The economic environment has changed dramatically in recent years. COVID-19, the war in Ukraine, geopolitical conflicts, supply chain disruptions, skyrocketing prices for raw materials and energy, and natural disasters all highlight the fragility of international supply relationships. But what does this mean in concrete terms for companies and their contractual arrangements? What happens if a contracting party is suddenly no longer able to deliver or if the agreed prices are no longer sufficient for economic viability?

In this post, we explore the legal options available under German law to adjust contracts in response to changing circumstances.

Interference with the Basis of the Agreement: When the Foundation Shifts

Under German law, a contracting party may demand an adjustment to the agreement if the circumstances that formed the basis of the contract change significantly after its conclusion, and continued adherence to the contract would be unreasonable for that party (so-called “interference with the basis of the agreement”, according to Section 313 (1) of the BGB, the German Civil Code). If a contractual adjustment is impossible or unreasonable for one party, it may even request rescission of the agreement by withdrawal or termination, as codified in the BGB.

However, such an adjustment or rescission is generally excluded if the risk of the respective contractual interference is clearly allocated to one of the parties by law or contract. Adjustments due to supply shortages or price increases resulting from a crisis are only considered if they go beyond the scope of typical contractual risk. In other words, the interference must create a performance risk so exceptional that the parties did not assume it when entering into the agreement.

• A fixed-price agreement is one example of contractual risk allocation. If the supplier’s material costs rise significantly, this typically falls within its risk sphere due to the fixed-price agreement. As a rule, the supplier cannot demand a price adjustment. For this reason, price adjustment clauses are frequently agreed upon in practice, as described in more detail below.
• An example of a statutory risk allocation is the risk of use, meaning the risk of not being able to use the received goods or services as intended. This risk is typically assigned to the recipient under reciprocal contracts. For instance, if a tool manufacturer takes out a loan to invest in its production capacity in anticipation of a rise in demand, the manufacturer cannot request a contract adjustment or termination of the loan agreement if demand for its tools later collapses and the loan, therefore, becomes economically pointless. In such cases, there is generally no room for an interference-based contract adjustment.
• Furthermore, an interference is excluded if the contract already contains mechanisms for adjusting performance in cases of unforeseeable events (g., force majeure, hardship, or price adjustment clauses, as explained below). In these instances, there is usually little or no scope for adjusting the contract using the legal concept of interference with the basis of the transaction.

In practice, many adjustment attempts fail because the risk that has materialized was contractually or legally allocated from the outset. Without tailored contractual clauses – such as force majeure or price adjustment provisions – a party may be denied the right to amend or terminate the contract. This underscores the importance of such clauses at the time of contract formation.

Force Majeure Clauses: Contractual Protection Against the Unforeseeable

Force majeure clauses regulate what happens if an extraordinary event makes performance impossible or unreasonable. Although not specifically defined in German law, the concept is gaining importance due to the expansion of EU legislation and the increasing international nature of commercial contracts.

Force majeure clauses are designed to shield parties from liability when events occur that are unforeseeable and beyond their control. The burden must be so high that one party cannot reasonably be expected to bear it. Whether these requirements are met in individual cases depends on the nature and content of the contract.

Because there is no statutory definition of force majeure in German law, the parties must define it themselves and set out the legal consequences. The parties usually draw up a list of events that are expressly considered to be force majeure. The clause often provides that the affected party is released from liability or that deadlines are extended. To account for cases of prolonged force majeure, it may also be advisable to include a right to terminate the contract for cause.

A valid force majeure clause generally releases the affected party from the obligation to perform or allows the performance to be postponed without triggering damages, provided the party is not at fault and the event that prevents it from fulfilling its contractual obligation is outside its control. According to the German Federal Court of Justice, force majeure is ruled out if there is even slight negligence on the part of the affected party.

The clause should also clarify under what circumstances a party may invoke force majeure. This is especially important if the event only affects a supplier further down the supply chain (e.g., a production site destroyed by an earthquake) because the parties are then generally only indirectly affected by the supplier’s failure to deliver. In such cases, the party may be expected to source alternatives, even if costly or impractical.

Typical force majeure events include natural disasters, war, pandemics, strikes, and trade restrictions. The model clause for force majeure recommended by the International Chamber of Commerce – widely used in German practice – lists such examples and defines, for example, war and hostilities, starting with extensive military mobilization, as presumed events of force majeure. If the parties have included this clause in their agreement, the occurrence of a defined event generally constitutes a case of force majeure.

Similar provisions exist under international commercial law, particularly Article 79 of the United Nations Convention on Contracts for the International Sale of Goods. This article exempts a party from liability for non-performance if it proves that the failure was due to an impediment beyond its control, which could not reasonably have been foreseen or avoided.

Service and Price Adjustment Clauses: Built-in Flexibility

Because reliance on Section 313 of the BGB or force majeure clauses can be uncertain, many businesses include performance and price adjustment clauses in their contracts from the outset. These clauses allow parties to adapt to changes in raw material prices, inflation, or other factors. However, these clauses can be problematic and must strike a balance between predictability and flexibility.

When used in general terms and conditions, these clauses must be drafted with clarity and transparency, and they must align with the interests of the parties. German courts impose strict requirements:

• Performance adjustment clauses are only permitted if they are reasonable for the counterparty, taking into account both parties’ interests. There must be a valid reason, and the adjustment must preserve the balance between performance and consideration.
• Price adjustment clauses aim to maintain equivalence between performance and consideration during long-term relationships. These clauses must clearly specify the reason and scope of the price change and must not retroactively increase the user’s profit margin. The counterparty must be able to assess and verify the adjustment.

According to recent case law from the Federal Court of Justice, it is easier to justify price adjustment reservations, which allow the user to modify the price “at reasonable discretion” under certain conditions. It is sufficient to name the main cost drivers as change parameters in a comprehensible manner. A full breakdown of all cost components is not required.

Conclusion: Contracts Are Not A One-way Street – But Not A Wish List Either

Contracts cannot be changed easily. German law places great value on contractual certainty. Still, global economic volatility calls for updated legal tools.

The BGB’s doctrine of interference with the basis of the transaction offers relief when unforeseeable events significantly disturb the contract’s balance. Force majeure clauses provide clarity and prevent litigation. Price adjustment clauses and comparable contractual provisions create flexibility and reduce exposure on both sides.

Best Practices

Prepare for crises before they happen. In long-term contracts, include flexible mechanisms. Seek legal advice when circumstances change. And remember: Contracts should not just secure rights; they should enable fair solutions.

Because when the world is upside down, the goal remains: Getting through hard times together.