeseen. The statutory provision then (for that specific situation) no longer offers a solution.

Difference between contractual provision (in this case before the COA) and the law

There is an important difference in the present contractual contingency provision and the statutory provision. The contract involved unforeseen circumstances that "make unchanged performance of this contract unreasonable for the parties or one of them". In the case of the statutory provision it concerns "unforeseen circumstances of such a nature that the other party, according to standards of reasonableness and fairness, cannot expect the contract to be maintained unchanged". 

There is therefore a difference in the "touchstone. That said, the RvA considers in r.o. 32 (perhaps superfluously) that "there is also a situation as referred to in Article 6:258 of the Dutch Civil Code." In short: whatever the various touchstones, the RvA is overwhelmingly of the opinion that the war in Ukraine qualifies as an unforeseen circumstance pursuant to Section 6:258 of the DCC.

Conclusion

The August 25 ruling of the RvA is significant in the construction world. The RvA expressly comments on the qualification of the war in Ukraine. It is an extreme and external unforeseen circumstance and meets the high threshold of Article 6:258 of the Civil Code.

In short: despite contractually ruling out as much as possible the possibilities of passing on price increases, there are possibilities! Don't throw in the towel too soon and contact me for a no-obligation consultation.