The limitation of liability clause is enforceable against third parties to the contract

In a ruling of July 3, 2024, the Court of Cassation held that the limitation of liability clause in the contract concluded between two parties is enforceable against third parties who sue one of the parties due to breaches of its contractual obligations.

Actually, a French company entrusted a carrier with the handling and unloading of machinery belonging to a company in the same group located in Italy. One of the machines was damaged during delivery, so the Italian company and its insurer sought the carrier's liability.

Since the Italian company was not bound by contract to the carrier, it was necessary for them to pursue tort liability due to the errors committed during the execution of the contract. This possibility is recognized by the Court of Cassation for any third party who suffers damage due to a party's breach of its contractual obligations. In such cases, the third party is not required to demonstrate the existence of a fault distinct from the contractual breach.

Nevertheless, in application of the principle of the relative effect of contracts, jurisprudence has so far considered that in such a hypothesis it was not possible to invoke against a third party any limitation of liability clause appearing in the contract. This was also the position adopted by the Paris Court of Appeal in the judgment that was the subject of the appeal.

However, the Court of Cassation ruled the opposite, stating that refusing to apply the limitation of liability clause would frustrate the debtor's expectations «who entered into the contract considering the overall economy of the contract» and would give the third party a more advantageous position than the co-contractor who suffered from the same breach.

This decision highlights the importance of limitation of liability clauses in contracts, as they allow businesses to better manage the risks associated with their contractual commitments.