- In respect of existing business-to-business (B2B) agreements that do not contain an explicit price adjustment clause:
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In respect of future B2B agreements:
- a. Is it permissible to include an explicit price adjustment clause in the agreement? If so, what price adjustment clauses typically exist in your jurisdiction?
- b. What legal issues need to be considered (if any) to ensure that the price adjustment clause is enforceable? Is there any key legislation or case law that parties should be aware of regarding enforceability of price adjustment clauses in your jurisdiction?
- c. Are there any other issues that parties should consider when formulating a price adjustment clause (e.g. any sector-specific regulation)?
- Do any additional considerations or rules apply to the inclusion of price adjustment clauses in business-to-consumer (B2C) agreements?
jurisdiction
1. In respect of existing business-to-business (B2B) agreements that do not contain an explicit price adjustment clause:
a. Is the supplier permitted to unilaterally increase prices (or does it have other rights regarding price increases)? If so, to what extent?
Under Dutch law, a supplier is, in principle, not entitled to unilaterally adjust the price.
Article 6:258 of the Dutch Civil Code provides for the possibility to modify or (partially) terminate an agreement in the event of unforeseen circumstances which are of such kind that the other party should not, by the standards of reasonableness and fairness, expect unchanged maintenance of the agreement. Such a modification or (partial) termination must be requested from a judge who may, or may not, grant the request. When increased costs for the supplier make it unreasonable to expect the unchanged maintenance of the agreement, the court may determine that the price must me increased.
However, it must be noted that cost increases in a certain market are often not considered unforeseen by the courts and, when they are, the courts may well be inclined to divide the loss equally between the parties. When a supplier faces higher costs, this is often perceived as a normal entrepreneurial risk or a result of regular market dynamics. For that reason, the increase in costs must be the result of an external circumstance to justify the price increase on the base of unforeseen circumstances. Additionally, ‘unforeseen’ implies that parties did not take the circumstance into account when entering into the contract. Therefore, effecting a price increase will only succeed in extremely rare circumstances.
b. Do (extreme) price increases give the customer the right to terminate the agreement? If so, are there any specific rules or regulations to comply with?
The sole means of effecting a unilateral price increase, without it being grounded in a provision granting a party the authority to do so, is through the supplementary or restricting effect of the principle of reasonableness and fairness, and must be determined by the court. The court takes into consideration the interests of both the supplier and the customer, so if a price increase is imposed on them by the courts, it will not be in conflict with the principle of reasonableness and fairness and, and thus cannot be challenged by the customer as a reason for termination.
2. In respect of future B2B agreements:
a. Is it permissible to include an explicit price adjustment clause in the agreement? If so, what price adjustment clauses typically exist in your jurisdiction?
The fundamental principles to rely upon are freedom of contract and pacta sunt servanda, thus a unilateral price adjustment clause between professional parties is permissible and can, in principle, persist freely.
Typical price adjustment clauses can be found in continuing performance agreements, e.g. distribution agreements, and may read as follows:
- Supplier revises its prices once a year, but this frequency may vary for commercial reasons or reasons relating to the costs of raw materials, production and/or transport incurred by Supplier.
- Supplier shall sell the products to Distributor at the prices specified in Appendix A, which may be amended from time to time.
- Seller shall provide Buyer with a price list prior to each term, which price list will be applicable for that respective term. Seller shall give Buyer at least thirty days' notice of any change in price.
b. What legal issues need to be considered (if any) to ensure that the price adjustment clause is enforceable? Is there any key legislation or case law that parties should be aware of regarding enforceability of price adjustment clauses in your jurisdiction?
The principles of reasonableness and fairness constitute a general legal standard, which is expressed in the Civil Code, including, but not limited to, Articles 6:8 and 6:248. Article 6:248 paragraph 2 contains the restricting effect of the principle of reasonableness and fairness, allowing a contractual provision to be set aside by the court when it deems the provision in conflict with the principle of reasonableness and fairness. However, the Dutch Supreme Court has consistently emphasized that when applying Article 6:248 paragraph 2, significant restraint should be exercised by the courts, particularly when it concerns two professional parties.
c. Are there any other issues that parties should consider when formulating a price adjustment clause (e.g. any sector-specific regulation)?
It is especially important that the effects of a price adjustment clause be known to the contractual counterparty and that it is applied in a reasonable manner.
There is no specific legislation on the permissibility of price adjustment clauses in B2B relationships.
3. Do any additional considerations or rules apply to the inclusion of price adjustment clauses in business-to-consumer (B2C) agreements?
Article 7:35 of the Civil Code stipulates that in the case of a consumer sale, if the seller increases the purchase price after the conclusion of the sale in accordance with a price adjustment clause, the buyer is able to rescind the agreement, unless it has been agreed that the delivery will take place more than three months after the date of purchase.
According to Article 6:236 of the Civil Code, a provision in the general terms and conditions which grants the professional party the authority to increase the price within three months after conclusion of the agreement, is considered unreasonably burdensome, unless it also confers upon the consumer the right to unilaterally terminate the agreement. The nullification of such a clause can be invoked by the consumer. However, it is also possible that the court deems a clause granting the professional party the authority to alter the price after 3 months as contrary to the principle of reasonableness and fairness, as described in Q2(b). It is anticipated that a price alteration will need to have at least a valid reason for it to be in accordance with the principle of reasonableness and fairness.
In the package tour industry, according to Article 7:507 of the Civil Code, prices may be increased only if the contract contains a price adjustment clause and price increases are only allowed when they are the result of circumstances specifically mentioned in that Article.
