A step ahead in the open interpretation of the Spanish High Court in the application of the Rebus Sic Stantibus clause

Written on 1 Oct 2014

Against the precedents from the Spanish High Court defending the enforcement of contracts on its own terms, nowadays there is a new possibility to avoid the imbalance of the consideration through the important changes in the interpretation of the Spanish High Court in the application of the rebus sic stantibus clause.

Traditionally, the Spanish High Court has defended in many precedents the possibility of amending the obligations as an exception of the pacta sun servanda principle which proposes that such obligations arising from contracts have the force of law between the contracting parties and must be complied in accordance with the provisions thereof. For that purpose, the clauses of the contract must be clear and their literal meanings must not leave any room for doubt as to the intention of the contracting parties.

However, the Spanish High Court is tending to admit the amending of some terms of the contracts, most of all in those cases in which the contracts were signed during the economic prosperity where it was not foreseeable that those circumstances were to radically change. Therefore, the High Court defends the application of the rebus sic stantibus clause preferentially in those contracts which due to their nature are more exposed to changes as a consequence of the circumstances in which they were signed.

Following this trend, since 2013 we can appreciate changes in the Spanish High Court discretion such as the ruling of 17th January 2013 or 18th January 2014, in which the importance of this legal figure is emphasized in the interpretation and effectiveness of the contracts, and in its ruling of 8th November 2012 where it admits the application of this clause in the scope of the real estate transactions.

Finally, the ruling from the Spanish High Court of 30th June 2014 has analysed and confirmed this new interpretation of the rebus sic stantibus clause leaving the traditional extraordinary means which restricted its application to exceptional and unforeseeable cases and now defends the adaptation of the institutions to the current social reality. In this ruling the High Court affirms that the application of this clause is needed when the conditions are fulfilled, amongst which, it is required to prove the relevant change of the circumstances that have modified the basis of the contract.

Without a doubt, this ruling confirms the important changes in the interpretation of the Spanish High Court related to the rebus sic stantibus clause defining the nature and more adjusted enforcement regime to the deep economic crisis of these recent years. This ruling shall allow its application in situations that are not necessary extraordinary and, provided that the objectives conditions are fulfilled, as follows: extraordinary changes of circumstances, disproportion among the considerations, continuation of the unforeseeable circumstances, and absence of any means of rebalancing.

This new trend from the Spanish High Court is a great ally to allow the amending of many contracts which nowadays, and due to the unforeseeable economic crisis and changes in the regulations, are causing notorious imbalance between parties, even putting the companies into severe financial crisis. Therefore, this clause could be the latest option to resolve that financial crisis.