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March 04, 2010

Liability test

For pre-contractual negotiations the test for liability for breaking off negotiations seems to be the same. The aim is the same but the routes are different.

Concerning the provocation of reliance there are two requirements: The belief that the conclusion of the contract was certain for the other party and the justification of the reliance in the circumstances.  

For the first element, the only difference comes from Germany having a different test which is asking more requirements compare to other civil law countries (BGH, 19 October 1960). Or, English cases are relying on the proprietary estoppel doctrine (Thornton v Majors): the promise is to grant the claimant an interest in property.

The objective circumstances are taken into account by every Court. In Italy, the Cassazione set a requirement that there can be liability only if the parties have taken all essential elements of the contract into consideration. In the English Cobbe’s case the doctrine of proprietary estoppel can only apply if the proprietary interest is precisely defined. As the Bundesgerichtshof has no requirement.

In case of a formal contract parties are not liable because it could undermine the purpose of the form requirement. But the BGH said the contrary because the fault lies in inducing reliance. It will use the same argument in the situation of an agent lacking power.

Finally in France when professionals are dealing together there is liability because the costs of unsuccessful negotiations are supposed to be part of the parties’ general expenses. While in England the status of the parties seems relevant in matters of misleading (Cobbe's case).

We can notice the originality of the doctrine of proprietary estoppel in England for its singularity and the other way taken by the BGH inducing reliance where the other countries do not.

Pierre-Patrice TIFI MAMBI

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