Effects of the energy crisis on commercial contracts

On 5 August 2022, in order to increase the security of energy supply to the EU, the European Council adopted COUNCIL REGULATION (EU) 2022/1369 on coordinated demand reduction measures, aimed at reducing demand of gas by 15% before the winter season 2022-23 (the “Regulation”). The purpose of the regulation is to help fill storage capacities, help ensure sufficient supply and lower energy prices. The regulation was published in the Official Journal on August 8, 2022 and entered into force the following day.

While the regulation calls for a voluntary reduction, it also provides for the possibility for the Council to trigger a “Union alert” on security of supply, in which case the reduction of gas consumption would become mandatory. The settlement will apply for one year; the Commission will carry out a review to consider its extension in light of the overall EU gas supply situation, by May 2023. EU member states have agreed to implement the regulation with reduction measures of their choice and consider prioritizing measures that do not affect protected customers such as households and services essential to the functioning of society. Member States have not yet announced exactly what measures they will adopt (and when), and the measures are likely to differ quite significantly from one Member State to another, but it cannot be ruled out that at least in some jurisdictions, the measures may go beyond reducing heating temperatures in offices or factories and changing illuminated advertising, and will negatively affect a range of industries significantly. The Swiss government has not (yet) announced any concrete energy reduction plans, but one government official called the EU’s 15% reduction target “surely reasonable”. Soaring energy prices have already caused significant uncertainty in the industry, with players considering measures including the temporary shutdown of production facilities or the rerouting of supply chains elsewhere. This situation will only become more complex with the implementation of the Regulation and the anticipated measures and will bring more and more uncertainties. This is likely to have a substantial impact on ongoing contractual obligations. When the contracts do not expressly provide for the consequence of an increase in energy prices or of plant closures (even temporary) to comply with the measures adopted by the State (on a voluntary or mandatory basis), notions legal issues such as impossibility, force majeure and force majeure are likely to come into play, as well as complex issues of the power of courts and tribunals to interfere with contractual terms agreed to by the parties if an agreement cannot be found. This legal uncertainty is exacerbated by some member states apparently announcing their intention to interfere with legal concepts such as force majeure, seeking to make it more difficult for parties to avail themselves of these potentially significant remedies (see, for example, ” Berlin plans to limit “force majeure” claims in an effort to stabilize energy markets”). At the same time, possible protective measures ordered by the Member States to counterbalance the burden of the reduction measures or of the crisis more generally, may also have an impact on the possibility for the parties to avail themselves of force major or difficulties. Although it is still too early to give full advice on the steps parties can take to protect themselves, we continue to closely monitor the situation in Switzerland and beyond, working with our clients to prepare them for any possible legal scenarios that could arise, and to put in place the best possible strategy.

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