Corporate Extra-Contractual Liability for Environmental and Social Damages

Traditionally, corporate civil liability has focused on the fulfillment of contractual obligations. However, the law has evolved to recognize that companies can also be held civilly liable for damages caused to third parties, even when there is no direct contractual relationship. This extra-contractual liability is based on the principle that whoever causes damage must repair it.

Extra-contractual liability, according to Article 1902 of the Spanish Civil Code, is a fundamental concept in civil law and refers to the obligation to repair the damage caused to another person by act or omission, when there is no contractual link between the parties. In other words, when one person harms another without a contract governing their relationship.

Essential Elements of Extra-Contractual Liability

For extra-contractual liability to arise, the following elements must concur:

1. Damage: An actual harm that affects a person or their property.
2. Act or omission: An active or passive conduct that caused the damage.
3. Negligence or fault: The conduct must be culpable, i.e., the agent must have acted with a lack of diligence or foresight.
4. Causal link: There must be a causal connection between the agent’s conduct and the damage caused.

Extra-Contractual Liability of Company Directors

Company directors, pursuant to the Spanish Companies Act, are jointly and severally liable for damages caused to the company or to third parties by acts or omissions contrary to the law, the bylaws, or the corporate interest. This means that each of them can be held liable for the entire debt.

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The Importance of Due Diligence

To avoid extra-contractual liability, directors must act with the diligence of a good parent, taking the necessary measures to prevent harm to the company and third parties. Due diligence involves:

1. Knowledge of the business: The director must have a thorough understanding of the company’s activities and the risks it faces.
2. Supervision: They must constantly supervise the company’s management.
3. Informed decision-making: Decisions must be made based on adequate and objective information.

In summary, the extra-contractual liability of a company director is a complex legal concept that requires a case-by-case analysis. Due diligence is essential to avoid liability and protect the interests of the company and third parties.

However, today, extra-contractual liability arises in numerous areas:

Environmental damages:

Pollution, ecosystem degradation, and climate change are some of the main environmental problems faced by companies. In this regard, environmental legislation establishes norms and standards that companies must comply with. However, when environmental damage occurs, companies can be held civilly liable for it.

Social damages:

Corporate responsibility also extends to the social sphere. Human rights violations in the supply chain, abusive working conditions, and discrimination are some examples of conduct that can give rise to civil liability. In recent years, we have seen an increase in class action lawsuits against companies that have been accused of unfair trade practices or of causing harm to local communities.

To mitigate the risks of civil liability, companies must implement robust due diligence programs. Due diligence involves a thorough assessment of the environmental and social risks associated with the company’s activities and its supply chain. Through due diligence, companies can identify and address potential problems before they cause damage.

Conclusions

Corporate extra-contractual liability for damages of various kinds and nature is a growing issue. Companies that do not properly manage these risks may face significant legal and reputational consequences. In this sense, the implementation of sustainable and responsible practices is essential to ensure the long-term sustainability of any business.

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