New contract law coming up – episode 2: legislature gives courts the possibility to adapt a contract if circumstances change

In our last newsletter, we pointed out that the new general law on contract gives courts the possibility to adapt a contract in certain situations. These can be, for example, when the contractual equilibrium has been seriously disrupted because of new and unforeseeable circumstances. Several examples can already be found in our society  today: Covid-19 pandemic, the surge in raw materials prices, the war in Ukraine,  etc.

Contracts in principle are the law that binds the parties (and also the court). In concrete terms, this means you cannot assert to your contracting party that you are no longer bound by the agreed price because the price increase for raw materials is a new and unforeseeable event.

The principle that each party must fulfill its obligations therefore remains valid. So it does not matter whether the performance of it has become more difficult because the cost of the performance has increased (e.g., because of higher prices for raw materials) or because the profit margin has become lower.

Nevertheless, the new law provides for an exception. Seeking renegotiation of the contract in pursuit of adapting or terminating it is possible if several conditions are met. First, there must be a change in circumstances. But not every change is qualified as such: the change must make the performance of the contract more burdensome to a certain extent that the performance of it can no longer be reasonably sought (e.g., if a company can no longer replenish its stock within a reasonable time). In addition, the change must have been unforeseeable at the time when the contract was concluded, and the change may not be attributable to the debtor, for example, the supplier.

If these conditions are met, you can request the other contracting party to renegotiate the contract. If you reach a consensus (e.g., you agree to adjust the price), then this new condition will bind the parties from then on.

If contract negotiations have fallen through or if you don’t want to negotiate with your contracting partner anymore, then you can petition the court to hear the case. The court can either adapt the contract or terminate all or part of it, which will be subject to the conditions that it has laid down. The judge presiding over summary proceedings has jurisdiction, so you can obtain a ruling rather quickly.

The rules are so-called “supplementary law provisions”, which means that parties to the contract can deviate from them. Parties can therefore agree that changed circumstances will not lead to contract renegotiation in pursuit of an adaptation or termination of the contract. Parties can also have the contract stipulate how it regulates changed circumstances so that it is tailored to their needs. In this respect, they can, for example, provide for a price adjustment clause whereby their possibilities are extended so that they can adjust the price in changed market conditions and circumstances.

All this is already possible under the current law because of the broad contractual freedom given to this subject matter. However, if parties do not provide for anything in their contract, the legislature now has adopted a reference framework that parties can fall back on. What is important is that the law now gives the court the possibility (after parties seek it) to adapt the contract in light of the changed market conditions and circumstances.

The new rules are expected to enter into force in the beginning of 2023.

We will inform you about these new principles in future newsletters that are more geared towards special contracts, such as those under contracting law, so that you are completely up to date.


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