Possibilities and limits of Price Adjustment Clauses

Already last year, I highlighted the topic of price adjustment clauses in an article. Today I – again – would like to shed some light on this topic. In doing so, I would like to illuminate new aspects and point out more recent developments. Here, I will restrict myself exclusively to such clauses in b2b dealings – I will therefore not examine any consumer protection regulations. Furthermore I will furst focus on German law, then also point out aspects in other jurisdictions.


Briefly again on the subject: Price adjustment clauses allow for the subsequent adjustment of prices that have already been fixed in advance. Especially during along-term transaction episode, a contracting party must expect – for example – wage and raw material price increase or a general increase in costs, so that at the time the contract is concluded, the cost situation and thus the calculation basis are associated with great uncertainty. Price adjustment clauses constitute ancillary price agreements and serve to preserve the balance of price and performance in the case of longer-term continuing obligations. Beforehand – from a legal point of view – it is always necessary to check whether there are any general terms and conditions, which law applies to the contract and whether the clause is then possibly inadmissible in accordance with the law on general terms and conditions.


First, I would now like to present the different types of price adjustment clauses. Afterwards I would like to show the respective permissibility according to the terms and contidtion law of different legal systems. Finally, I will show the legal situation in relation to different legal systems, if no price adjustment clause or similar has been used. In this context, we will shed light on the situation in German law, English law, Chinese law and the law of the special rules of the UN Convention on Contracts for the International Sale of Goods.


In principle, a distinction can be made between mainly two different types of price adjustment clauses.


On the one hand, there are those with a so-called automatic adjustment. These are clauses that make a price adjustment dependent on an event and automatically adjust the price when the event occurs. The most common automatic adjustment clauses are cost element clauses and price tension clauses. Cost element clauses automatically adjusts the price to the costs that the entrepreneur himself has. So if he pays more for his processed products, he automatically passes these costs on to his own customers. Besides, there are also the price-span clauses: The price also increases automatically, but is not tied to various indefinite costs, but to a fixed index.


On the other hand there are clauses without automatic adjustment. These do not automatically adjust the ‘agreed-upon’ price, but enable the contracting parties to agree in advance on a specific process for a price adjustment. Specifically, a process is agreed here which provides for the necessity of a formal change request, an agreement procedure and/or the involvement of management bodies or an arbitration expert.


If such a price adjustment clause has been agreed, it is important that this solution is also legally secure. With regard to the latter clauses without automatic adjustment, this is generally the case. The fact that the contracting parties must first agree on the new price and that there is no unilateral price adjustment means that there is a new contract covered by party autonomy. Automatic price adjustment clauses are more problematic. The first thing to think about here is the so-called AGB-legal content control – at least if the clause was actually “posed” and there is no individual agreement. If the clause is now a general terms and conditions clause, the validity of the clause is – in German law – measured against § 307 BGB. In the B2B area, there has been little case law to date on the requirements for price adjustment clauses. Therefore, it makes sense to follow the guidelines for consumer contracts. If these requirements are met, the clauses are also effective in the B2B area. According to the case law of the Federal Court of Justice (BGH) on B2C contracts, appropriate price adjustment clauses within the scope of § 307 BGB require at least that (i) the price adjustment is linked to cost elements that the customer knows or can determine, (ii) the cost factors and their significance for the overall calculation of the price are set out in such a way that the customer can recognize how a change in costs will affect the overall price, and (iii) the increase in one cost factor is offset against a decreasing other cost factor. In addition, price adjustment clauses may only serve the purpose of offsetting increased costs. They must not increase profit, i.e. the relationship between performance and consideration must remain the same. Price reductions and price increases must be passed on in equal measure. Price adjustments may also not be linked to internal cost increases, as these are not verifiable by outsiders. In addition to the law governing general terms and conditions, German law also requires compliance with mandatory provisions – hereby especially the Price Clause Act (PreisklauselG) and the Currency Act (WährungsG).


If the specific contract does not contain an explicit clause, German law only allows a very limited adjustment of the contract in the sense of a price adjustment. Only if price changes are very serious and unforeseeable can a price adjustment still be demanded retrospectively – under German law, the principle applies that changes in economic conditions may only have an influence on existing contracts to a very limited extent. Specifically, as with legal issues of force majeure, the principles of disturbance of the basis of the contract under § 313 BGB apply. In practice, however, there must be enormous price increases and, as a compelling cause, a sudden event. A price increase of only 20 percent is not considered sufficient by case law in any case. In the event of serious price shifts, however, it should even be possible to unilaterally withdraw from the contract as an alternative to price adjustment.


Finally, in practice, the issue of the relevance of a foreign jurisdiction is also highly relevant. If the contract contains a price adjustment clause, the respective local general terms and conditions law shall apply instead of the German general terms and conditions law. In addition, local protective laws must also be observed. For English law, the following applies: In English civil law, which is strongly based on the principle of freedom of contract, there are no regulations on the use of general terms and conditions comparable to German law. And English law does not, in general, prohibit significant imbalance provisions in a B2B contract. However, rules can be derived from the Unfair Contract Terms Act 1977. The requirement that contract terms and especially price terms must be certain, i.e., clear. Insofar as Chinese law has been agreed for the contract, Chinese GTC law shall apply in accordance with §§ 39-41 CVG. Like the German law on general terms and conditions, this law provides for a review of the content. In judicial practice, however, high demands are placed on the concept of “undermining the rights of the other contracting party”, which conversely means quite liberal contractual freedom.


If foreign law has been chosen in the contract, but no price adjustment clause has been integrated, the following applies: If the parties have agreed on UN sales law in the contract, there are, in principle, only very limited possibilities for legal price adjustment. According to the principles of § 79 I CISG, it is at least possible to unilaterally dissolve the contract if a price increase of 150 to 200 percent has occurred within a “short period of time”. English law is even more restrictive and, in accordance with the principles of the “doctrine of frustration,” only accepts non-economic reasons for a contractual adjustment. Changes in prices fall under the risk of condition and do not allow contract adjustment by law. The situation is similar in Chinese law, which, according to Art. 533 of the Chinese Civil Code, generally excludes economic reasons and thus changes in market prices as grounds for a contract adjustment.

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