The conditions for implementing the contingency

What are the conditions to be met in order to invoke the unpredictability and obtain the renegotiation or termination of a contract impacted by the evolution of the economic context?

The 2016 reform of the law of obligations introduced an article on unforeseeability into the Civil Code. This is Article 1195 of the Civil Code, which provides that “if an unforeseeable change of circumstances at the time of the conclusion of the contract makes the performance excessively onerous for a party who had not agreed to assume the risk, the latter may request a renegotiation of the contract from its co-contractor. (…) ».

The are two central conditions:

– The occurrence of unforeseeable circumstances at the time of the conclusion of the contract;

– The fact that these circumstances make the performance of the contract excessively onerous for a party, without the latter having accepted this risk.

The article then specifies the applicable process. First, during the renegotiation, the parties continue to perform their obligations, including the party that requested the renegotiation. In case of refusal of the other party to negotiate, or failure of negotiations, the parties then have the following possibilities:

– agree to terminate the contract, on terms to be determined by them together;

– ask the judge by mutual agreement to proceed with the adaptation of the contract;

– In the absence of agreement within a reasonable time, each party may refer the matter to the judge to ask him/her:

o Revise the contract; or
o To terminate it on such dates and on such terms as it may determine.

The judgment of the Paris Court of Appeal of 25 November 2022 rules on the conditions for the implementation of this article, in the context of the exit from the first wave of Covid and the war in Ukraine.

The facts are as follows: a company distributes adblue for diesel vehicle engines, in order to reduce exhaust gas emissions. The production of adblue requires urea, the price of which depends in particular on that of gas. The company that distributes the adblue had taken advantage of the increases in the price of urea to request the termination of the contract that bound it to a buyer who used the adblue for his fleet of trucks. The increases in urea prices claimed by the adblue distributor were:

– by more than 300% as of October 2021, linked to the economic recovery following the first wave of the Covid pandemic; and

– by almost 600% in February 2022 following the start of the war between Russia and Ukraine.

The Paris Court of Appeal considered that the adblue distributor was justified in arguing that the increases in the price of urea “constitute an unforeseeable change in circumstances affecting the sale price of the adblue agreed at the time of the subscription of the contract”. He is also justified in contesting the fact that he would have accepted this risk.

On the other hand, the Court of Appeal notes that the excessively onerous nature of the performance of the contract cannot be deduced from the variation in the price of urea alone, nor a fortiori from the variations in gas prices. No more than a simple claim that the distributor was selling at a loss. It criticizes the distributor for not having produced “accounting and financial elements likely to characterize this condition of the termination of the contract on the basis of unforeseen circumstances“.

Thus, by demonstrating the increase in the prices of a raw material necessary for the manufacture of the products, the distributor has clearly demonstrated that the first condition, namely the occurrence of unforeseeable circumstances at the time of the conclusion of the contract, was fulfilled. On the other hand, even if these exceptional circumstances consist of a sharp increase in the cost of raw materials, the excessively onerous nature of the performance of the contract cannot be presumed from the sole proof of this increase. It must be effectively demonstrated and for this, an economic and financial analysis of the impact of the increase in these costs is essential.

Contractors who wish to implement this contingency clause must plan to gather all the evidence to demonstrate that the two conditions are met, before committing to an implementation of Article 1195 of the Civil Code.

CA Paris, Pole 5 – Bedroom 11, 25 Nov. 2022, No.22/00326