Spain's Supreme Court draws a line on liability limitation clauses
Published on 22 October 2026
The judgment details the criteria needed for a limitation clause to be valid, whether or not it has been negotiated
The principle of contractual freedom allows the parties to determine the content of their contracts freely, within the limits imposed by law, public policy and morality. This principle does not, however, cover every agreement. Clauses that limit or exclude liability must comply with the general principles of contract law, good faith and the prohibition of abuse of rights.
The recent Supreme Court judgment No. 949/2026 of 18 June addresses precisely this issue and establishes relevant case law on the requirements that such clauses must meet in order to be valid.
The facts
The judgment analyses a contract for the provision of services containing a clause that did two things: it limited the amount of compensation payable in the event of a breach and restricted the right to claim damages to the year following the completion of the work. Following a breach that caused significant damage, the party obliged to pay compensation invoked this clause to limit the amount of compensation it owed.
The Supreme Court’s ruling
With regard to the time limit in the clause, the Supreme Court took a functional approach. Since the clause merely requires liability to be "claimed" within the following year, without specifying the type of claim, it is sufficient for any demand – whether judicial or extrajudicial – to have been made within that period for the clause to take effect. This condition was met, and the court found the first requirement satisfied.
On the quantitative limitation, the Supreme Court began by noting that liability limitation clauses are, in principle, legitimate risk management tools. However, those clauses are void that exempt or limit liability in cases of wilful misconduct, constitute an advance waiver of an essential right, create a manifest contractual imbalance or compromise the core elements of the relationship.
On those grounds, the court declared the quantitative clause void for three reasons.
First, it left the establishment and setting of the limit of liability in the hands of the party in breach. If it is the obligated party itself that unilaterally determines the extent of its performance, it could reduce its exposure simply by setting a lower amount. This would contravene the prohibition on leaving the performance of the contract to the discretion of just one of the contracting parties.
Second, the clause made no distinction based on the nature of the breach. A clause that applies even in the event of wilful misconduct is null and void as a matter of law, since article 1102 of the Civil Code prohibits the prior waiver of the right to claim liability for wilful misconduct.
Third, it created a radical disproportion between the damage caused and the maximum amount of compensation payable, to the extent that it distorted the purpose of the contract and renders the obligation to be liable devoid of any real substance.
Negotiation is no defence. Judicial review does not depend on whether the clause has been negotiated; that circumstance alone does not render it immune from scrutiny. Courts may and must intervene where a clause infringes mandatory rules, frustrates the purpose of the contract or produces a result that is qualitatively far removed from what was reasonably foreseeable at the time the contract was entered into.
Osborne Clarke comment
The judgment has a scope that extends beyond the specific case: any limitation of liability clause, regardless of the type of contract in question or the sector in which it is entered into, will be vulnerable if any of the factors cited by the Supreme Court are present.
That means a clause is at risk if the party imposing the limitation on its liability also unilaterally determines the formula on the basis of which that limitation is calculated; if the clause does not distinguish between wilful misconduct and mere negligence; or if the disparity between the actual damage and the maximum amount of compensation is such that it renders the principal obligation meaningless.
It is therefore highly advisable to review any contracts currently in force in the light of these criteria set out by the Supreme Court.
