Agreements in agreement or general terms and conditions
To answer the question of whether increased energy or raw material prices can be passed on, what the parties have agreed on is important first. For example, the parties may have agreed on fixed prices, which may not be changed during the term of the contract.
It is also possible that the contract or the general terms and conditions contain a provision stating that prices may be increased. For example, it may have been agreed that prices may be increased in line with the increased cost price of the product.
No agreement on price increase
In principle, if nothing is stipulated in the agreement or general terms and conditions, prices cannot be increased, because: agreement is agreement.
Only in very exceptional circumstances can prices possibly still be increased by invoking the legal bases unforeseen circumstances (Article 6:258 BW) or reasonableness and fairness (6:248 BW). In addition, a separate regime applies when it comes to sales to consumers, which in some situations gives the consumer the right to dissolve the contract after a price increase.
Legal regulations
(i) Unforeseen circumstances
Article 6:258 BW offers the possibility to modify or dissolve a contract in whole or in part. This is only possible in the event that unforeseen circumstances arise, the consequence of which is that unchanged performance of the contract is unacceptable according to standards of reasonableness and fairness.
In other words, these must be circumstances not taken into account in the contract. Whether or not the circumstances were foreseeable is irrelevant. That prices can fluctuate is in principle a normal circumstance that parties must take into account. It may be different when it comes to extreme price increases.
Success rate in practice
But an appeal to unforeseen circumstances does not readily succeed. The basic principle remains: a deal is a deal and making deals always involves some degree of entrepreneurial risk. If a choice is made to agree on fixed prices, this can be advantageous or disadvantageous. Only if it is no longer possible to operate profitably at all or if the supplier could go bankrupt if delivery has to continue at the agreed price could the contract possibly be amended or dissolved by invoking unforeseen circumstances.
For example, the court once ruled that a supplier could not be expected to fulfill the agreements made, without an arrangement regarding the additional price of the product sold. This did involve the exceptional situation that the cost price of the product in question had risen by 400 to 600%.
(ii) Reasonableness and fairness
In addition to unforeseen circumstances, it may be possible in certain situations to declare a particular contractual provision inapplicable. This can be done by invoking the restrictive effect of reasonableness and fairness (6:248 paragraph 2 BW). The application of a provision is then unacceptable according to standards of reasonableness and fairness. For example, consider a provision that places the risk of price increases on one of the parties.
Success rate in practice
An appeal to reasonableness and fairness will not easily succeed either. Only in very exceptional cases might it be the case that provisions by which fixed prices have been agreed or by which a price change is permitted lead to such unreasonable results that they should not be applied. It will soon be the case that price increases based on a price change clause can simply be passed on, especially if the price change is in proportion to the increase in market prices.
Tips for the supplier and buyer
1. Check agreements and terms and conditions made
Whether increases in, for example, raw material prices or energy costs can be passed on depends primarily on what the parties have agreed in the contract or general terms and conditions. If you are faced with this, it is therefore advisable to first of all take out the contract and any general terms and conditions.
2. See if there are exceptional circumstances
Does it contain nothing about the possibility of changing prices? If so, only in very extreme circumstances can a price change be implemented by invoking unforeseen circumstances or reasonableness and fairness. Also pay attention to possible delivery obligations.
3. Enter into mutual consultation
If there are none, a supplier may be able to stop deliveries if no agreement is reached on price. Of course, it is always advisable to see if a mutually agreed solution can still be reached.
And for all future contracts?
Clearly define in an agreement or general terms and conditions whether prices may be increased and under what conditions. A buyer will preferably want to agree fixed prices, while a supplier will benefit from as much freedom to increase prices as possible. In order to limit this, it can be established which cost price increases may be passed on or it can be linked to a certain index. Of course, not all circumstances can be foreseen, but such provisions at least give parties some guidance.
