Beware: French Court of Cassation rules that clauses limiting or exonerating liability, agreed between the contracting parties, may also be enforced against third parties

In the Boot Shop ruling of October 2006, followed by the Bois Rouge ruling of January 2020, the Court of Cassation allowed third parties to rely on a breach of contract in tort where the breach had caused them damage. This case law conferred a significant advantage to third parties, as prior to these decisions limitation of liability clauses agreed between contracting parties were not enforceable against them by those who were not a party to the contract. 

The solution turned out to be dangerous in practice: the debtor (contracting party) found itself faced with a multitude of potential creditors, whereas it thought it had contractually committed itself to only one, the party it had contracted with. The solution additionally appeared profoundly unfair: unlike a contracting party, a third party acting on the basis of a contract could not have the content of that contract set against it, and in particular the clauses limiting or exonerating liability. This meant that the contracting party could limit its liability to a specific sum towards the other contracting party but find itself liable indefinitely towards third parties.

A turning point: The Clamageran ruling

The Clamageran ruling, handed down on 3 July 2024, represents a major turning point in this respect. 

In this case, an Italian company (Aetna Group) had transported a number of machines for exhibition at a trade fair. Aetna Group France had contracted a French transport company (Clamageran) to handle and unload the machines after they had been transported from Italy to France. It was at this point that one of the machines was damaged. Aetna Group reported the loss to its Italian insurer (Itas Mutua), which paid it directly. 

As Itas Mutua was then subrogated to the rights of its insured, but had no direct contractual link with Clamageran, it sued Clamageran (first based on contractual liability and then in tort) for damages of €100,000, alleging that Clamageran was at fault contractually in the performance of the contract. In its defence, Clamageran invoked the limitation of liability clause in the initial contract between it and Aetna Group to oppose Itas Mutua's claims for compensation.

Given the absence of a direct contractual link between the owner of the machines, Aetna Group, and the service provider, Clamageran, the Court of Appeal noted the tortious nature of the liability and declared the clause limiting liability unenforceable against the third-party insurer. Clamageran appealed. 

The Court of Cassation had to establish a hierarchy between two principles. The first was the principle of contractual foreseeability, designed to protect the legitimate expectations of the contracting parties, and the second was the principle of relative effect, designed to prevent third parties from suffering the consequences of a contract to which they had not consented. 

The highest court ruled in favour of contractual foreseeability, stating that clauses limiting or exonerating liability, agreed between the contracting parties, may also be enforced against third parties. Whereas the courts had previously refused to allow clauses limiting liability to apply to a third party due to the relative effect principle, in the event of an action in tort, here it ruled, in a reasoning that is as firm as it is clear, that ‘in order not to thwart the debtor's forecasts, a third party to a contract who relies on tort liability for a breach of contract which has caused him damage may rely on the conditions and limits of liability which apply in relations between contracting parties’.

Contractual balance is based on the idea that the parties to a contract have freely negotiated their rights and obligations. Limitation of liability clauses, which set the limits of each party's liability, are an essential part of this. By allowing the parties to foresee the consequences of their commitment, these clauses reinforce legal certainty and promote the stability of the relationship.

In summary

This decision does raise new questions, particularly regarding the protection of third parties, such as consumers. An intermediate solution might be to adjust the enforceability of limitation of liability clauses against third parties, taking into account the nature of the contract, the seriousness of the damage suffered by the third party, and its status. In addition, the judgment could have significant repercussions for contractual practice, particularly during the negotiation and drafting of contracts, a stage during which the parties will have to redouble their vigilance to anticipate possible challenges by third parties.

Ultimately, the Clamageran ruling is part of a trend in case law to balance the rights of third parties with contractual predictability. 

A third party cannot be treated more favourably than a party to the contract. If the third party invokes the contract, it must be accepted that the entire contract can be invoked against him.

Practical recommendations 

In light of this ruling by the Court of Cassation, it is highly recommended that B2B contracts, whether international or domestic, contain limitation of liability clauses designed to protect the party against contractual or tortious liability on the part of his co-contractor or a third party (such as an insurer, for example).

The form and content of this type of clause requires special expertise based on knowledge of the applicable laws and case law, to ensure that they are valid and fully effective. If you would like to know more about limitation of liability clauses, please contact the authors of this article.