Economic uncertainty is the new norm. Inflation, currency fluctuations, escalation of sanctions, and supply chain disruptions directly impact contracts. In our practice, we see entrepreneurs who have not included price indexation or hardship clauses in their long-term contracts. A few targeted adjustments in advance make the difference between flexibility and loss-making obligations.
What is the legal problem?
Changing economic circumstances affect costs, security of supply, and payment transactions. A contract without a price mechanism or hardship clause binds you to fixed terms in a changed reality. Internationally, rules regarding adjustment and termination in the event of economic shocks vary. A balance between flexibility and predictability is essential.
What does the law say?
Under Dutch law, Article 6:258 of the Civil Code governs unforeseen circumstances; The Supreme Court applies it cautiously (HR 13 October 2017, NJ 2018/22). French imprevision under Article 1195 of the Code Civil has been broader since 2016. German Wegfall der Geschäftsgrundlage under Section 313 BGB offers comparable protection. Under English law, frustration is limited to extreme cases.
The Vienna Sales Convention leaves hardship adjustment to the parties and national law (Article 79 CISG). ICC and UNIDROIT model clauses (Articles 6.2.1-6.2.3) offer useful provisions.
What risks do companies face?
Fixed prices in the face of rising input costs lead to loss-making contracts. Fixed delivery obligations without force majeure protection make you liable. Currency fluctuations can wipe out margins. Without the possibility of renegotiation, termination becomes the only option, accompanied by damage claims. Reputational damage resulting from forced refusal to deliver can harm customer relationships.
Practical example from our practice
We advised a Dutch furniture manufacturer with a three-year contract with a Belgian customer at fixed prices. Due to a rise in wood prices (60 percent), delivery became loss-making. The contract did not include indexation. An appeal based on Article 6:258 of the Dutch Civil Code was rejected due to an insufficient threshold. Upon renegotiation, we incorporated CPI-linked indexation plus the ICC Hardship Clause 2020 for increases exceeding 30 percent. Subsequent price increases were automatically passed on.
What can you do?
Incorporate price indexation clauses for long-term contracts. Add hardship clauses with clear triggers. Agree on currency adjustments or hedging. Provide for flexible volumes. Combine with sanction and force majeure clauses under Article 6:75 of the Dutch Civil Code. Incorporate renegotiation moments (annual review). See also our article on Hardship clauses: protection against economic changes.