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Two (extreme?) illustrations: English law and Dutch law

Each legal system has its own response to the problems of the precontractual phase which have been outlined above, and each defines the scope of precontractual liability accordingly. From the outset it is worth contrasting two jurisdictions which appear to take notably different and contrasting approaches to the precontractual phase: England and the Netherlands.

English law: the most restrictive?

We have already noted that, within our study, English law appears to exhibit the strongest reluctance to impose precontractual liability, although this is shared by the other common law jurisdiction (Ireland) and largely32 also by the mixed jurisdiction of Scotland. The position adopted by English law, and its context within the common law generally in this respect, deserves to be considered a little further. Is the approach taken by English law an inherent function of the common law approach to this area of private law, or is it a position of principle, a reflection of a view of the negotiating process which is simply different – socially, politically or economically – from the view taken in other systems within this study?33

One might start by thinking that the rejection of a general principle of precontractual liability in English law follows from the reluctance of the common law to develop broad and general principles, and the preference instead to focus on specific, identifiable wrongs (specific and separate torts, or breaches of contract) or other causes of action (estoppel; unjust enrichment).34 On this basis, there has been no generalisation of precontractual duties and therefore no reification of the precontractual negotiations into a separately identifiable legally-protected relationship; and the techniques of the common law, by contrast with the techniques of the civil law, might be at the root of the different

32For a note about the position in Scotland, by contrast with England and Ireland, see below text to n. 70.

33On the political analysis of contract law, see M.W. Hesselink, ‘The Politics of a European Civil Code’ (2004) ELJ 675, where rule alternatives for questions of contract law (including precontractual liability, at 680) are placed on a continuum between autonomy and solidarity.

34For further discussion, see Cartwright, Contract Law: an Introduction to the English Law of Contract for the Civil Lawyer, chs. 2 and 4; J. Cartwright, ‘Negotiation and Renegotiation: an English Perspective’ in Cartwright, Vogenauer and Whittaker, Reforming the French Law of Obligations, ch. 3.

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approach to the precontractual phase. The common law can, of course, use general standards, such as ‘reasonableness’. But within private law there is no general duty of, or based on, reasonableness. The law of tort is not organised around such general principles; and although the most general of the torts, negligence, is based on the reasonable foreseeability of causation of harm to the claimant, reasonable foreseeability is not sufficient to impose a duty of care, nor is there even a general duty to take care in one’s dealings with others.35 English law identifies particular circumstances in which duties of care are imposed within the tort of negligence, categorised by such criteria as the kind of harm which is foreseeable (physical; economic), and the kind of action in which the defendant is engaged (a positive act; the making of a statement; or an omission to act or to speak). And torts other than negligence are defined in such a way as to protect particular interests, or to impose liability for loss caused by particular forms of wrongdoing.36

Does this mean that English law could not develop a general duty between negotiating parties? Some legal systems within our study have taken the view that the precontractual phase cannot be protected within the existing extra-contractual sources of obligation, and so a separate set of rules must be devised to protect the relationship which arises by virtue of precontractual negotiations, such as culpa in contrahendo in German law, given that the German law of tort is so constructed as to protect only particular interests, or to sanction harm inflicted wilfully in a manner contrary to public policy.37 Other systems have held that the existing rules of private law can naturally cover the precontractual phase and so should be developed to do so, such as ‘precontracual fault’ as one form of the ‘fault’ required to impose liability in tort in French law.38 Could English law follow either of these paths? We have seen in this study that there are plenty of situations within precontractual negotiations where

35The duty of care in negligence is based on the relationship of ‘neighbourhood’, which is itself based on foreseeability of consequences of one’s acts or omissions: Donoghue v. Stevenson [1932] AC 562, 580–1 (Lord Atkin). But this does not mean that a duty is owed simply on the basis of foreseeability of harm: ‘Foreseeability of harm is a necessary ingredient of such a relationship, but it is not the only one. Otherwise there would be liability in negligence on the part of one who sees another about to walk over a cliff with his head in the air, and forbears to shout a warning’: Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] 1 AC 175, 192 (Lord Keith of Kinkel).

36Dugdale, Clerk and Lindsell on Torts, para. 1–19; OBG Ltd v. Allan [2007] 2 WLR 920, at [32] (Lord Hoffmann, approving P. Cane, ‘Mens Rea in Tort Law’ (2000) 20 OJLS 533, 552).

37BGB §§ 823, 826:1; see the German report on case 1.

38French Civil Code, arts. 1382, 1383: see the French report on case 1.

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English law will impose liability on one party towards the other. It is notable that English law looks to place such liabilities within the particular sources of obligation which are established within private law: one of the torts (such as deceit or negligence); contract (a pre-contract, such as an option or a lock-out contract); or restitution for unjust enrichment. And, within those contexts, no general position has been taken that the precontractual phase itself should be identified as deserving protection. Where the facts happen to arise during the negotiations which involve a tort or breach of contract, or an enrichment conferred which should not be retained, then remedies might follow. But the precontactual context does not generally enhance the claim. The nearest that English law has come to recognising the development of a new source of obligation within the precontractual phase is through the doctrine of estoppel, which has not yet fully matured in English law. In other common law jurisdictions39 the creation of an expectation by one negotiating party in the other party that a contract will be concluded – or, at least, that the latter is entitled to rely on it – can lead to the first party being estopped from denying his obligation to complete the contract, or at least to compensate the other for losses he has incurred in reliance on the expectation. In English law, until the House of Lords decides otherwise,40 such an approach can be taken only in the particular context of the creation by the defendant of an expectation that the claimant has or will obtain an interest in land, under the doctrine of proprietary estoppel.41 In Cobbe v. Yeoman’s Row Management Ltd the Court of Appeal pointed towards the use of proprietary estoppel as a doctrine to sanction precontractual misconduct:42

This case is set very close to contract territory. It arises in the context of precontractual negotiations for the sale, purchase and development of a block of flats in Knightsbridge. Under English law there is no general duty to negotiate in good faith, but there are plenty of other ways of dealing with particular problems of unacceptable conduct occurring in the course of negotiations

39This is well-established in American law: American Law Institute, Restatement of the Law (2d), Contracts (1981), para. 90; Farnsworth, Contracts, para. 2.19; and has more recently been accepted in Australian law: Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387, discussed in the English report on case 8.

40The Court of Appeal is bound by the decision in Combe v. Combe [1951] 2 KB 215 to the effect that promissory estoppel cannot create new obligations: Baird Textile Holdings Ltd v. Marks & Spencer plc [2002] 1 All ER (Comm) 737, at [55] (Judge LJ).

41See the English report on case 2.

42Cobbe v. Yeoman’s Row Management Ltd [2006] 1 WLR 2964, at [4]–[7] (Mummery LJ).

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without unduly hampering the ability of the parties to negotiate their own bargains without the intervention of the courts.

The case is also set in the area of work done or services rendered by a claimant without having first secured a contract to protect his position. The work done by this claimant was not, according to the judge, merely in anticipation of a contract: it was done in the positive expectation of a promised contract to sell deliberately induced, encouraged and then ultimately defeated by the unconscionable conduct of the defendant . . .

This appeal requires the court to find a principled way of devising relief in a form that fits a case where the court below found an expectation by the claimant that the defendant would not withdraw from a promise of a contract to sell property on agreed terms, and the specific expectation has been raised and then disappointed by the unconscionable conduct of the defendant.

One might wonder whether an English court could develop a similar doctrine, outside the context of the negotiations for the sale of property, to impose liability where a ‘specific expectation [of a future contract] has been raised and then disappointed by the unconscionable conduct of the defendant’. But how far this can be pressed is now in doubt. In Cobbe, the Court of Appeal held that the claimant was entitled to a share in the increase in the value of the property under the doctrine of proprietary estoppel. However, this was reversed by the House of Lords,42a on the basis that the doctrine applies only where the claimant had an expectation of a certain interest in land, and it was not sufficient that he expected that the parties would finalise the outstanding contractual terms, particularly since both parties knew that the deal had not yet been completed, and that the particular contract, for the disposition of an interest in land, could be concluded only in writing. Their Lordships appeared to doubt whether, because of the risk of uncertainty, estoppel (except in its well-established narrow form) should be introduced into commercial transactions;42b and whether the law should be developed ‘to provide a remedy for disappointed expectation engendered by a representation made in the context of incomplete contractual negotiations’.42c

The other context in which the English courts might be free to make such a development already is within the tort of negligence. Under this

42a Cobbe v. Yeoman’s Row Management Ltd [2008] 1 WLR 1752. The claimant did, however, obtain the award of a sum in unjust enrichment to reflect the value his work had added to the defendant’s property through obtaining planning permission, and a quantum meruit for the value of his services which the defendant knew he was not providing gratuitously.

42b See especially at [85] (Lord Walker). 42c At [38] (Lord Scott).

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tort, the defendant is liable for foreseeable loss which he causes to the claimant as a result of his failure to fulfil his duty to take reasonable care. If the negotiations were to be characterised as a relationship which imposed on each of the parties a duty of care towards the other; and if the courts were to give content to that duty of care by reference to what it is reasonable for each party to expect of the other during negotiations, then the law of tort could cover the situation. The English courts have developed a category of duty in relation to the making of statements: giving information or advice. This step forward was taken by the House of Lords in 1963, in the leading decision of Hedley Byrne & Co Ltd v. Heller & Partners Ltd,43 and can apply in relation to statements made during precontractual negotiations.44 That decision has been further explored in later cases, and has formed the basis of a broader approach to the duty of care in negligence, based on the defendant’s ‘assumption of responsibility’ to the defendant for the careful performance of a task, whether the task be the giving of information and advice, or the performance of another service.45 Could entering into the negotiations form the basis of such an ‘assumption of responsibility’? And could the content of the duty arising from the entering into negotiations include such things as the duty not to enter into or to continue with the negotiations once the defendant knows that there is no realistic chance that they will reach a successful conclusion, or at least the duty to warn the other party that he is incurring expenses which might well be wasted; or the duty to inform the other party of relevant information of which the defendant knows the claimant is unaware? We have seen that some legal systems have given content to such duties within the law of tort.46 Typically, these duties are summed up within the broader test of good faith. But each of the systems which uses the language of good faith can articulate it in particular factual situations as constituting particular duties, particular requirements of conduct as between the negotiating parties. Even if English law resists the language of a general test of ‘good faith’, could it not use the duty of care within the law of tort to give effect to more particularised duties which would in substance cover the same ground?

43 [1964] AC 465. 44 Esso Petroleum Co. Ltd v. Mardon [1976] QB 801.

45Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145, 180; Dugdale, Clerk and Lindsell on Torts, paras. 8.84–8.88.

46E.g. French law: see the French report on case 1; Spanish law: see the Spanish report on case 1.

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No attempt has been made within English law to do so. The use of the duty of care in negligence may well not be seen as a suitable tool to impose general rules of conduct between negotiating parties because such general duties should not be imposed. That is, it is not simply a matter of legal technique where the courts have not yet noticed that they do in fact have the tools available to generalise the duties between the parties during precontractual negotiations. It is because, as a matter of principle, the courts do not think that the entering into negotiations should trigger duties between the parties which the law should categorise and enforce. The Supreme Court of Canada has rejected explicitly the use of the tort of negligence to impose duties of disclosure between negotiating parties because it would undermine the proper risk allocation during the negotiations:47

It would defeat the essence of negotiation and hobble the marketplace to extend a duty of care to the conduct of negotiations, and to label a party’s failure to disclose its bottom line, its motives or its final position as negligent. Such a conclusion would of necessity force the disclosure of privately acquired information and the dissipation of any competitive advantage derived from it, all of which is incompatible with the activity of negotiating and bargaining.

. . . [T]o impose a duty in the circumstances of this appeal could interject tort law as after-the-fact insurance against failures to act with due diligence or to hedge the risk of failed negotiations through the pursuit of alternative strategies or opportunities.

We move, therefore, to a very different position: the real reluctance of the common law to impose precontractual liability is based on a principled view of the nature of the negotiating process. We have already noted that this found its most extreme articulation in the speech of Lord Ackner in Walford v. Miles:48 ‘the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations’. Lord Ackner had another reason for rejecting a general duty to negotiate in good faith: that it is inherently uncertain, and he linked this uncertainty to the view that there should be no restriction on the parties’ freedom to withdraw from negotiations:49

47Martel Building Ltd v. Canada (2000) 193 DLR (4th) 1, at [67]–[68].

48[1992] 2 AC 128, 138; above n. 2.

49Ibid. For an earlier view that the obligation to negotiate is uncertain, and therefore there can be no certain remedy in the event of breach of such an obligation, see

Courtney & Fairbairn Ltd v. Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297, 301 (Lord Denning MR): ‘If the law does not recognise a contract to enter into a contract (when there is a fundamental term yet to be agreed) it seems to me it cannot recognise a

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The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty . . . How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. [Counsel arguing that liability should be imposed in the case], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question – how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an ‘agreement?’ A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw.

This is the strongest statement which has been made in the English courts;50 but it is part of the reasoning for the decision, and therefore binding on courts below the House of Lords. There have been signs in the Court of Appeal recently of a dissatisfaction with this apparently absolute rejection of a duty to negotiate in good faith, at least in cases where the parties have expressly agreed to negotiate.51 However, even if the courts were to relax the strictness of the decision in Walford v. Miles and allow the parties to agree expressly to negotiate in good faith (which would, of course, mean an acceptance that such a duty could be defined in such a way as to enable the courts to police it and to impose remedies for breach) it seems hardly conceivable that they would take

contract to negotiate. The reason is because it is too uncertain to have any binding force. No court could estimate the damages because no one can tell whether the negotiations would be successful or would fall through: or if successful, what the result would be. It seems to me that a contract to negotiate, like a contract to enter into a contract, is not a contract known to the law.’

50The ‘apogee of good faith scepticism in English law’, according to the Scots reporters: see the Scots report on case 6.

51Petromec Inc v. Petroleo Brasilieiro SA [2006] 1 Lloyd’s Rep 121 at [121]. For further discussion see Cartwright, ‘Negotiation and Renegotiation: an English Perspective’, above n. 34.