In brief: limiting contractual liability in Spain

Limiting liability

What liabilities cannot be excluded or limited by a supplier in a contract?

Clauses excluding or limiting liability are generally those more heavily negotiated. Under Spanish legislation, in a B2B context, a party can never exclude its liability for death or personal injury caused by negligence, or damage arising from fraud or wilful misconduct.

Under Spanish legislation, the non-breaching party of an agreement may claim from the breaching party a compensation for the damage suffered. Damages will compensate both the damage effectively suffered and the loss of profit. Only damage directly related to the breach is covered; indirect damage is excluded. Courts are less eager to grant compensation for loss of profit.

Suppliers will generally try to exclude or limit their liability for loss of profit.

Are there any statutory controls on using financial caps to limit liability for breach of contract?

In general terms, there are no statutory controls on using financial caps to limit liability for breach of contract. However, if the financial cap to limit liability is included in a set of general terms, Law 7/1998 of 13 April on General Conditions of Contract (the Act on General Conditions of Contract) will apply. Consequently, the cap might be considered abusive if the established limit is contrary to the principle of good faith and creates a significant imbalance between the rights and obligations of the parties. Whether a financial cap to limit liability for breach of contract is considered abusive will depend on the circumstances of each case.

Are there any statutory controls on indemnities used to cover liability risks in contracts?

There are no statutory controls on indemnities used to cover liability risks in contracts. However, if the indemnity is drafted in such a way that it enables one party to avoid its liability with regard to the other and the same is included in a set of standard terms, the Act on General Conditions of Contract will apply. Consequently, the indemnity might be considered abusive if the established limit is contrary to the principle of good faith and creates a significant imbalance between the rights and obligations of the parties.

Are liquidated damages clauses enforceable and commonly used in your jurisdiction?

Spanish legislation does not recognise the concept of ‘liquidated damages’. Instead, article 1,152 and following of the Spanish Civil Code provide for the concept of the ‘penalty’. By virtue of a penalty clause, the parties agree in their contract on the payment of a fixed amount to be paid if the contract, or a specific obligation of the contract, is breached. This will avoid the non-breaching party having to prove the damage effectively suffered before the court. Penalty clauses are generally agreed for those cases where the damage arising from the breach might be difficult to quantify (for instance, confidentiality obligations or non-competition obligations).

Unless otherwise agreed, the penalty paid shall substitute the obligation to compensate for the damage caused. If, in addition to the penalty, the parties would like to maintain the right to claim for damages, this will need to be expressly provided for in the contract.

Likewise, unless expressly agreed, the debtor of the obligation will not be exempted from complying with the agreed obligation by paying the penalty. The creditor of the obligation may not claim fulfilment of the obligation and payment of the penalty at the same time unless such right has been expressly agreed in the contract.

The judge may equitably amend the penalty whenever the main obligation has been breached only in part by the debtor, or the obligation has been complied with but in an irregular manner.

The nullity of the penalty shall not affect the validity of the main obligation. However, the nullity of the main obligation will render the penalty null.

Law stated date

Give the date on which the information above is accurate.