Litigation due to increasing electricity prices
Changing energy prices observed in the last few months on the Polish Power Exchange (TGE) are causing disputes between energy suppliers and customers. Suppliers are raising prices unilaterally, the buyers respond by terminating their agreements, and the first cases are being heard in the courts. The large amount of uncertainty on the market is hindering the signing of agreements for the future. Even large and experienced businesses are finding this new situation daunting.
Price is paramount
In a sale agreement, the price is the most crucial element. This, next to defining the subject matter of the agreement, determines whether the parties agree to sign. At the same time, the formulae used to determine the price vary; from fixed prices stated in a straightforward manner in the agreement which cannot be changed in the future, to variable prices, determined for example by the prices of other commodities or listings on the exchanges. In this respect, the energy market is no different to other markets.
Energy sale agreements used in trade are sometimes however construed on one hand as suggesting that the sale price is guaranteed for an entire year for which the agreement is in effect, and on the other as entitling the supplier to adjust the price unilaterally based on relatively vague criteria. There are also provisions under which the supplier can change the agreement template used when the agreement was concluded.
Suppliers: customers already buying at a higher price
As prices have been surging on the Polish Power Exchange since the beginning of this year, it is no surprise that electricity suppliers are making use of the rights they have reserved in agreements, and are raising prices for businesses. These increases are considerable and are as much as several dozen percent. Moreover, at times they are backdated, and the customer receives a letter saying that they have been buying energy at a higher price for several months. This also entails corrective invoices for the energy already supplied.
Customers terminate agreements
Energy agreements often provide that the customer can serve notice of termination, due to a change of the general terms and conditions (which also includes a change in the price) or in order to avoid the agreement being renewed automatically. This leads to disputes about whether the agreement continues to be in force or whether it has been terminated due to service of notice.
Courts examine agreements
The first court judgments have now been issued in cases of this kind, and relate to injunctive relief. Due to concern about electricity being cut off due to the increased price not being paid, customers seek judicial remedies. To date there have not been many cases of this kind, but there will certainly be more and more. In one case, the court found in favour of the supplier, saying that the buyer had not established to a credible degree that the imposed and back-dated price increase, of several dozen percent, was a breach of the agreement. The court dismissed the motion for the supplier to be ordered to supply power on the formerly applicable conditions at least until the dispute was fully resolved.
What will be next
Naturally, each agreement is different, and the issue of the possibility of a price change has to be analysed carefully. In civil law there are however old and good principles that have stood the test, and these should not be forgotten in disputes of this kind. One example is pacta servanda sunt, i.e. that an agreement is a pact and is there to be observed. From this point of view, a price change is not excluded but must be based on objective and verifiable criteria. This bears a striking resemblance to unilateral changes in rates of interest, which was once common practice among banks. This practice has been eliminated in Supreme Court case law, and today no bank would take that step on the basis of terms and conditions that are unverifiable. The conduct of energy suppliers will probably soon be tested in courts in the same way.
The principle in the Civil Code, that a vague provision in an agreement template is interpreted to the detriment of the party that drew up the provision, may be useful in cases of this kind. Another helpful principle is that the provisions agreed upon individually in the agreement itself take precedence over the template.
The citing of generally applicable rules is however no replacement for review of the wording of each agreement on a case-by-case basis, including examination of the circumstances in which it was concluded and whether more is to be gained from a business point of view from litigation than negotiation in good faith, leading to a consensus where formerly the parties’ interests did not seem to be aligned.
Dr Marcin Lemkowski, adwokat, Dispute Resolution and Arbitration practice, Wardyński and Partners