The energy market has exploded. The prices charged for electricity and gas are skyrocketing. This affects not only individuals but, of course, business owners as well.
Companies often enter into contracts in which they fix the prices to be paid for their supplies for a long period of time (sometimes years). How to deal with this in a situation where, as a result of increased energy prices, costs have risen to such an extent that profits disappear entirely (or even can only be supplied at a loss)? This is a question I have been asked by business owners on a regular basis lately.
Energy prices building contractors
For construction contractors, the law has a solution. If it is a building contract, the contractor is entitled to increase the contract price if there are cost-increasing circumstances that the contractor did not have to take into account when concluding the contract. The contractor must then warn his client about the price increase. If the client does not agree, he has the right to terminate the contract.
Force majeure?
There are also options for non-construction business owners to avoid going under due to increased energy prices.
Invoking force majeure is not the way to go. In that case, the supplier would have to indicate that it is unable to deliver without charging a higher price or energy surcharge. As a rule, the increased energy price does not prevent the delivery as such, so a claim of force majeure could fail.
Unforeseen circumstances
Another legal option (which does seem to offer an opening) is to invoke contingencies.
The law stipulates that the court can, at the request of one of the parties, modify the consequences of a contract (read: amend the contract) if there are “unforeseen circumstances of such a nature that the other party cannot reasonably and fairly expect the contract to be maintained unchanged”.
Recently, the judge (in summary proceedings) in Rotterdam had to deal with such a situation. A fixed price agreement had been made between a supplier and a customer, which also meant that this price could be increased by 2% each time on January 1, 2021 and January 1, 2022. As a result of the huge increase in energy prices, the supplier charged an energy surcharge (in addition to this increase). The supplier threatened to stop its deliveries if the customer did not agree to pay the energy surcharge.
The court emphatically considered that it had been established that the price increases in recent months were extreme and that the energy market had exploded. It added that the extreme price increases were the result of various unforeseen circumstances, including the corona pandemic, low gas reserves in Europe, measures to combat climate change, lack of energy from wind and hydropower, reduced use of coal, and inability to meet the demand for gas by gas suppliers such as Russia. Furthermore, the court considered important that it had also been established that the price increases had had the effect that, if the supplier had to continue supplying based on the agreed price, it could only do so at a loss. And that, the judge ruled, “exceeds the supplier’s discounted price risk.”
Therefore, it was ruled that the supplier had to continue supplying under the condition that the customer would pay the energy surcharge. It should be noted, however, that this is an interlocutory ruling. Such a judgment has a provisional character. A final determination as to whether there were unforeseen circumstances justifying payment of the energy surcharge will have to be made in proceedings on the merits.
To be continued.
Published September 19, 2022.
