November 30, 2011

The problem of precontractual liability in Europe

Today, I want to speak about the different approach of precontractual liability in Europe and the consequence in cross-borders disputes.

In the different law systems, there are 2 viewpoints concerning the possible liability of one party breaking off precontractual negotiations:

-The negotiations are purely preparatory and cannot have a legal significance.

-The negotiations are a collaboration between the parties who are protected by the law.

  • In the common law jurisdictions, there is a reluctance to attribute legal significance to the precontractual phase.

There can be no duty to negotiate in good faith because, by entering into negotiation, one party has not given up the freedom to change his mind, he is entitled to pursue his own interest, so long as he avoids making misrepresentations.

see case Wilford v. Miles [1992] 2 AC,128,138 (Lord Ackner)

Thus English law doesn't reject all liability during the negotiations for example when the defendent makes a false statement during the course of the negotiations, which the claimant believes and act on.

  • In Germany, the beginning of the negotiations have a formal legal significance. A special relationship (Sonderrechtsverhältnis) is created between the negotiating parties by virtue of the law (gesetzliches Schuldverhältnis) imposing on both parties duties of protection and loyalty (Schutzpflichten). A party liable on the ground of culpa in contrahendo in paragraph 311 BGB (fault in conclusion of a contract) has to make up for the aggrieved party's reliance interest (Vertrauenschaden), but it is not sufficient for a party to say that he relied on the future contract to obtain a remedy where negotiations are broken off.

  • In France, the precontractual negotiations between two parties (les pourparlers) are also following the principle of freedom of contract and each party is free to break off the negotiations. But this rupture cannot be the consequence of a fault or an abuse of one of the parties, otherwhise he will engage his liability in tort. (Article 1382 and 1383 of the french civil Code)

→The claimant must prove a fault, a prejudice and a causality link.

Since the "Manoukian" decision of the Cour de cassation of the 26 November 2003, it is not possible for a party to ask for damages for the loss of the chance to conclude a contract. Also, in an other decision of the 14 September 2005 (3ème chambre civile), the Court held that the obligation of good faith suppose the existence of a contractual relationship.

We can see that the french, english and german legal systems recognise, in effect, that there is a balance to be struck in the analysis of the precontractual phase but there is a difficulty to determine the form of liability in the precontractual phase because in most of the law systems, there's a distinction between the regime of contract and tort.

For example, in Germany, the special nature of the precontractual phase merits special treatment, "a tertium quid" between contract and tort whereas in France, the rules of tort must be applied without any significant amendment.

The European Court of Justice has held that for the purpose of the Brussels Convention of the 27 September 1969 on Jurisdiction and the Enforcement of Hudgements in civil and Commercial matters (OJ 1978 L 304 p.36), a claim for damages for breach of the precontractual duty to negotiate in good faith is a claim in tort (article 5.3) rather than a claim in contract (article 5.1). This distinction is also held in the Rome I (EC 593/2008, recital 10) and Rome II (EC 864/2007, recital 30 and article 2.1, 12.1) Regulations.

To conclude, I will add that the Draft Common Frame of Reference contains specific provisions concerning precontractual liability (II-3:301: Negotiations contrary to good faith and fair dealing ) and specifies that most of the questions would be determined by a general duty of precontractual good faith, in the same way as in most of the european legal systems.

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