Navigating Trade Wars: Perspectives from Spain

This is the sixth instalment in Clyde & Co’s series exploring the legal consequences of tariffs introduced by and targeting the US, following President Donald Trump’s inauguration.

Clyde & Co Madrid office examines the Spanish legal doctrine of Rebus Sic Stantibus; a judicial tool allowing contract modifications in extraordinary circumstances, and its relevance to managing the impacts of tariffs and cost escalations in trade agreements.

Marked by U.S. tariffs and protectionist policies, the escalating global trade war has intensified uncertainties for international commercial contracts, pushing businesses to seek legal strategies to help them adapt to disruptions like those seen during the Covid-19 pandemic. This article considers the legal doctrine of rebus sic stantibus and its possible application to existing trading contracts governed by Spanish law. It will explore how this doctrine applies when unforeseen external factors such as tariffs, disrupt pricing; and when other cost escalations and barriers alter the parties’ performance and the balance and purpose of the contract.

See our Tariff Tracker to help you stay up to date:

See our Tariff Tracker

Trade Disruptions and the Push for Legal Flexibility

The reintroduction of U.S. tariffs and broader protectionist measures, driven by an ‘action-reaction dynamic’, raises concerns about the resilience of international commercial contracts and how businesses will operate across borders and between commercial partners in the future.

The Covid-19 pandemic in Spain underscored the importance of companies anticipating global disruptions. Companies can no longer solely rely on supply chains to perform, and even the strongest commercial relationships face tensions in uncertain times.

In this environment, Spanish businesses or those engaged in international trade with Spanish businesses, are increasingly turning to legal tools to manage these risks and find ways to negotiate or renegotiate their contracts.

The Role of Rebus Sic Stantibus in Spanish Law

The rebus sic stantibus doctrine is a principle recognised in Spanish civil law, allowing courts to modify a contract’s terms when extraordinary, unforeseeable circumstances make it excessively difficult for one party to perform their obligations. This principle works as an exception to the general rule of pacta sunt servanda—the idea that contracts must be upheld as agreed- allowing for judicial intervention in extraordinary situations to restore fairness and keep the contract in force.

Comparing Rebus Sic Stantibus to Material Adverse Change Clauses

From a comparative perspective, rebus sic stantibus serves a similar purpose to a Material Adverse Change (“MAC”) clause – which were highlighted in our first part of the Navigating Trade Wars series. Both mechanisms aim to address unforeseen and material changes that affect contract performance or purpose. However, while MAC clauses need to be explicitly included in contracts allowing a renegotiation obligations -or even suspend or terminate the contract-, rebus sic stantibus is a judicial safeguard that can be invoked even without a specific clause.

Evolution and Application in Modern Contexts

The foundation of this doctrine is found in Article 1091 of the Spanish Civil Code, which emphasises that contracts are binding. It is further supported by Articles 1255 and 1258, which reflect the principle of freedom of contract. These provisions allow parties to set the terms of their agreements, as long as they do not violate the law, public policy, or morality. However, when unforeseen or extraordinary circumstances make the agreed terms unworkable or disproportionately imbalanced, Spanish law permits judicial intervention to restore fairness.

Rebus sic stantibus has become more relevant in recent years in Spain, especially after the 2008 global financial crisis, the Covid-19 pandemic, and the ongoing impact of global trade conflicts. Spanish courts have gradually developed a strong framework for applying this doctrine to commercial situations. The goal is not to release a party from their obligations but to adapt the contract to ensure it remains fair and viable under changed circumstances.

Conditions for Applying the Doctrine

Spanish case law has outlined the conditions for applying rebus sic stantibus:

• the economic objective of the contract must be frustrated or made impossible;
• the balance between the parties’ obligations must be disrupted; and 
• the change in circumstances must be beyond what could have reasonably been foreseen at the time of contracting.

These conditions ensure that the doctrine applies only in truly exceptional cases. Additionally, the party invoking the doctrine must act in good faith and be willing to continue performing the contract under modified terms.

Challenges in Proving Unforeseeability and Contractual Remedies

The burden of proof of these requirements is for the party who alleges the rebus sic stantibus. Thus, if such risks—like an upcoming tariff—were foreseeable at the time of signing the contract, courts may consider them assumed risks, limiting the possibility of invoking the doctrine.

In these circumstances, it may be difficult in practice, given that global disruptions and their impact on international trade are among the main concerns today, that issues such as delays, cost escalation, inflation, and shortages of goods, could not be anticipated by the parties and addressed within the contract.

Furthermore, we must consider that litigation, especially between commercial partners, not only creates additional tension but also leads to unpredictable outcomes, which is particularly relevant in civil law contracts, where broader judicial discretion and interpretation can introduce even greater uncertainty.

In this context, anticipating potential issues is far more effective than attempting to resolve them later: proactively addressing potential contingencies and incorporating clear mechanisms to manage economic volatility or trade restrictions which make the contract no longer viable, can not only minimize the risk of disputes but also to enhance both predictability and flexibility in contract performance.

Conclusion

While Spanish law provides with a judicial remedy for addressing the impact of extraordinary events on ongoing commercial obligations, anticipating potential contingencies through well-drafted contractual provisions can be more effective to mitigate and navigate the effects of any major changes in the geopolitical landscape.

Subscribe to the Tariff Tracker