in the field of pre-contractual liability. At one extreme, English law shows a preference for the bright line approach of denying liability for wasted expenditure in cases of failed contracts, promissory and proprietary estoppel being capable of dealing with only a very limited number of cases. US Common law has shown more enthusiasm for recovery, by developing the remedy of promissory estoppel to allow claims in cases where some promise that a contract will be forthcoming have been made. Despite such remedy being argued by some to be reliance-based in nature, it is more plausible to see the concept of promise as the basis of liability, albeit that the recovery is in the restoration measure.86 Scots law reaches a somewhat similar result, by providing an equitable remedy for recovery of wasted pre-contractual expenditure, but this may only be claimed in the rather restrictive case where there has been an implied but false ­assurance by the other party that a contract has been concluded between them. It might be going too far to characterise such a remedy as promise-based, though it would not be improper to suggest that it is a form of voluntary liability, given the requirement of assurances made by the defender. Some have alternatively argued that the nature of the Scottish remedy lies in good faith, a view which, if correct, would draw comparisons with the more extensive German good faith based remedy of culpa in contrahendo and with similar good faith based solutions in other civilian systems.

Harmonisation of the law in this field is likely to be somewhat problematic, given the differing jurisdictional conceptions of where risk and, with it, loss should properly fall during the negotiation of a contract. The solution suggested in the DCFR would be far from uncontroversial.

2.  Pre-contractual duties of disclosure

The discussion in the immediately preceding section on pre-contractual liability has touched on the question of one specific type of pre-­contractual duty, that of a duty not to break off contractual negotiations (and the resulting duty to pay the cost of wasted expenditure if one does), or, to put it another way, a duty to continue negotiating in good faith. In addition­ to such a duty there may be other duties alleged to exist at the pre-contractual

86It is a fallacy to assume that promissory based liability can only ever give recovery in the performance measure; on the contrary, while the performance measure is the primary interest protected by voluntary obligations, the restoration and restitutionary measures are exceptionally protected in appropriate cases. See further Hogg, Obligations, paras. 1.35–9.

stage. One such further possible, though controversial, duty is the duty to disclose such information to the other party concerning the contract, or the contractual negotiations, as that other party might reasonably wish to enable it properly to conduct negotiations. A duty of this type, if it exists, is less likely to be justified in terms of the idea of a promise, though it is not impossible to argue that there is an implied promise that full and appropriate disclosure will have been made by negotiating parties to each other. Such an argument does rely, however, on an evident fiction, and it is more common to find a duty of disclosure justified on the basis of the alleged good faith relationship of the parties at the negotiation stage.

But when, if at all, should such duties exist? The controversy generated by that question is not new. Cicero posed as a dilemma the question of whether a corn merchant should attempt to get the highest price he could from a starving population, or whether he was bound to disclose that ­further cargoes of corn were about to arrive and in so doing imperil the value of his own cargo.87 Any duty to provide information to another negotiating party arguably interferes with the first party’s right to seek the most advantageous bargain it can, is inconsistent with the Common law’s ‘arms’ length’ view of negotiation, may well presuppose an unrealistic level of altruism, and may be difficult to delimit in practice. Consider, for instance, an example mentioned by Fried:88 an oil company, having done geological investigation of a locality, spots a potentially valuable area of land which it wants to explore for mining rights. It buys the land, through an agent, for little cost from a farmer, and makes a huge profit when a good source of oil is discovered on the land. Fried suggests that our sympathies may lie with the farmer, but he also rightly notes that in such a case the oil company will have spent money on its geological investigations and is taking a risk in buying the land. Why should it be forced to disclose its identity and motives to the farmer who may then decide not to sell, or only to do so for a vastly higher sum, thereby allowing him to gain from another’s work in identifying the potential of the land? Fried’s concerns with imposing a duty of disclosure in such a case seem reasonable. After

87Cicero, De officiis III.12. Cicero’s view was that concealment was not the conduct of an open, frank, honest and good man (III.13). A not dissimilar real world example is found in the US case Laidlaw v. Organ 15 US 178 (1817), concerning a tobacco merchant who had early news of the signature of a peace treaty, an event which was likely to lead to a rise in tobacco prices. He immediately ordered 50 tons of tobacco, and thus profited from the ensuing sharp rise in price. The Supreme Court, in contrast to the Ciceronian displeasure at such behaviour, held that the merchant’s purchase of the tobacco was a valid contract.

88Fried, Contract as Promise, p. 79.

arise between commercial parties simply on account of a long-standing relationship.95 Thus, in contracts of sale, a seller is not permitted to withhold information about serious defects in the goods sold,96 and may even have to declare a likelihood that such defects may arise in the future in respect of the goods in question.97 Some of these types of case would be dealt with in the Common law and mixed systems as cases of misrepresentation, or breach of a professional duty of care, others as breaches of statutory duty (for instance, under the Sale of Goods Act 1979). But some instances of the duty would not exist at all, as good faith would not be utilised to impose duties to inform merely because information was of great importance to the other party, the position being adopted that, if the information were indeed so important, the other party ought to have asked for it.

The German law’s requirement that a negotiating party be required to provide information of crucial importance to the other party has been described as, at one and the same time, ‘paternalistic’ and ‘utterly vague’.98 Moreover, if one considers a typical case in which the rule was applied it will be seen that its application can be said to represent, in many cases, the encouragement of fecklessness in business. The case in question (a judgment of the BGH) concerned the sale of a business.99 The buyer, having paid some of the purchase price, refused to pay the remainder on the basis that it had been deceived by the seller in that the seller had not disclosed that the business had suffered a 40 per cent drop in business in the preceding six months. This was held by the Bundesgerichtshof to be information of such importance to the buyer that it ought to have been disclosed. Yet, surely, if this sort of information is so crucial to the decision to buy a business, it will be one of the crucial pieces of information that the buyer ought actively to request and to obtain from the seller before buying the business. A buyer’s failure to do so represents an astounding lack of business sense. Why should such a careless attitude to business be protected by a good faith duty of disclosure imposed on the seller? While consumers may need protecting from the consequences of their failure to request information, it is hard to see why the same policy should extend to businesses. It has been suggested by one German author that the preferable

95In BGH LM §123 BGB Nr. 52 such a relationship of trust between business parties was held to exist by the BGH because ‘the parties had been in intensive long-standing business relationships, and besides this in relationships of personal friendliness’ in which they pursued business opportunities ‘in the common interest’ (para. 3 of the judgment).

approach should be for a court to consider how difficult it would be for the party to obtain the information for itself:100 easily obtained information should not give a party a right to enforce a good faith duty to provide it with such. Such a criterion, had it been applied in the case above, would surely have resulted in no good faith duty to provide the information in question being imposed by the law, given that the information might easily have been obtained by the buyer through a request for a comprehensive set of accounts.

To a Common or mixed system lawyer the German approach appears not only to encourage feckless commercial practices, but also to strike at the fundamental right to act self-interestedly when entering in to contracts. Such self-interest, limited by certain clearly defined tortious acts, is arguably the principal means by which mercantile society has flourished. How can one pursue one’s own interests in a contract, if one has to look after the other party’s? Is a contracting party to be his brother’s keeper?101 In the Common law, as well indeed as in mixed legal systems, such concerns have meant that only exceptionally is there held to be imposed a duty of disclosure at the pre-contractual stage, such a duty exceptionally arising in contracts uberrimae fidei (of the utmost good faith), such as insurance contracts, in fiduciary relationships, and where such disclosure is necessary in order to correct a misleading impression that would otherwise be given or to correct previously issued information which is now misleading or incorrect. The general position, however, in both the Common law and mixed systems is that there are no other pre-contractual duties of disclosure.

Even in the case of contracts uberrimei fidei, regard must be had to the specific nature of the information which it is alleged ought to have

100Lorenz, Der Schutz vor dem unerwünschten Vertrag, p. 421. An alternative suggestion has been made that it is information which is material to the other party which should be the subject of the duty of disclosure, except that an exception should be made for information which is ‘productive’ (in the sense of conducive to a better use of labour and capital) and was costly to obtain: see Kötz, ‘Precontractual Duties of Disclosure’. It is not entirely clear from Kotz’s argument, however, whether ‘productivity’ relates to resources in society at large, or whether the withholder of information is entitled to look primarily to the productive use of his own resources, in which case conceivably most information might be withheld. While Kötz says that a party is entitled to make use of knowledge of the likely rise or fall in demand for a product, later on the same page (p. 16) he suggests that this does not apply to information obtained ‘very shortly before it becomes public’. This suggests a dividing line which would be very hard to apply in practice, and lead to uncertainty.

101Gen. 4:9: ‘And the Lord said to Cain: Where is thy brother Abel? And he answered: I know not: am I my brother’s keeper?’