For a long time, Spanish Courts have considered the application of the clause rebus sic stantibus in a very restrictive and limited scope, largely because it was thought to be a dangerous clause which needed to be admitted cautiously.
Nowadays, however, the Courts are using it in a very different manner, trying to adapt the laws to the social situation at the time when it should be applied.
The reference arose from proceedings between an advertising company and a public company managing public transport in the city of Valencia. Both companies entered into a contract on May 2006 to exploit advertising on the buses. Under the contract, the advertising company was committed to pay a monthly fixed fee of €244,000. The advertising company complied with the payments terms of the contract until November 2008, when it paid just 70% of its monthly invoiced to a third party. This was rejected by the public transport company.
As a result, the advertising company brought actions against the public transport company, applying for the modification of the payment terms in the contract. They requested to pay 70% of the monthly invoice to the third party for advertising, based on unforeseen changes to circumstances since they entered into the contract as a result of the financial crisis.
The public transport company of Valencia rejected the proposed change of terms and filed a counterclaim for the termination as a result of breach of contract.
During the First Instance proceedings, the advertising company provided evidence that showed a 67% reduction of the advertising market in the Valencia region from 2007-2009. Furthermore, the claimant filed an audit report that showed that the exploitation of the advertising in the agreed terms was a loss-making business that would lead the company into bankruptcy.
The First Instance Court admitted the claim and ordered the modification of the economic terms of the contract, rejecting the counterclaim. The Spanish High Court has confirmed the First Instance Judgment, applying the clause rebus sic stantibus.
The High Court stated that rebus sic stantibus should not be applied automatically in any matter relating to the financial crisis, and that it was necessary to analyze cases individually.
In the case above, it was shown that the unforeseen changes in circumstance as a result of the financial crisis had a considerable adverse impact in the advertising sector in Valencia; that there was an imbalance in the economic considerations of the parties in the contract; and, as a result, if the contract had stood in the same economic terms, the advertising company may had been included in bankruptcy proceedings.
For all the reasons mentioned above, the clause rebus sic stantibus should be applied in this case.