French Supreme Court Sets New Boundary to Liability Toward Third Parties

The Facts

In Itas Mutua v. Clamageran, the defendant, Clamageran, was appointed by Aetna Group France to handle and unload machines belonging to a related company, Aetna Group Spa. Following the damaging of one of the machines, Aetna Group Spa was indemnified by its insurer, Itas Mutua. The latter, being subrogated to the rights of Aetna Group Spa, sought compensation from Clamageran, which was responsible for damaging the machine.

In appeal, the court considered that Clamageran breached its duty of care and diligence and was responsible for the damage to the machine. The judges pointed out that Clamageran was liable under tort law, and not contract law, given the fact that Itas Mutua was exercising the rights of Aetna Group Spa, which was not a party to the contract. They added that the limitation of liability clause provided for in the contract between Clamageran and Aetna Group France was not enforceable since Aetna Group Spa was a third party.

Clamageran filed an appeal before the French Supreme Court and claimed that the limitation of liability clause should be enforceable against third parties when they invoke a breach of contract to obtain compensation under tort law.

The Law

On October 6, 2006, the French Supreme Court issued a landmark decision, known as the Bootshop or Myr'ho case, ruling that a third party to a contract can claim compensation under tort law on the basis of a breach of contract that has caused it damage.

The Bootshop case was firmly reaffirmed on January 13, 2020, when the French Supreme Court ruled that "a third party to a contract who establishes a causal link between a breach of contract and the damage it suffers is not required to prove a tort or quasi-tort separate from that breach."

Without calling the previous decisions into question, the Commercial Chamber of the French Supreme Court, in a decision rendered on July 3, 2024, set a significant boundary: Third parties may be subject to the conditions and limitations of liability that apply between the parties to the contract.

The Court justified its decision by its concern not to thwart the expectations of the debtor, who committed himself in consideration of the general economy of the contract, and not to confer to third parties a more advantageous position than that of the creditor himself. However, it remains to be seen whether this decision will be shared by the rest of the chambers of the French Supreme Court—the Commercial Chamber being the only chamber to have ruled on this issue.

In practice, large companies are increasingly sued by third parties on the grounds that an alleged breach of contract has caused them damage. In many cases, the company being sued could be facing bigger claims from third parties than from the actual party to whom it committed itself. For instance, IT companies providing services to a client can face major claims from interested third parties, such as their client's affiliates or customers.

In that respect, the business-friendly decision rendered by the French Supreme Court strongly reinforces the interest to provide for a limitation of liability clause, and the need to ensure that it is effective, in particular, by making sure that it does not contradict an essential obligation of the contract.