Departure From Existing Case-Law: The Limitation Of Liability Clause Survives The Rescission Of A Contract

Author:Ms Stéphanie Yavordios
Profession:Soulier Avocats

In a decision dated February 7, 2018, the Cour de Cassation (French Supreme Court) overturned existing case-law by holding that the limitation of liability clause survives the rescission of a sale transaction despite the retroactive cancellation of the sale contract.

By ruling so, the Cour de Cassation aligned its case-law with the new provisions introduced in the French Civil Code as a result of the reform of French contract law that came into force on October 1, 2016. Indeed, according to some of these new provisions, certain contractual clauses survive even in case of rescission of the underlying contract. This decision of the Cour de Cassation also provides the opportunity to go back over these new provisions.

1/ The Cour de Cassation departs from previous rulings

In the case commented herein1, the seller of a boiler installed in a plant operated by the purchaser had performed repair works on such boiler. As new leaks were detected, the purchaser asked an expert to investigate the matter. The expert concluded that the identified defects stemmed from the repair works carried out by the seller. The purchaser then brought a legal action seeking the rescission of the sale contract and the payment of damages in compensation for the material loss sustained and the operating losses suffered. As a line of defense, the seller relied on a limitation of liability clause included in the sale contract.

The Court of Appeals ordered the seller to compensate the purchaser without applying the limitation of liability clause because the rescission of the sale transaction implied the retroactive cancellation of the contract and the restoration of the parties to their pre-contract position.

The stance adopted by the appellate judges was consistent with the existing case-law of the Cour de Cassation.

Indeed, the Cour de Cassation considered so far that, because of the retroactive nature of the rescission of a contract - that has the effect of restoring the contractual parties to the position they were in before the conclusion of the contract - it was inappropriate to apply the clauses that governed the conditions for, and consequences of, the termination2. This reasoning applied inter alia to limitation of liability clauses3.

From a legal perspective, only a number of clauses were until then considered as autonomous from the main contract in which they were inserted, which means that such clauses should not be affected by the ineffectiveness of the legal instrument....

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