Contractual consequences of a change in economic conditions

Sorgem Evaluation assisted a manufacturer in a dispute against a raw materials supplier, in which the manufacturer sought the termination of the sales contract on the grounds of the application of a ‘safeguard clause’.
This clause provides that if economic, political, environmental or technical conditions—which were unforeseeable to the parties at the time the contract was concluded and beyond their control—have the effect of disrupting the economic balance of the contract between the parties and rendering its performance onerous (or impossible) beyond the limits that could reasonably have been foreseen at the time of the contract’s negotiation, that party may request a review of the contract.
In a report prepared on behalf of the manufacturer, Sorgem Evaluation established that the manufacturer could invoke the safeguard clause, which would normally lead to a renegotiation to rebalance the contract.
The raw materials supplier opposed this renegotiation, arguing that the issues raised—which were linked to changes in the price of CO₂—fell outside the scope of the contract and that it was incorrect to consider the contract to be based on achieving savings in relation to theavoidance of greenhouse gases (CO₂).
The Court of Appeal recognised that the sharing of benefits arising from the use of CO₂ fell within the scope of the contract, even though the specific terms had not been set out in the contract, and that, given theunpredictable changes in CO₂ costs beyond the parties’ control, there were indeed grounds to apply the safeguard clause, without the need to demonstrate force majeure; consequently, the contract should be renegotiated given that each party had the right to request its revision.
Given the supplier’s refusal to apply this clause, the Court of Appeal concluded that the contract was terminated on the effective date of the manufacturer’s notice of termination and ordered the supplier to pay the additional costs incurred by the manufacturer.
It should be noted that this decision is consistent in spirit with Article 1195, relating to unforeseeable changes in circumstances at the time of the conclusion of the contract, of Order No. 2016-131 of 10 February 2016 reforming contract law.