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EURO clauses are still predominantly associated with the introduction of the euro. The following article deals with the unpleasant eventuality of the euro entering a crisis, e.g. associated with the exit of individual states from the eurozone. To prevent this eventuality, it is worth thinking about “post-EURO” clauses.
Problem description
Equivalence of performance and consideration is the cornerstone of every “good” contract. Now imagine the following: Supplier A undertakes to supply customer B with a complex industrial plant at a price of EUR 20 million. The final payment installment of 2 million euros is only due after completion and acceptance. At the time the contract is concluded, acceptance is not expected for another 2 years. Without much imagination, this leads to the question of how or whether it is actually ensured that EUR 2 million at the time the contract is concluded and EUR 2 million at the time of acceptance 2 years later are still (roughly) equivalent. The answer is: this is simply not guaranteed! The economic consequences of the corona crisis, which are currently not yet so much in focus due to the priority of health protection and which will probably also have a considerable impact on the euro for various reasons, make the question of how the supplier can contractually protect itself against currency risks and thus an imminent decline in the value of the consideration to which it is contractually entitled appear highly topical. The following article first classifies the problem from a legal perspective and provides an overview of some possible solutions under contract law.
Necessity of contractual provisions
The economic consequences mentioned above, which the coronavirus crisis is yet to reveal, threaten the stability of the euro in many respects. If it were only a case of above-average inflation, which is probably to be expected, this would be a best-case scenario. A politically motivated painful devaluation, the exit of individual countries from the eurozone or even a break-up of the monetary union cannot be ruled out. If a contract is affected by this scenario, the question arises for the supplier as to whether it is legally protected against the resulting devaluation of its consideration, which is based on a specific euro amount.
One could think of a disturbance of the basis of the contract according to § 313 BGB. According to this, an adjustment of a contract can be demanded if
“(…) circumstances that have become the basis of the contract have changed seriously after the conclusion of the contract and the parties would not have concluded the contract or would have concluded it with different content if they had foreseen this change, (…)”
In the case of the currency risks discussed here, a claim for adjustment is likely to fail in most cases due to a lack of predictability. The risks surrounding the eurozone have been a topic of fluctuating intensity for a long time.
In the event of the withdrawal of individual euro states or the termination of the monetary union, Section 313 of the German Civil Code is also likely to prevent the legislator from stipulating the principle of contractual continuity, as it did when the euro was introduced. For example, when the euro was introduced, Article 3 of Council Regulation (EC) No. 1103/97 of June 17, 1997 stipulated the following:
“The introduction of the euro shall not have the effect of modifying any provision of any legal instrument or of discharging any debt, nor shall it justify the non-performance of any legal obligation, nor shall it give any party the right to modify or terminate any legal instrument unilaterally. This provision is subject to any agreement between the parties.”
Interim result on EURO clauses
As already mentioned at the beginning, the supplier as a creditor is not protected against the risk of a devaluation of money and the associated disruption of the equivalence relationship
between performance (= delivery) and consideration (= monetary payment). He should therefore look for ways to protect himself contractually against this.
Forms of permissible contractual clauses
Now that it has been worked out that the supplier, as a creditor, is not easily protected against the risks associated with a “real” euro crisis, the question arises as to how it can contractually prevent this with its business partner.
Price adjustment clauses
At first glance, automatic price adjustment clauses appear to be the method of choice. With such clauses, the price is automatically adjusted based on a referenced index (e.g. consumer price index).
It is true that such value protection clauses are recognized in principle by the highest courts. Unfortunately, however, the legislator has placed very strict limits on this solution. In particular, automatic price adjustment is prohibited. These include the Price Clause Act and the law on general terms and conditions. According to the Price Clause Act, there is a so-called ban on indexation, which generally prohibits the agreement of an automatic price adjustment, see Section 1 (1) of the Price Clause Act:
“The amount of monetary debts may not be determined directly and automatically by the price or value of other goods or services that are not comparable with the agreed goods or services.”
The background to this is that otherwise there would be fears that automatic price adjustment clauses could drive unwanted inflation in an uncontrolled manner.
However, the law provides for exceptions that allow a (non-automatic) price adjustment, cf. section 1 (2) of the Price Clause Act:
(2) The prohibition under paragraph 1 shall not apply to clauses,
1. which leave a margin of discretion with regard to the extent of the change in the amount owed, which makes it possible to determine the new amount of the monetary debt in accordance with principles of equity (performance reservation clauses),
2. in which the goods or services placed in relation to each other are essentially similar or at least comparable (tension clauses),
3. according to which the amount owed is made dependent on the development of the prices or values of goods or services to the extent that these directly influence the creditor’s cost price for the provision of the consideration (cost element clauses),
4. which can only lead to a reduction of the monetary debt
Of these exceptions, the performance reservation clauses and the tension clauses are of particular interest.
Instead of a – prohibited – automatic price adjustment, permissible performance reservation clauses provide that the entitled party may redetermine the price at its discretion if the agreed conditions are met (in particular a change in the reference value, occurrence of a certain event). It should be obvious to everyone that such a unilateral right of determination (Section 315 BGB) quickly raises legal concerns. This is where the law on general terms and conditions may quickly come into play. In its ruling of May 9, 2012 (case no. XII ZR 79/10), the Federal Court of Justice (BGH) stated the fundamental permissibility and justification of performance reservation clauses:
“According to the case law of the BGH, price change clauses are a suitable and recognized instrument for maintaining the balance between price and performance in long-term contractual relationships, especially those that are based on the exchange of services. This is because they serve, on the one hand, to relieve the user of the risk of long-term calculation and to secure his profit margin despite subsequent cost increases that burden him, and, on the other hand, to protect the contractual partner from the user attempting to absorb possible future cost increases by risk surcharges as a precautionary measure at the time the contract is concluded (…).
The interest of the contractual partner of the user of a price change clause in being protected against price adjustments that go beyond the maintenance of the originally agreed equivalence ratio must be taken into account (see BGHZ 94, BGHZ Vol. 94 Page 355 = NJW 1985, NJW Year 1985 Page 2270; BGHZ 158, BGHZ Vol. 158 Page 149 = NJW 2004, NJW Year 2004 Page 1588 [NJW Year 2004 1590]; in each case with further references). Nachw.).”
According to the case law of the Federal Court of Justice, a legitimate interest of the beneficiary of the clause and sufficient specification of the conditions for the right of adjustment are required and indispensable in order to adequately protect the interests of the contractual partner and thus to ensure that they are protected by the GTC. It must be sufficiently clear to the contractual partner what is in store for them. The BGH stated this in its ruling of November 25, 2015 (case no. VIII ZR 360/14):
“(…) However, according to Section 307 I 2 BGB, an unreasonable disadvantage to the contractual partner within the meaning of Section 307 I 1 BGB can also result from the fact that a provision in the General Terms and Conditions is not clear and comprehensible. In accordance with the principles of good faith, the user of general terms and conditions is therefore obliged to present the rights and obligations of his contractual partners as clearly and transparently as possible and to allow economic disadvantages and burdens to be recognized to the extent that this can be demanded under the circumstances (…)”
Price adjustment clauses refer to a specific index that relates to goods comparable to the contractual product. In order to ensure the effectiveness of the clause, the provision must be sufficiently specific and satisfy the criterion of comparability. “Comparability” requires that the reference goods are similar or at least comparable in nature. The relationship between the monetary debt and the reference value must be similar “according to common perception”. The reference value must be peculiar to the debt to be secured and must be of the same nature. After all, it is a question of evaluation, so that particular caution is required when drafting a corresponding clause in order to minimize the risk of invalidity.
Renegotiation clauses
The uncertainties described above in the contractual formulation of a price adjustment clause can be avoided by a pure renegotiation clause.
A renegotiation clause can be used to agree that the parties are obliged to renegotiate in the event of a significant change in circumstances – in this case, the monetary value. There is therefore no unilateral right to determine performance, but “only” the obligation of both parties to renegotiate the original price. The great advantage of such a provision is that its effectiveness can hardly be called into question. Appropriate wording of the clause can largely ensure that the contractual partner cannot completely block a price adjustment.
Conclusion on (post) EURO clauses
The level of the euro risk described above is difficult to estimate. A “post-EURO” clause for value protection can eliminate this risk within the framework described. As an entrepreneur, you have one less thing to worry about.
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