In these unfortunate times of soaring energy prices, all businesses are experiencing a sharp increase in production and supply costs. Hopefully, these companies will be able to pass on (part of) these additional costs to their own customers.
However, in long-term agreements, the price for the supply of goods or services may have been agreed long before recent events materialized, which now forces one party to settle its obligations at a loss, as the increase the cost of raw materials and/or energy have in the meantime eroded the foreseeable profit margin at the time.
What happens if, upon verification of the relevant contract, the hard break of the affected party is further aggravated due to the lack of a (valid) price revision formula and a contractual mechanism hardship type? Is there a default provision in Belgian law to offer some relief?
The short answer in principle to this question from the point of view of Belgian law is “not yet”. Although the forthcoming ‘new’ Belgian civil code will contain a default hardship provision, this is not the case under the ‘old’ civil law which still applies (and will continue to apply) to existing agreements. The starting point of the current law therefore remains that even if the agreement becomes excessively onerous to execute, there is no obligation or default legal procedure to renegotiate this agreement.
Admittedly, there are certain “workarounds” based on the doctrine of abuse of rights or on the anticipated application of the new civil code advocated by certain academics, but these are uncertain solutions.
There is, however, an area of Belgian private law where a framework for hardship exists: contracts for the international sale of goods, provided that the parties have not waived the application of the CISG (i.e. United Nations Convention on Contracts for the International Sale of Goods).
Since 2009, the Belgian Supreme Court has accepted that there is a hardship regime in these contracts based on the following reasoning:
- Article 7(2) CISG provides that “questions concerning matters governed by this Convention which are not expressly regulated by it shall be settled in accordance with the general principles on which it is based”;
- There are no express hardship provisions in the CISG;
- The UNIDROIT Principles reflect the “general principles” upon which the CISG is based;
- Article 6.2.3 of the UNIDROIT Principles contains default hardship provisions which impose an obligation to renegotiate and the possibility of bringing an action for modification of the contractual terms or even for termination.
In contracts submitted to the CISG – which, for some unclear reason, is unfortunately often reflexively disavowed at the drafting stage – there is more hope than meets the eye of provoking (serious) renegotiations. .