Concrete & steel in legal perspective

The extreme price increases caused by the consequences of the war in Ukraine have now led to many legal discussions. One such discussion concerns whether an entrepreneur must continue its obligations in accordance with the agreed prices or whether it may suspend its obligations as long as no agreement has been reached on price increases. This discussion has now led to a number of court rulings, which clarify what the rights and obligations of entrepreneurs are in such a situation. The most eye-catching ruling - which has also been widely discussed in various media - is a ruling by the preliminary relief judge of the Lelystad District Court of September 8, 2022 (ECLI:NL:RBMNE:2022:3592) on the supply of concrete mortar for the foundation of 45 wind turbines. The following is a brief legal consideration with an important conclusion for the market.

In December 2021, the concrete mortar supplier had signed an agreement with a general contractor to construct 45 wind turbines. Due to the effects of the war in Ukraine, the supplier faced huge price increases in mid-2022. The supplier threatened to suspend the delivery if the contractor did not soon pay the invoices in respect of the price increases. The contractor then applied to the Court in preliminary relief proceedings for continuation of the supply because the announced suspension was unlawful and had serious consequences for the progress of the entire project. 

In its general terms and conditions, the supplier had a provision stating that the supplier was authorized to pass on increased costs to the customer. The court ruled that it had not been established that the parties had agreed that the supplier's general terms and conditions took precedence. This leads the interim relief judge to conclude that the supplier is not entitled to rely on this specific provision and that the supplier cannot unilaterally pass on price increases. This also means that the supplier does not have a claim against the contractor that is due and payable with respect to the price increases. And so the supplier has no right to suspend its supply. The preliminary injunction court therefore ruled that the contractor was justified in claiming performance of the contract. 

In case the supplier refuses to continue supplying despite the judgment, a penalty of €100,000 per day with a maximum of €2 million will be imposed.  

During the hearing, the supplier requested the judge in preliminary relief proceedings to adjust the contract (read: the prices) on the basis of unforeseen circumstances (article 6:258 of the Civil Code). Apart from the fact that this claim was filed too late, the interim relief judge ruled that such a claim cannot be filed in summary proceedings, but only in proceedings on the merits. 

In a ruling by the preliminary relief judge in Haarlem on December 16, 2022 (ECLI:NL:RBNHO:2022:11110), it was confirmed that a contractor is simply obliged to fulfill his obligations, despite the hugely increased prices. Similarly, in a ruling of July 21, 2022, No. 37,456, the Arbitration Council for Construction Disputes ruled that the claim for additional payment due to extremely increased costs is separate from the contractor's obligation to fulfill his obligations.

The case law outlined above shows that when discussing price increases, entrepreneurs must be very careful about (threatening to) suspend their obligations. The most obvious route to obtaining compensation for price increases is by entering into consultation with the client, taking into account reasonableness and fairness. And should that not lead to a solution, court proceedings on the merits are usually the preferred route rather than summary proceedings.

Joost Haest

Severijn Hulshof lawyers