After the second consecutive year of living with the pandemic and the beginning of the Russian-Ukrainian war, economic analysts are looking with great caution at future economic developments in 2022. In addition to the uncertainty brought about by the pandemic and the war on European soil, there are also globally rising prices of products and services, difficulties in the supply chain and the like, which further complicate daily economic operations. At the same time, the complete situation complicates economic planning and forecasting, which is why many businessmen stop with investment intentions and postpone the conclusion of contracts. However, taking into account all the events in the past two years, the current geopolitical and economic scene, and the plans and forecasts of the world’s leading centers of power, it is clear that economic business must be continued, but also adjusted to daily unplanned changes. Everyday changes in the market, above all, must be the subject of good standardization of contractual relations between the parties. However, the question arises what in the case of already concluded contracts? Have you undertaken to fulfill obligations or ordered the performance of services at one price, but the other contracting party is now offering you new prices or requesting the termination of the contract? Taking into account the fact that the mentioned question interested a large number of our clients, the subject text was created, with the aim of offering practical answers.

What are the changed circumstances?

This concept is applied in situations that do not qualify as force majeure, but in which the balance of relations between the actions of the contracting parties is disturbed, in the following way:

• that these are (extraordinary) circumstances that occurred after the conclusion of the contract and could not have been foreseen at the time of concluding the contract;
• that the contracting party was not obliged to take them into account at the time of concluding the contract or could not avoid or overcome them;
• that these circumstances must occur before the expiry of the time limit set for the fulfillment of the obligation by that contracting party;
• that the fulfillment of the obligation for one contracting party has become excessively difficult or would cause it excessive loss;
• that the party suffering the changed circumstances has without delay notified the other party of the occurrence of such circumstances.

Extraordinary circumstances in legal theory and practice, without a doubt, mean new economic phenomena (eg sudden, extraordinary and big fall or jump in prices), but it is very important that other conditions are met on which the reference to the institute of changed circumstances depends.

Namely, in addition to the objective circumstances whose existence has indisputably occurred, it is necessary to determine the existence of subjective circumstances on the part of the contractor who refers to the changed circumstances. Namely, it is necessary that with the occurrence of changed circumstances, a new situation arises in the endangered contracting party in which the motive that existed at the time of concluding a specific contract fell away and lost its previous economic goal, which is why the contract no longer meets the expectations of the contracting party. The law goes a step further and stipulates that the consequences of changed circumstances must be such that “in the general opinion, it would be unfair to keep the agreement in force as it is.” The jurisprudence has taken the view that it is necessary that circumstances have changed to such an extent that the party invoking them would suffer damage to remain in such a contractual relationship.

How to refer to the institute of changed circumstances – a chronology of steps

Invoking changed circumstances is not an institute that has an immediate effect of termination and it is very important to point out the following steps:

1. Drawing up a written letter in which, due to the described and proven changed circumstances, the other contracting party must call for a fair change of contractual obligations. Therefore, a fair amendment of the contract must be sought first, in order to meet the preconditions for a possible later termination of the contract. In the event that the other contracting party accepts a fair change in the contractual obligations, the new contract enters into force, and not the termination of the contract. The new contract must be fulfilled in accordance with the agreed conditions and obligations;
2. If the other party does not accept the offered fair amendment of the Agreement, the termination of the Agreement is achieved by filing a lawsuit in the competent court, which seeks to determine the termination of the Agreement. The court will take into account the purpose of the contract, the division of risks arising from the contract or the law, the duration and effect of extraordinary circumstances as well as the interests of both parties. Civil proceedings can last two or more years until the final conclusion (according to the standards of BiH justice), and only a final court decision has constitutive effect, ie – the contract is considered terminated only on the day of the final judgment. Therefore, in case the court for any reason does not consider that these are changed circumstances, the plaintiff is obliged, in addition to fulfilling the contractual obligation, to compensate all damages to the other party caused by delay (lost profits, statutory default interest …).
3. It is very important to point out that this institute does not release the party who invokes the changed circumstances, the obligation to compensate the other party, which suffers as a result of the termination. The law limited this damage to “the fair share of the damage it suffers”, but in practice it is a matter of the court’s assessment of what the fair share of the damage is. The damage in the specific case for the other party would be a higher price for the contracted quantities of goods, which it would receive from other suppliers, and which part the court would determine as fair for compensation, is a matter of each individual case.

Significant facts for assessing the best modalities for further action

1. In practice, it is very important to react in a timely manner to changed circumstances. The Court has the right to refuse the termination of the Agreement, if it finds that the contracting party did not request the termination in a timely manner, ie, as soon as it learned of the stated circumstances.
2. The letter must be reasoned. A lump sum letter on the occurrence of changed circumstances, without specific indicators and data will be rejected. A well-reasoned letter, which would offer higher but again more favorable prices than the current ones on the market, could be accepted, as the party would be aware that withdrawing from the Agreement would do more harm than good. The above should be appreciated in the context of the fact that the court decision does not oblige the party calling for termination due to changed circumstances to compensate the entire amount of damage to the other party, but only fair compensation, so a well-reasoned letter could be an adequate solution.

Conclusion

Changes in market prices are a global problem, and world governments are trying to find the best solution to protect their business. In some countries, these are political and advertising moves, without concrete measures, while other countries have implemented concrete measures to support the economy.

In neighboring Croatia, the Government has issued a Conclusion on how to mitigate the consequences of disturbances in the prices of construction materials and products. Although the Conclusion itself is not essential and not binding, it is much more important that the Government will implement a series of concrete measures aimed at training entrepreneurs when and how they can apply for a change in the contract, how to prove rising prices compared to contracted and the possibility of further amendments to the contract.

Bosnia and Herzegovina has not yet given importance to this issue, so businessmen are forced to find a solution by hiring a lawyer. Whether it is a matter of changing the existing terms of the contract or contracting new rights and obligations in the market that are exposed to changes on a daily basis, the previous situation has shown that a well-made contract is the best protection mechanism.

In case you are looking for advice on changing the terms of the contract, terminating or concluding a new contract, with the engagement of experienced negotiators, you can contact us via email: info@ia-lawfrim.com or on the phone numbers T: +387 49 206 182; GSM: +387 61 148 854 (contact person: Adi Ibrahimović) and 061 / 941-297 (contact person: Tijana Krivokapić).