Contracting in the face of longer delivery times and rising purchase prices

Many sectors are dealing with delivery problems and higher cost prices caused by one or more crises. In this article we look at the legal position of buyers and suppliers in business-to-business contracts in the face of longer delivery times and rising purchase prices.

Delivery problems

A (target) delivery date is agreed in almost every contract. If that delivery date is exceeded, the following applies:

      1. Can the supplier invoke force majeure? If so, it is not liable for damages on the grounds of the late delivery.
      2. Is the contractual delivery date a strict deadline? The supplier is automatically in default if a strict deadline is exceeded. The buyer may then in principle dissolve (ontbinden) the contract with immediate effect. In that case any performance must be undone. If the supplier cannot invoke force majeure, it is liable for damages if a strict deadline is exceeded.
      3. If the contractual delivery date is not a strict deadline, the contractual arrangements come into play. If the contract does not stipulate any rules for extending the delivery period, the buyer may give the supplier notice of default, setting a reasonable term for delivery. If the supplier fails to delivery by the end of that term, it is in default and the buyer may dissolve the contract and may be entitled to damages.
      4. The contract may contain provisions on the period(s) by which the supplier may extend a term for delivery. The supplier will not be in default and the agreement cannot be dissolved before the end of those periods. Only if the supplier fails to meet the final delivery date may the buyer give it notice of default while setting a final date for delivery. The buyer may then dissolve the contract and may be entitled to damages if the supplier has failed to deliver before the final deadline.
      5. In exceptional cases, the supplier may request that the delivery date in the agreement be changed. It may do so if an unforeseen circumstance occurs after the agreement is entered into that was not factored into the agreement and should not reasonably be for the supplier’s account, for instance if a seller of products from Ukraine agreed before the outbreak of the war to deliver products after that time that are temporarily unavailable.

Higher purchase costs and cost prices

The sales price is an essential part of any contract in which products or services are sold. If the supplier is faced with higher costs, the following applies:

      1. The basic principle is that costs may vary and suppliers must take that into account when agreeing on sales prices. As a rule, even if the contract contains a price adjustment clause, not every increase in costs may be passed on to the buyer.
      2. The possibility of adjusting the price depends primarily on the contractual agreements made. In some cases fixed prices are expressly agreed. In other contracts the supplier stipulates the right to increase the price. If no contractual agreements have been made, Article 7:758 of the Dutch Civil Code gives contractors that are hired to build physical objects (aanneming van werk) the right to increase prices on the grounds of cost-increasing circumstances. No specific statutory right to increase prices applies to other types of contract.
      3. If no price adjustment clause has been agreed, suppliers (and contractors) may base a price adjustment on the general legal doctrine of “unforeseen circumstances”. This doctrine is intended for extreme situations in which circumstances occur that have not been factored into the contract and as a result of which adhering to the contract in its original form would lead to an unreasonable outcome for the supplier.
      4. If a price adjustment clause has been agreed, the supplier may change the price unilaterally in accordance with the agreements made. If that would lead to an unreasonable outcome, the buyer may invoke the general legal doctrine of the limiting effect of reasonableness and fairness (redelijkheid en billijkheid) to limit the supplier’s authority to change the prices unilaterally.

Please contact Sander Pieroelie (+31-6-222 878 65) or Sabine Chan (+31-6-578 911 13) for more information or advice on this subject.

This article was published in the Newsletter Vestius of November 2022