A group of growers in a Zeeuws-Vlaanderen glasshouse horticulture cluster were told by the supplier of residual heat and CO2 at the end of August that they would be supplied much less the next growing season. Talks with the suppliers to come to a solution did not yet yield anything, so the courts were called in. On 13 October, the Rotterdam District Court gave its verdict. The growers were proven right on several points, but all their claims were still rejected.
Large acreage
In total, the case involved a group of vegetable fruit growers with an area of 124 hectares. They established themselves in the greenhouse horticultural area under the smoke of Terneuzen, entering into a contract for the supply of residual heat and CO2 in 2008 and 2013, respectively. An important condition for the growers is to establish themselves in the area. The growers were 'persuaded' (a word the judge himself mentioned) to settle in the area, partly because of the residual heat and CO2.
The waste heat and CO2 come from a large fertilizer factory. The factory supplies the residuals to a network company that delivers the residual heat and CO2 to growers. With energy prices running very high, the factory has reduced ammonia production. Plants have been shut down.
Haste on the part of growers
The court had to consider the questions of force majeure and unforeseen circumstances at the growers' request in summary proceedings. Answers to those questions are important for the growers to claim delivery. The growers are seeking a penalty payment from the parties involved in the delivery. The penalty is €1 million per day, rising to a maximum of €60 million.
At the time the agreements were concluded, one of the agreements was to reach an amicable solution with each other in case of problems. This has not been achieved this autumn. The growers are in a hurry. They want certainty about the supply of heat and CO2 and at what rate 'in the shortest possible time.' This is important for the growers in deciding whether or not to sow planting material for the new growing season starting in November 2022.
No alternative
An important detail in the case is that no gas infrastructure has been built in/around the growers' area, so it is not possible for the growers to obtain heat through a regular gas supplier in the short term. This was also not the intention, as evidenced by the building rights and associated qualitative obligations the growers have established for the benefit of the suppliers on the network company's connection pipes. The superficies deed of one of the growers even includes as a qualitative obligation that the grower is obliged not to purchase heat and/or CO2 other than from the network company.
While the growers have made back-up arrangements, they point out that these cannot cope with the loss of current supplies of residual heat and CO2 over long periods of time.
Force majeure?
The court considered five claims made by the growers. The network company argues force majeure as the reason for reducing supply, saying the growers have not made it clear what they need and at what price. The court firmly rejected that argument, stating that the supply agreements made it clear what capacity and price had been agreed upon. The fact that the fertilizer plant is idle is also not a reason for the network company to claim force majeure, according to the judge. On the issue of force majeure, the growers are vindicated.
What are unforeseen circumstances?
There is debate about what constitutes 'unforeseen circumstances.' The suppliers argue that this is the case, while the growers believe that price increases, including unforeseen large increases, are part of a supplier's generally accepted risks. They point out that the suppliers could have entered into forwarding contracts to hedge the risk of price increases, and, according to the growers, the supply agreements provide for price increases in fees through indexation.
The two parties also differ on how to interpret the concept of cessation of activities. The growers argue that a reduction in supply is equivalent to a partial cessation of activities, while the suppliers argue that it should be a total cessation of business.
Not recorded well enough
During the hearing, the judge went deeper into the individual conversations and agreements between the growers and suppliers. This revealed that, in at least one conversation between the grower and supplier, there was talk of a 'worst case scenario' in which the fertilizer plant would leave the area, no other heat source would be found, and the network company would go bankrupt. The judge points out that the grower took the risk in this case of not making contractual provisions for the 'worst case scenario' and that the grower took the risk of investing in an alternative source only if the situation arose.
The judge also points out that 'an economic crisis' was spoken of as a 'change of circumstances.' The judge states that the risk of outages and/or extreme price increases was not sufficiently negotiated or discussed. In principle, the judge agrees with the growers that the suppliers must also take the growers into account when making decisions but states that if it is already an 'extra-contractual obligation,' that is not yet grounds to oblige the suppliers.
The judge does not rule out the possibility that it will be ruled in proceedings on the merits that the extremely high gas price, in this case, qualifies as an unforeseen circumstance of such a nature that the growers should not, by the standards of reasonableness and fairness, expect unchanged maintenance of the agreements. Moreover, the court points out that whatever judgment is rendered, the two parties are bound to each other. The growers were ordered to pay the legal costs as the unsuccessful party.