Contractual protection against price increases

The covid-pandemic and the war in Ukraine are causing a scarcity of raw materials and resources and are having a disruptive effect on the global distribution chain. These exceptional market conditions confront companies with huge price increases. A price revision clause can adjust existing contracts, but must comply with a number of rules.

Contractual provisions 

It is essential to build protection against large price increases into your commercial contracts or general terms and conditions, so that you can pass them on to the customer. In the absence of a price revision clause, it is in principle not possible to deviate from the agreed price. If a supplier increases the agreed price without a contractual basis to do so, the customer can simply protest with reference to the terms of the contract.

In exceptional cases, on the basis of principles such as force majeure, hardship and abuse of rights, a judge can still allow the letter of a contract to be deviated from. However, this is not obvious in the case of purely financial problems. The new Belgian law of obligations (approved by the Belgian Parliament on 21 April 2022) changes this to a certain extent: it provides a right to renegotiation (or even judicial adjustment) of a contract in the event of hardship (an unforeseeable and unaccountable change in circumstances that excessively burdens the performance of the contract). However, this remains a last resort. A clear contractual price revision clause gives the parties much more legal certainty. However, this should take into account a number of legal provisions.

Act on Economic Recovery Measures

First of all, the Act on Economic Recovery Measures of 30 March 1976 is relevant. Under this Act, industrial or commercial prices for the delivery of goods or services in Belgium may not be automatically linked to the consumer price index, nor to other indexes of the general cost of living. A price review clause may only be based on objective parameters corresponding to real components of the suppliers’ costs (e.g. wages, raw materials, energy, transport) and each parameter may only influence the total price formula in proportion to the corresponding part of the costs. In addition, such a price formula may only apply to a maximum of 80% of the price.

Please note that these are rules on contractual formulas; nothing prevents the free negotiation of new prices. These rules also do not apply to rents, salaries and wages, social contributions, benefits and fees of liberal professions.

B2b Act 

In addition, the “b2b Act” (which applies to all contracts concluded, renewed or amended since 1 December 2020) should be taken into account. This Act significantly restricts the freedom of contract for companies by establishing both a “black list” of terms which are unlawful in any case and a “grey list” of terms which are presumed to be unlawful unless legitimate reasons for the term can be demonstrated.

The “grey list” prohibits terms which give a company the right to unilaterally change the price of a contract without good reason. The parliamentary preparations for the b2b Act clarify that the absence of a valid reason means the absence of changed market conditions which could objectively justify a price adjustment, such as price increases of raw materials and prices adjusted by suppliers. Even then, however, such a clause must be drafted in a clear and comprehensible manner.

React vs. evaluate

It is strongly recommended to build in contractual protection against price increases due to unforeseen market circumstances, by means of a price revision clause. If you already use a price revision clause in your contractual documents, or if you are confronted with a contracting party who unilaterally wants to implement such a price increase, it is advisable to examine this in the light of the applicable legal rules.

Wibo Van Poeck and Bruno Thoen
De Langhe Attorneys

Published in Voka – Ondernemers West-Vlaanderen editie 10/2022