Price Adjustment in Currency Fluctuations

The unexpected decision of the Swiss National Bank to decouple the Swiss franc from the EURO led to an overnight increase in the cost of all products that must be paid for in Swiss francs outside of Switzerland.

On the other hand, if a Swiss company has sold products to the EURO zone and the purchase price was determined in EURO, the Swiss supplier receives approximately 20% more in value overnight.

In both cases, the question arises whether the contracting party who is disadvantaged by the unforeseen change in the exchange rate between the two currencies can adjust the prices – possibly even unilaterally.

And even in times of Corona, there are economic distortions that lead to fluctuations in exchange rates. How should one react in such cases?

Contractual Regulation Available?

If the possibility of currency fluctuation was considered in the contract, perhaps even explicitly addressed during contract negotiations, and a specific regulation was agreed upon, then this contractual regulation applies. In this respect, there is a calculated risk that both parties have taken on and that has now materialized.

Contract Adjustment Without Contractual Regulation?

The legal situation is more difficult to assess if this issue was not discussed. In this case, the basis of the agreement was ultimately the expectation that nothing fundamental would change in the currency relationship. This expectation was reinforced by the explicit statements of the Swiss authorities that they would maintain the exchange rates between EURO and Swiss franc at a defined minimum level of CHF 1.20 per EUR 1.00.

An exchange rate relationship at this level was then the basis for pricing and price negotiations.

Adjustment of the Contractual Basis

Under German law, an adjustment of a contractual relationship can be made if the basis of the contract ceases to exist, § 313 BGB. However, the intervention thresholds that case law considers sufficient are very high.

The risk of currency devaluation is generally considered a usual risk to be taken into account. The requirements for an enforceable right to adjust the contract or terminate the contract are very high. Currency devaluations of more than 50% are considered sufficient.

For the relationship between EURO and Swiss franc, the exchange rate had changed by “only” about 20%. The intervention thresholds recognized by case law are significantly higher than this value. Therefore, it appears quite problematic to recognize a claim for price adjustment in such cases.

Each individual case, the economic circumstances of both contracting parties, and the discussions about pricing during contract negotiations must be examined. An “off-the-shelf” solution is therefore not apparent. By evaluating all accompanying circumstances of the contract negotiations, it must be decided whether an adjustment can be demanded in exceptional cases.

A negotiated solution is preferable to legal proceedings in any case.