Limitations and exclusions of liability in business to business contracts in Spain

Limitations and exclusions of liability in contracts between commercial parties are governed by general civil rules, where the principle of freedom of contract generally applies. In consumer contracts, to the contrary, specific rules apply, having a more restrictive approach in the interest of the consumer to protect him through mandatory rules.

General understanding of the provision of the Spanish Civil Code (“CCiv”) on contractual liability is that parties are free to decide on the extent of their corresponding liabilities. Spanish courts recognise the validity of limitations of liability provided that they result of genuine negotiation and it can be inferred that they were accepted by the affected parties. However, in exceptional cases, a clause of this nature may be set aside by the courts if it was particularly unclear or, in the context of general terms and conditions, given the manner in which it was included, could be regarded as surprising (sorpresiva).

In certain contracts, specific rules prescribe minimum mandatory liability, namely in transport, insurance or agency contract law.

Contractual liability cannot be limited or excluded in case of wilful misconduct, according to Article 1102 of the CCiv.

The possibility to exclude liability in case of gross negligence is debated. Under Spanish law, no general legal rule prescribes the equivalence of severe gross negligence to wilful misconduct. However, in some cases (in particular, where personal injuries are present), Courts have concluded that liability limitations or exclusions are not enforceable. 

The effect of wilful misconduct or gross negligence on contractual liability is sometimes specifically ruled in some contracts (i.e., transportation).

Yes, parties may validly exclude liability for consequential, indirect or special losses. Such a clause is frequent in commercial contracts. However, this taxonomy differs from the Spanish law typical distinction between actual damages (daño emergente) and loss of earnings (lucro cesante). This difference may cause practical difficulties when enforcing the corresponding agreement.

Yes, parties may validly exclude liability for loss of profit, revenue, data, goodwill or anticipated savings. Once again, the exception of damages caused by wilful misconduct applies in this case.

Financial caps on liability are considered valid, as long as they fulfil the general requirements on limitations of liability. In this sense, Courts accept the limitation within the general limits applicable to any other clause limiting contractual liability (i.e., financial caps are not enforceable in case of wilful misconduct or where the affected party successfully challenge them for being obscure or not accepted).

This notwithstanding, Spanish Civil Code allows Courts to mitigate the result of negligence in contracts, depending on the circumstances (Article 1103 CCiv). This provision may be used by a Court when applying a contract which includes a financial cap on liability to decide on its effectivity in a particular case.

Yes, clauses between businesses that structure or limit remedies for breach are, in principle, valid, pursuant to Article 1255 of the Civil Code, and enforceable.

A court may, nevertheless, disregard the contractual restriction of applicable remedies and apply all legal remedies: enforce compliance or terminate the contract and, in either case, pay compensation for the resulting damages (Article 1124 CCiv). This is possible where the clause: (i) seeks to cover wilful misconduct; (ii) breaches good faith (Articles 7 and 1258 CCiv); or (iii) leaves no effective remedy in the event of a fundamental breach. In addition, such a clause may be declared void for not meeting validity requirements (test of incorporation/transparency) when included in general terms and conditions.

It is possible that part of a limitation or exclusion of liability clause may be declared void, namely where it contravenes the prohibition of the release of liability in cases of wilful misconduct. In such cases, the courts limit the invalidity to the affected part (partial invalidity), in accordance with the principle of contract preservation, if it can be inferred that this would have been the foreseeable intention of the parties. If the nullity affects the entire clause, the courts may, where appropriate, replace its content with an alternative provision, based on the foreseeable intention of the parties or, where applicable, on the supplementary law. When a court exercises the power of moderation recognised in Article 1103 CCiv, its decision logically entails the determination of the alternative consequence (e.g., the limit on compensation).

Spanish Civil Code contains legal provisions governing limitation periods (five years, in the case of general contractual liability, Article 1964 CCiv) but does not expressly address the possibility of the parties agreeing on shorter or longer limitation periods. This matter is a subject of debate within the Spanish legal system.

The most widely accepted view recognises the mandatory nature of the limitation period and rejects any private agreement that could lead to a material loss of the right of the debtor not to be sued after a certain period of time, as this rule is considered to be a matter of public policy. On the contrary, agreements setting shorter limitation periods than those established by law are thought to be valid, given that this does not affect the debtor’s inalienable right to be discharged from liability due to the creditor’s inaction. Furthermore, it is not uncommon for contracts to include provisions requiring the fulfilment of certain formalities (i.e., previous notification) within a period set by the parties, failing which the right to claim the corresponding liability is lost.

Under Spanish law, mandatory rules and public policy restrict the validity of such liability clauses. In particular: (i) liability for wilful misconduct cannot be excluded; (ii) clauses that deprive the non-breaching party of any effective remedy may be set aside on grounds of good faith/public policy, restoring statutory remedies (including termination and full damages); (iii) limitations included in general terms and conditions that are unclear or not properly incorporated may be disregarded.

In addition, some sector specific regimes cannot be overridden by contractual limitations (e.g., product liability, financial regulation, environmental liability, data protection vis à vis third parties).

Cross border contractual liability is governed by Regulation (EC) No 593/2008 (Rome I). If the parties choose Spanish law, Spanish law will generally govern the validity and effects of liability and limitation clauses, regardless of where performance occurs. However, courts will still apply the forum’s overriding mandatory provisions and may give effect to the overriding mandatory provisions of the country of performance; public policy may also intervene. Conversely, if performance is in Spain but the parties choose another law, the validity of liability clauses is in principle assessed under the chosen law, subject to Spanish overriding mandatory provisions (and ordre public) where applicable.