2016.07.27
Luke Hung
The Supreme Court rendered the 105-Tai-Shang-1252 Civil Decision of July 27, 2016 (hereinafter, the “Decision”), holding that since the plummet of the prices of commodities and construction materials in Taiwan as a result of the financial tsunami was not foreseeable or avoidable when the contract was executed, the principle of changed circumstances should be applicable.
According to the facts underlying the Decision, the two parties had agreed, with respect to consumer price index adjustments, in the contract at issue that “the Appellant shall make the consumer price index adjustment payment to the Appellee on a pro rata basis only when the project owner makes consumer price index adjustment payment to the Appellant due to rising consumer price indexes.” However, the contract contained no specific provision concerning the circumstances when consumer prices were falling. Shortly after the contract at issue was signed, the prices of commodities and construction materials in Taiwan plummeted due to the outbreak of the financial tsunami, the project owner asserted that the construction fee should be adjusted in accordance with the provisions about changed circumstances under Article 227-2 of the Civil Code. As a result, the parties were entangled in this lawsuit.
It was first pointed out in the Decision that the original trial court held that the parties had agreed that the construction fee would not be adjusted in the event of consumer price index depreciation during the construction period simply because the parties agreed to make “consumer price index adjustment” to the third item in the contract where the construction fee would be raised if the construction cost increased for factors such as price fluctuations. It would seem that such decision should be reconsidered.
It was further pointed out in the Decision that the plummeting prices of commodities and construction materials in Taiwan after the outbreak of the financial tsunami were not foreseeable or avoidable when the contract, which had been executed not long ago, was executed. Therefore, the principle of changed circumstances under Article 227-2 of the Civil Code should be applicable to take into account the state of price changes and consider the losses sustained by one party due to the changed circumstances, the benefits received by the other party due to the changed circumstances and other actual circumstances according to objective and fair standards in order to fairly determine the appropriate amount which should be increased or decreased from the payment and reasonably distribute the risks and unforeseeable losses between the parties. As a result, the original decision was reversed and remanded.