is not satisfied about these figures (for example, if the likely figure at which the sale to C would have been finalised is lower, or if the court believes that B’s ultimate acceptance of the price of E1m to sell to a third party is not the best he could reasonably achieve in the circumstances) the court’s substitute figures would be taken in making the calculation. In addition to this basic measure of loss, other consequential losses may be recoverable: for example, any continuing business losses during the period of delay if the bookshop was in the meantime making a loss, or any loss of return B would have made on investment of the sale price which he was delayed in receiving. But against this B would have to give credit for any further profits he has made from the bookshop in the period of delay, if the shop was still profitable.

It is essential for B’s case that he prove that A made a false statement during the precontractual negotiations about his intentions to conclude the contract. In the absence of such a statement B would have no remedy because in English law there is no general duty of good faith in negotiating, and no other basis on which B would have any remedy on these facts.11

Finland

A would probably be liable to B for the reliance interest (negative interest) according to the rules of culpa in contrahendo. In Finnish law, there seem to be no other remedies available to B.

In Finnish academic writing, culpa in contrahendo is usually not treated as an independent doctrine but rather as a part of tort law. This doctrine has never been adopted in Finland as a separate basis for liability, but is employed more commonly as a kind of terminus technicus in order to deal with liability situations related to the formation of contracts.12 The distinction between the ‘positive’ and ‘negative’ interest is considered in Finnish academic writing to be one of the cornerstones upon which

have promised to pay had there been a contract (E1.5m) and the actual sum received (E1m): Robinson v. Harman (1848) 1 Ex 850, 855. But A did not make any contractually binding promise to buy the bookshop, and so no damages on the contract measure are recoverable.

11See also the English report on case 2 for further discussion of the possible bases of liability during the negotiation phase (contract, the tort of negligence, estoppel and restitution).

12On culpa in contrahendo in Finnish contract law see, e.g., Hemmo, Sopimus ja delikti, p. 198.

26 pr econtractual liability in european private law

the special status of contractual relationships is based. The positive interest is the measure with which the sphere of recoverable damages is defined in (valid) contracts, and the negative interest is to serve the same purpose in tort situations (or if the contract proves to be invalid).13 The measure used in culpa in contrahendo situations is mainly that of the negative interest. As the terminology shows, the doctrine derives from German contract law, but it is applied in Finland in an independent manner.

The formation phase of the contract is considered to be problematic as to the basis of damages liability.14 It cannot be easily placed within the sphere of contract or tort law, because precontractual situations bear resemblance to both categories. This distinction is, however, of importance because the rules pertaining to the different categories vary in aspects of recoverable damages and the basis of liability. The main differences between contract and tort liability rules in Finnish law relate first to the recoverability of pure economic losses, and secondly to the burden of proof concerning fault, which is usually one of the general prerequisites of liability in both contract and tort law. In contract law, the burden of proof lies on the defendant – he must prove the absence of fault – but in tort law, the injured person has the burden of showing the defendant’s fault.15 The Finnish Damages Act of 197416 is the general norm of tort liability. According to an express provision on the scope of application of the Act, it does not apply to liability based on contract.17 Pure economic loss is, as a general rule, recoverable only under the law of contract. In tort law, according to the Damages Act, the right of recovery of pure economic loss requires that the damage be a result of a criminal offence or of an act of a public

13On positive and negative interests see e.g. Hemmo, Sopimusoikeus II, p. 279.

14See Hemmo, Sopimus ja delikti, p. 198.

15The other main prerequisites of liability, namely the existence of damage and a sufficient causal relationship (the term often used by academic writers is ‘adequate’ causality) between the action of the liable person and the damage, must be proved by the plaintiff (the injured person) in both contract and tort law. The adequate causality is mainly defined in terms of foreseeability, i.e. the possibility of the defendant realising the risk of damage connected to his action.

16Vahingonkorvauslaki (VahL). The liability in contract, on the contrary, is not generally regulated by written law provisions, but is mainly based on general principles developed in court practice and in academic writing. The pivotal statute in general contract law, Oikeustoimilaki (Contracts Act, 1929), contains provisions on formation of contracts, representation and invalidity of contracts. However, there are no express provisions on liability in connection with the formation of the contract.

17Ch. 1 sect. 1 VahL.

authority, or otherwise that there are very weighty reasons for compensation.18 These restrictions, of course, do not apply in the law of contract.

In the formation phase of the contract, the regulation of risk allocation may have more in common with contractual relations than with an ordinary non-contractual causation of damage between two parties having no relation with each other but based on mere chance. So there may be some grounds for the compensation of pure economic loss, too. But because there are no existing contractual obligations between the parties, the burden of proof of fault should perhaps as a general rule be distributed rather as in tort situations than following contract rules.19 Under some circumstances, however, there may be some grounds for a contract-law-like reversal of the burden of proof.20

It has to be decided whether A was at fault – whether he has acted in a blameworthy manner. In culpa in contrahendo this usually means an action against good practice in negotiating and concluding a contract. If that prerequisite is fulfilled (and, of course, if the causal relationship from fault to damage is proved) the defendant is usually liable. Starting negotiations with no real intention to conclude the contract can be seen as contrary to good contracting practice and blameworthy. So A’s motives in negotiating with B (fear of competition from C, pretending to be prepared to buy B’s premises for E1.5 m) are wrongful and form a basis for liability.

As already stated, the standard of compensation applied in connection with culpa in contrahendo is usually the negative (reliance) interest. According to this measure, in addition to the negotiation costs, also the lost profits (lucrum cessans) from contracts not concluded because of reliance on the formation of the contract with the party responsible for culpa in contrahendo are in principle recoverable.21 In this case, the lost profit covers the difference between the price offered by C (E1.2m) and that actually received by B (E1.0m), making E0.2m. The lost profit from B’s contract with A, on the contrary, pertains only to the positive (expectation) interest that is usually not recoverable in culpa in contrahendo cases.

18 Ch. 5 sect. 1 VahL. 19 Hemmo, Sopimus ja delikti, p. 207. 20 See, e.g., case 2.

21See, however, Hemmo, Sopimusoikeus I, p. 152 on specific questions concerning the causation (foreseeability) of indirect losses in cases of culpa in contrahendo. Some problems may also arise concerning the existence of recoverable loss and the contributory negligence of the injured person (failure to enter into an alternative transaction to limit his losses).

28 pr econtractual liability in european private law

A’s liability requires, of course, that B can prove his damage. This requirement is met only if B succeeds in proving that E1.2m was a real price that was available to him and that this was lost only because of A’s intervention causing C’s withdrawal from the negotiations with B. B may also have to prove that no other transaction could be made at a higher price than E1m.

If the damage is proved and other general prerequisites of liability are fulfilled, A seems to be liable to B for the reliance interest, covering the lost profit from the contract with C (E0.2 m).

France

French statutory law contains no specific provision on precontractual liability. Nevertheless, since precontractual liability is commonly considered as tortious,22 it falls under the broad articles 1382 and 1383 of the Civil Code, dealing with tortious liability for fault. Liability under these articles requires the fulfilment of three cumulative conditions: fault, harm and a chain of causation between the two.

The fault consists in the breach of a legal duty. According to the majority of writers, a person is at fault if he violated a ‘general norm of behaviour’.23 In principle, the gravity of the fault does not matter: even the slightest fault may lead to liability.24 In the context of breaking off

22There has been a discussion among academic writers about whether precontractual liability is contractual or tortious. The precontractual period is very specific, for it occurs before the contract is concluded, without the parties being complete strangers to each other. On the one hand, no contract should mean no contractual liability. On the other hand, tortious liability supposes most of the time a harm caused by one person to another without any specific relationship between them: the harm does not usually occur because of such a relationship. Some writers, especially Jhering and Carbonnier, were in favour of contractual liability applying. However, in the end, their arguments did not convince the majority of writers and the courts: see

P. Mousseron, ‘Ne´gociations pre´contractuelles et responsabilite´ civile de´lictuelle’, RTDCom 1998, 248ff.

23See Viney and Jourdain, Les conditions de la responsabilite´, no. 450; Flour and Aubert, Les Obligations, vol. 2, Le fait juridique, no. 85f.

24This general rule of tort applies to precontractual liability, although the issue has often been debated. A party to contractual negotiations is not prohibited from breaking off negotiations before the contract is concluded. He may be held liable, but only if the specific circumstances reveal a fault. At first courts required a serious fault as a condition of liability, although the criterion of seriousness was not very easy to use. Some thought it was established by an intention to harm, others by an abuse of rights (abus de droit), others by bad faith. Finally, the condition of bad faith, which seems to have been the winning criterion for a long time, has been recently rejected

negotiations, there are three main wrongful types of behaviour. First, it is wrongful to enter or maintain negotiations without a real intention to conclude the contract, as in the present case. Secondly, the fault can occur during the negotiations because one of the parties behaved wrongfully towards the other party, for example by providing a third party with confidential information obtained during the negotiations.25 Lastly, the fault may consist in a sudden breach of the negotiations when the other party had good reason to think the contract was to be concluded. This kind of fault depends on the circumstances of the breach of negotiations. For example, it is usually considered wrongful for an engaged man or woman to break his or her promise the day before the wedding.26 All these definitions and examples are very general: the existence of fault is left to the judge’s interpretation, according to the particular circumstances of the case. The author of a wrongful break-off of negotiations can escape liability by giving a ‘legitimate reason’27 for not having concluded the contract. Case law is not very clear about this last point. The judicial demand for a ‘legitimate reason’ varies according to the courts and to the cases. The Cour de cassation seems to ask for such a reason in its most recent decisions:28 the absence of reason therefore plays an important part in determining the liability of the defendant. If a reason is given, the judge will have to determine whether it justifies the breaking-off of the negotiations.29

Secondly, the other party must have suffered harm. Its content has been debated among academic writers, as well as in recent case law.30 Four categories of harm have been identified.31 First, the harm includes

by the Cour de cassation: Com 22 Feb. 1994, RTDCiv 1994, 849. In that case, the Cour de cassation speaks of a ‘blameworthy levity’ (le´ge`rete´ blaˆmable). On this point, see Mousseron, ‘Ne´gociations pre´contractuelles et responsabilite´ civile de´lictuelle’, above

n. 22, p. 260. 25 See case 12.

27‘Motif le´gitime’, the phrase used for example in Com 7 Jan. 1997, D. 1998, J., 45.

28Ibid.; Com 14 Dec. 2004, no. 02-10157; Mousseron, ‘Ne´gociations contractuelles et responsabilite´ civile de´lictuelle’, above n. 22, p. 256.

29P. Chauvel, in his commentary on Com 7 Jan. 1997, D. 1998, J., 45, gives several examples of possible legitimate reasons, with judicial references. In addition we can give the example of a major modification in the expectations of one of the parties, such as an unpredictable increase in the cost of accomplishing the task required by the other party: Civ 3, 6 May 1996, decision no. 841, Lexilaser.

30See O. Deshayes, ‘Le dommage pre´contractuel’, RTDCom 2004, 187.

31This categorisation is only descriptive, and is not unanimously admitted by all academic writers. See Mousseron, ‘Ne´gociations contractuelles et responsabilite´ civile de´lictuelle’, above n. 22, p. 264ff.

30 pr econtractual liability in european private law

all the negotiation fees and expenses borne by the other party.32 Secondly, it includes the loss of opportunity, which covered, until recently, both the loss of a chance of concluding and benefiting from the negotiated contract and the loss of a chance of concluding a replacement contract with another party during the negotiations.33 Thirdly, the victim of the breach can obtain compensation based on what French law calls ‘pre´judice moral’, such as the wrong caused to the reputation of the victim.34 Fourthly, a residual category includes

32One author has suggested dividing these fees and expenses into two parts. One part would include the ‘general costs’, which are always incurred by a competitor just to stay in business by negotiating with others. This should not be included in the damages awarded to the victim. The other part is composed of all the costs specifically incurred in the negotiations, and may be taken into account when calculating the damages. See J. Schmidt-Szalewsky, ‘La sanction de la faute pre´contractuelle’, RTDCiv 1974, 54 and the references mentioned in the French report on case 6. This distinction has not yet been adopted by the Cour de cassation but seems supported by a growing number of courts of appeal. See Aix-En-Provence, 16 Sep. 1993, Jurisdata no. 045651, where the costs incurred by an advertising agent were not considered as recoverable by way of damages because of a professional usage in this area. Also see Angers, 25 Nov. 1992, Jurisdata no. 048656 and Lyon, 29 Sep. 2000, Jurisdata no. 132246.

33This duality of the loss of opportunity is discussed among writers. Whereas the loss of a chance of concluding a replacement contract is unanimously considered as compensable, the compensation of the loss of a chance of concluding the negotiated contract is criticised. See P. Chauvel, commentary on Com 7 Jan. 1997, D. 1998, J., 50, no. 27 and B. Fages, ‘Ne´gociations, La rupture des pourparlers’ in Fages et al., Lamy Droit du contrat, e´tude no. 110. The Cour de cassation seemed to ignore this opinion until recently. In an important and widely commented-upon decision, the Cour de cassation decided that ‘the circumstances creating a fault in the exercise of the freedom to break off the negotiations do not cause the harm consisting in the loss of a chance to benefit from the negotiated contract’: Com 26 Nov. 2003, RTDCiv 2004, 80 (J. Mestre and B. Fages); JCP E 2004, 738 (Ph. Stoffel-Munck); JCP 2004, I, 163 (G. Viney). After this decision, academic writers thought that the loss of a chance of concluding the negotiated contract was no longer compensable under French law. At first this prediction seemed to be contradicted by more recent decisions, left unpublished by the Cour de cassation: see Com 14 Dec. 2004, no. 02-10157 and Civ 3, 30 Mar. 2005, no. 04-10662. But since then it has been firmly confirmed by another widely commented-upon decision which quoted almost word for word the

sentence used in the 2003 case: Civ 3, 28 June 2006, RTDCiv 2006, 754 (J. Mestre and B. Fages); JCP G 2006, II, 10130 and JCP E 2006, 1524 (O. Deshayes). Presenting this case in its annual report for 2006, the Cour de cassation observes that the solution is a consequence of the right of negotiators to break off negotiations freely. Because the fault lies in the circumstances of the breaking-off and not in the breaking-off itself, it can never cause the loss of a chance to benefit from the contract. The annual reports of the Cour de cassation are available at www.courdecassation.fr.

34See, e.g., Tribunal de commerce de Paris, 27 Apr. 1996, Jurisdata no. 047078. ‘Pre´judice moral’ is not very easy to determine with precision. It corresponds to various types of non-economic harm (pain and suffering, harm caused to a personal right such as the

various types of harm, such as the harm caused in competition or by divulging confidential information obtained during the negotiations.

In French law, the harm resulting from a precontractual breach only entitles the aggrieved party to damages and never to the conclusion of the envisaged contract. The compensation is supposed to be full, according to the ‘principe de re´paration inte´grale’: ‘the aim of liability (either in tort or in contract) is to restore the equilibrium destroyed by the harm, and to place the victim in the situation in which he would have been if the harm had never happened’.35 In consequence, the damages must include the whole of the losses suffered, as long as they are certain.36 Furthermore, French law does not accept the principle of mitigation of loss; it also rejects the concept of punitive damages.37

Finally, the harm suffered must have been caused by the fault. The issue of causation does not raise great difficulties, and is often ‘forgotten’ by the courts, which have a habit of simply holding that ‘the fault caused the harm’. In fact, causation is usually obvious, apart from the case where the harm is not immediately linked to the fault, which is quite unusual in precontractual liability as long as we focus on the liability of one party in the negotiations towards the other.38

In this case, A has initiated negotiations with B in order to stop C from competing with him, by preventing him from buying B’s

right of privacy, the loss of commercial reputation, etc.), and its assessment is left to the judges’ discretion. Some writers (Viney and Jourdain, Les conditions de la responsabilite´, no. 253ff.) consider that this type of harm is very close to the concept of punitive damages.

35Civ 2, 20 Dec. 1966, D. 1967, 169. See Viney and Jourdain, Les effets de la responsabilite´, no. 57ff.; Mousseron, ‘Ne´gociations contractuelles et responsabilite´ civile de´lictuelle’, above n. 22, p. 264ff.

36The principe de re´paration inte´grale, which means that the harm suffered and the damages awarded should correspond, raises a particular difficulty when evaluating the damages awarded for loss of opportunity. The opportunity is not certain, and the evaluation is not easy, because the damages cannot match the value of the future contract which has not been concluded because of the wrongful breaking-off of negotiations. The Cour de cassation timidly speaks of applying a coefficient of decrease (coefficient de minoration) to this value, in order to take into account the absence of certainty in the conclusion of the contract, see Com 31 Mar. 1992, Bull Civ IV, no. 145; Com 4 Dec. 1990, decision no. 1455, Lexilaser.

37Viney and Jourdain, Les effets de la responsabilite´, no. 4f.

38On the question of causation, see Viney and Jourdain, Les conditions de la responsabilite´, p. 151ff., pointing out that defining causation is difficult. The condition of causation remains important when the victim claims for damages against a third party who played a part in the failure of the negotiations. Furthermore, the chain of causation between fault and harm might be uncertain, but in the present case the question is solved by examining the issue of loss of opportunity.