Case 1: Negotiations for premises for a bookshop

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The ABGB makes no clear distinction between contractual liability and non-contractual (or delictual) liability. Nevertheless, there are a number of differences which make it more favourable to a victim to bring a claim that is based on contractual liability rules, rather than on tortious grounds.3 Since contractual liability provides these considerable advantages4 for the victim, ‘contract shopping’ is attractive. Thus, in order to expand contractual liability rules to the precontractual stage, the doctrine of culpa in contrahendo was created and achieved significant importance in practice. A general principle of precontractual liability or culpa in contrahendo has been deduced from a number of provisions of the ABGB by the Austrian Supreme Court (OGH).5 It follows from the current situation of a well-established and

¨

Verschulden beim Vertragsschluss im o¨sterreichischen bu¨rgerlichen Recht’, OJZ 1973, 281; cf. also R. Welser, ‘Die culpa in contrahendo im o¨sterreichischen Recht’, LJZ 1984, 101 and R. Welser, ‘Die vorvertraglichen Pflichten in der Rechtsprechung des OGH’ in Wagner-FS 65 Jahre (1987) 361. For a recent comprehensive commentary on the judge-made rules on culpa in contrahendo with, however, rather complacent arguments, see R. Reischauer in Rummel, Kommentar zum ABGB I Vor §§918–933,

N. 14ff. For a report in English on precontractual liability in Austrian law, see W. Posch in Hondius, Precontractual Liability, pp. 41–52.

3Vicarious liability (according to §1313a ABGB the respondeat superior rule applies only to violations of contractual duties by servants. In the absence of a contractual relationship between master and victim, liability can only be imposed on the master, according to §1315 ABGB, if the victim proves either that the servant is ‘incompetent’ or that the master has knowingly employed a dangerous person); burden of proof

of fault (under the rules of contractual liability the burden of proof is reversed and lies on the person breaching a contractual duty thereby causing damage to another (§1298 ABGB), whereas §1296 ABGB imposes the burden of establishing the defendant’s fault, in an extra-contractual injury case, on the victim); the scope of liability (‘pure economic loss’ is only recoverable if contractual liability rules apply. The law of extracontractual liability offers no protection to a person suffering losses, such as wasted expenses, caused by negligent misstatements by another person).

4Unlike German law, the Austrian Code makes no distinction with regard to prescription. The common prescription period for delictual and contractual claims for compensation is three years.

5§874 ABGB: ‘In any case, any party who has induced a contract by fraud or coercion is liable for damages [to another person who] suffered thereby’; §878 ABGB, third sentence: ‘A person who, when entering into the contract was or should have been aware of [the] impossibility [of its performance], is liable to the other innocent party for any damage suffered by him through his reliance upon the validity of the contract, [provided that the other party was not aware thereof himself]; §932 ABGB: if a person is at fault for breach of warranty, he will be liable for damages (however, as of 1 January 2002 this provision has been replaced by a new provision on damages; the relevant provision is now §933a ABGB). Until 1 July 2001 there was, in addition to these three articles, another provision in force that served as a basis for analogy. §866 ABGB stated that a person having attained the age of 18, ‘who fraudulently represents that he

still expanding judge-made doctrine of culpa in contrahendo that the answer to the question of whether A is liable to B under Austrian law lies within the discretionary power of the judge.

There is near absolute certainty here that an Austrian judge will decide in favour of B and award damages on the ground of culpa in contrahendo for his higher costs: the difference between the price he would have received from C and the price he actually received for his premises after C had withdrawn from the negotiations. It appears that A was never seriously negotiating with B. A’s opening and breaking off the negotiations with B amounts to ‘chicanery’, the exercise of a right that can only have the purpose of harming another person. In addition to this, the principles of fair dealing have been grossly violated by A.

However, it may not be necessary for B to resort to the judge-made rules of culpa in contrahendo to obtain this remedy. B may also claim his ‘reliance interest’ on the basis of purely tortious (delictual) principles of compensation under §1295(2) ABGB which reads: ‘A person who intentionally injures another in a manner in violation of public morals is liable therefor; however, if the injury was caused in the exercise of legal rights, the person causing it shall be liable therefor only when the exercise of this right obviously has the purpose to cause damage to the other’. §1295(2) ABGB was inserted into the Austrian Civil Code in 1916 and mirrors a provision of the German Civil Code (§826 BGB). The idea behind this rule is to allow the recovery of pure economic loss in a case of serious violation of fairness, within the principles of non-contractual liability. It can, however, be difficult to bring clear and convincing evidence of the tortfeasor’s wrongful intention to cause damage by exercising a right.

Denmark

Danish law has no relevant statutory provisions. The Danish courts are reluctant to award damages for precontractual behaviour.6 There are very few cases in which damages have been awarded, and there appear to be no cases dealing with the situation where a person enters into negotiations with no real intention of reaching an agreement (which

is able to conclude a contract, and in doing so deceives another who cannot easily make inquiries in regard thereto, is liable for damages suffered thereby’. This provision became obsolete as a result of the reduction of the age of capacity from 19 to 18 years.

6Andersen, Madsen and Nørgaard, Aftaler og Mellemmænd, p. 108 (Andersen); Lando in Hondius, Precontractual Liability, pp. 111–24; Simonsen, Prækontraktuelt Ansvar.

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will be called ‘cheat contracting’) or continues negotiations with no real intention of reaching an agreement (‘cheat continuing’). However, there are provisions in Danish law that impose liability for falsely pretending to have legal capacity or authority as an agent.7

This case is an example of cheat contracting. Danish courts would probably classify A’s behaviour as a tort but do not attach great importance to the distinction between tort and contract. On the whole, Danish courts tend to be moderate in awarding damages. A court might award damages but probably less than E0.2m and certainly not E0.5m.

England

A is liable to B for damages in the tort of deceit. Under the tort of deceit a claimant can recover damages if he can show that the defendant fraudulently made a false representation to him, with the intention that he act on it; and that he did act on it and suffered loss.8 It appears that A has made a statement to B which he knows to be untrue: he starts negotiations ‘pretending he wants to move his shop to larger premises and that he is prepared to pay E1.5m’. He intends this to induce B to break off his negotiations with C and so to suffer loss. A is therefore liable to B.

In the tort of deceit the defendant compensates the claimant for all the loss he suffers in consequence of his reliance on the fraudulent statement, whether or not it is loss that the defendant could have foreseen.9 The only limitations are that the claimant must establish a causal link between the statement and the loss; and he cannot claim for loss which he could have taken reasonable steps to reduce or eliminate after he discovered the fraud. The measure of recoverable loss in deceit is the sum by which the claimant’s wealth is diminished as a result of his reliance on the statement. On the facts this would be E0.2m if a court accepts that, on the balance of probabilities, B would have been able to sell the shop to C for E1.2m but has lost that opportunity and now could only reasonably obtain the lower price of E1m.10 If the court

7Guardianship Act §§45(2), 46(2) and 65(2) and Contract Act §25. In the former case the minor or incapacitated person has to reimburse the other party no more than his reliance costs; in the latter case the false agent has to compensate the other party’s expectation interest.

8Bradford Third Equitable Benefit Building Society v. Borders [1941] 2 All ER 205, 211; J. Cartwright, Misrepresentation, Mistake and Non-Disclosure, ch. 5.

9Smith New Court Securities Ltd v. Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254.

10If the claim had been one for damages for breach of contract, the damages would instead be calculated to put the claimant in the position in which he would have been if the statement had been true: here E0.5m, the difference between what A would