Unrest in the construction materials market bis: Can you get out of your contract due to steep price increases?

Impact of the war on the economy

The war in Ukraine has been ongoing for months. Every day, the media show us harrowing images. There is undeniably a humanitarian crisis. The EU and the NATO countries are mainly seeking to stop Russia by means of economic sanctions.

In addition to all this human suffering in Ukraine, the aforementioned economic sanctions also have a financial impact on our daily lives and on your business. Even before the war, certain materials were already at an (absurdly) high price level. The current situation is only exacerbating this problem.

In this newsletter, we will take a closer look at whether there is a possibility — in view of a significant increase in the price of materials (or another cost) — to validly terminate an agreement, or at least to have the prices revised.

Terminating the agreement

Agreements must be kept. This legal adage is based on the principle that validly concluded agreements are binding on the parties as law. Parties are required to perform the obligations they have undertaken correctly and in full.

If a contracting party fails to perform his or her obligations (on time), that party may be required to pay substantial damages.

If the agreement does not provide for its termination as a result of price increases, there is in principle no possibility of terminating the agreement on that basis. The contractual obligations must be performed, even if they become considerably more burdensome for one of the contracting parties than they were at the time the contract was concluded.

Invoking force majeure to be definitively released from having to perform certain obligations is also in principle excluded, since the applicable case law and legal doctrine are (almost) unanimous in holding that a sharp increase in prices cannot constitute force majeure.

Thus, in principle, the extreme price increases for materials and raw materials do not constitute force majeure as long as the materials and raw materials remain available on the market, unless a specific arrangement to the contrary was included in the agreement.

If the war in Ukraine not only causes exorbitant price increases but also brings about a complete standstill in the supply chain, temporary force majeure may potentially be invoked, so that the contractual obligations can be suspended for as long as the materials are unavailable.

Revision of the price

If the agreement does not contain any provision regarding a change in price (e.g. a valid price revision formula) , a unilateral price revision is contractually impossible, unless, exceptionally, reliance could be placed on abuse of rights.

The Court of Cassation has further defined the general standard for abuse of rights over the years. Abuse of rights may be invoked if the exercise of a right (manifestly) exceeds the limits of the normal exercise of rights by a prudent person, for example where a disproportion arises between the benefit that the exercise of the right offers to one party and the disadvantage thereby caused to the other. 

The legal basis of abuse of rights may serve as a possible ground for revising an agreement due to changed circumstances. 

It is argued that the immutable nature of an agreement must always be weighed against the principle that every agreement must be performed in good faith, and that account must be taken of what was originally the intention of the parties, in the circumstances in which they found themselves at the time they entered into the agreement. 

In light of this, it is possible that the client/principal/main contractor is committing an abuse of rights by demanding the precise and unchanged performance of the agreement, notwithstanding the fact that the disadvantage to the (sub)contractor of carrying out the works at this unchanged price is disproportionate to the benefit this provides to the client/main contractor.

 The sanction for abuse of rights consists in either the right underlying the abuse being modified (read: the price may be adjusted), or the damages claimed for non-performance of the obligation being reduced. It is also possible that the damage caused by the abuse of rights on the part of the contractor is remedied by the court. More specifically, this amounts to the (partial) award to the contractor of the additional costs resulting from the price change. Naturally, no profit margin may be charged on this award of the contractor’s objective additional cost. 

Conclusion – always seek assistance when drafting your agreements!

In legal dealings, it is therefore not easy either to get out of an agreement or to pass on a price increase to the contractor/client.

Therefore, always seek assistance when drafting an agreement so that such problems are reduced to a minimum and you can focus on what truly matters to you. 

Reyns Advocaten heeft een ruime expertise in het verbintenissenrecht en aannemingsrecht.

U kan bij ons steeds terecht voor de redactie of optimalisatie van aannemingscontracten, algemene voorwaarden en commerciële brieven.

For specialised assistance in construction disputes, you can rely on Reyns Advocaten.

Carl DIERCKX