42 pr econtractual liability in european private law

lower price of E1m. Therefore B may claim from A the difference between the actual sale and the lost opportunity, which is E0.2m. Such compensation places B in the position he would have been in had he never entered into or relied upon the negotiations with A. B cannot request the difference (E0.5m) between the actual sale and the price they (A and B) were actually negotiating, which represents the expectation interest that places B in the position he would have been in had the negotiations between A and B resulted in a valid contract. In the case of precontractual liability, the Greek courts do not award such compensation.78 B will also be compensated for the expenses and costs related to conducting the negotiations.

Ireland

A is liable to B under the tort of deceit, probably in the amount of E0.2m.

In general, the freedom to enter into a contract implies the freedom not to enter into a contract. Thus, there is no liability where contractual negotiations between the parties have been unsuccessful and result in no contract being established. There is no requirement in Irish law to negotiate a contract in good faith. Contractual principles apply only where a completed contract has been concluded. This rule, if applied in an absolute sense, would lead to potential injustice. Accordingly there are exceptions to the rule, although they arise outside of the law of contract. The principal legal actions lie in the law of tort, restitution or quasi-contract. The remedy in tort is that of damages, an amount of money to compensate the plaintiff for any loss which has been suffered. The remedy in restitution is the return of any benefit which the defendant has unjustly received from the plaintiff. The remedy in quasicontract is the reimbursement of costs incurred by the plaintiff as a result of the defendant’s activities.

Precontractual liability in tort arises either through the deceit or negligence of the defendant. From the facts of this case, the most appropriate action is that of deceit. An action for deceit requires that there has been an untrue representation of fact made fraudulently by the defendant with the intention of inducing the plaintiff to rely upon the representation and which was in fact relied upon by the plaintiff, resulting in damage.79 All five elements of the action are crucial.

78See, inter alia, AP 628/1995 EEN 1996, 545.

79McMahon and Binchy, Irish Law of Torts, p. 967ff.; Quill, Torts in Ireland, p. 271ff.

There must be an untrue statement of fact. In general, a statement of intention is not a statement of fact.80 Thus, a statement that X intends to buy a property is not a statement of fact and X is free to change his or her intention without any exposure to liability. However, in Edgington v. Fitzmaurice81 the court ruled that a statement of a person’s intention is a statement of fact where the statement which was made by the defendant was not true at the time the statement was made.

Merely making an untrue statement of fact in itself is not sufficient unless it was fraudulently made with the intention that the statement would induce the plaintiff to rely on that statement. A statement is fraudulent where it is made by the defendant knowing it to be untrue or without any belief as to its truth.82 The latter includes situations where the defendant is reckless as to the truth of the statement. It follows that an honest, albeit unreasonable, belief that the statement is true will relieve a defendant of responsibility.83 The motive of the defendant is not relevant to a finding of fraud, nor need it be shown that the defendant personally benefited from the fraud.84

The defendant must have intended to induce the plaintiff to rely on the statement, although this does not require that the statement be made directly to the plaintiff. Liability arises where the statement is indirectly transmitted to the plaintiff as a result of the defendant’s actions.85 However, the intended manner of reliance must correspond with the reliance placed upon it by the plaintiff. No liability arises where the plaintiff pursues a course of action fundamentally different from that which the defendant had intended, albeit in reliance on the statement.86

For the plaintiff to succeed he or she must show that they relied upon the representation and that this reliance caused damage. The representation need not be the sole motivation for the plaintiff’s actions but it must have materially influenced the plaintiff.87 This is usually proved through circumstantial evidence. Under the Civil Liability Act 1961, section 34(1), a court may reduce any award of damages to a plaintiff based on contributory negligence. This may arise where the plaintiff

80 Edgington v. Fitzmaurice (1884) 29 ChD 459. 81 Ibid.

82Derry v. Peek (1889) 14 App Cas 337.

83Delaney v. Keogh [1905] 2 IR 267; Barbour v. Houston (1885) LR Ir 475.

84Northern Bank Finance Corp v. Charlton [1979] IR 149.

85Peek v. Gurney (1873) LR 6 HL 377.

86 Quill, Torts in Ireland, pp. 251–2; Smith v. Chadwick (1884) 9 App Cas 187.

87 Edgington v. Fitzmaurice (1884) 29 ChD 459, 466.

44 pr econtractual liability in european private law

was reckless in relying on the representation of the defendant,88 although it is exceptionally rare.89

Injury arising from reliance upon the representation usually takes the form of economic loss. Damages are relatively difficult to calculate. The measure of the loss is to restore the plaintiff to the position he would have been in if the representation had not been made.90 The difficulty is therefore that the court must return to the precontractual negotiations at the time the representation was made, remove it from the equation and then discover what would have transpired in the absence of this representation. The outcome of this should then be compared with the present position of the plaintiff and damages awarded to the extent necessary, if any, to compensate the plaintiff for any loss.

In the case at hand, A has clearly made a representation as to his intention which was untrue at the time it was made. The representation was made fraudulently with the intention that it would be relied upon by B. In fact, B did rely upon the representation and this resulted in damage to B. The damage is in the form of a sale of the property for less than might have been obtained had the representation not been made. This would be in the amount of E0.2m.

Italy

This case concerns precontractual liability under article 1337 of the Codice Civile, which provides protection against unjustified withdrawal during negotiations (ingiustificato recesso dalle trattative), and imposes a general duty of good faith during the negotiations (buona fede nelle trattative).

Recesso ingiustificato dalle trattative: the unjustified withdrawal from negotiations can be seen as one of the oldest and most developed features of Italian case law concerning precontractual liability.91 Article 1337 provides a duty of fair play before reaching an agreement, such as

88Gill v. McDowell [1903] 2 IR 463.

89McMahon and Binchy, Irish Law of Torts, p. 973.

90Northern Bank Finance Corp. v. Charlton [1979] IR 149.

91Benatti, La responsabilita` precontrattuale; Faggella, I periodi precontrattuali e la responsabilita` precontrattuale; Loi and Tessitore, Buona fede e responsabilita` precontrattuale; Turco, Interesse negativo e responsabilita` precontrattuale; Patti, Responsabilita` precontrattuale e contratti standard; Richter, La responsabilita` precontrattuale; Monateri, La responsabilita` contrattuale e precontrattuale; Musy, Il dovere d’informazione; Palmieri, La responsabilita` precontrattuale nella giurisprudenza.

during negotiations, under the principle of good faith (buona fede). The Supreme Court has interpreted the article to mean that:

precontractual liability occurs only when, during negotiations and before reaching an agreement, the parties have behaved so as to induce reasonable reliance in the conclusion of the contract. Moreover, the unjustified breach of such relationship has to consist in conduct contrary to good faith.92

Italian case law requires that two conditions be met in order to invoke precontractual liability: the negotiations have given rise to one party’s reasonable reliance (affidamento) in the conclusion of the contract; and the other party has not shown any reasonable excuse (giusta causa) capable of justifying the withdrawal from the negotiations.93

Buona fede nelle trattative: the question is whether or not the party behaved in accordance with the principle of good faith, a concept which plays a central role in precontractual liability. Italian law distinguishes two kinds: subjective good faith,94 where the party’s positive intention conceals his dishonesty,95 and objective good faith, which implies a general limit to the parties’ freedom to trade, according to duties of fair play (correttezza), reliability (serieta`) and co-operation between the parties (solidarieta`).96 The Italian Supreme Court has consistently given an objective interpretation of the duty of good faith under article 1337,97 although the damaged party cannot invoke precontractual liability where he suffered the loss through his own fault,98 he had knowledge of the matters pointing against the conclusion of the contract,99 or when he failed to take reasonable care to ascertain the facts.100

92Cass 25 Nov. 1976, n. 4448; Cass III, 25 Oct. 1973, n. 2757.

93Most recently Cass, sez. II, 14 June 1999, n. 5830; TRIB-T. Milano, 5 May 1997. Examples of justification are when the party creating the reliance refuses to sign a contract whose terms are different from the agreement reached, or where there is no agreement on the essential elements of the contract.

94C.M. Bianca, ‘La nozione di buona fede quale regola di comportamento contrattuale’, RDC 1983, I, 205; G. Criscuoli, ‘Buona fede e ragionevolezza’, RDC 1984, I, 709.

95See, e.g., arts. 128 and 1147 c.c.

96In particular arts. 1175, 1358, 1336, 1375, 1460 c.c. See F. Benatti, ‘Culpa in contrahendo’, CI, 187, 293.

97Cass 30 Aug. 1995, n. 9157; Cass 30 Mar. 1990, n. 2623; Cass 11 Sep. 1989, n. 3922; Cass 18 Jan. 1988, n. 340; Cass 17 Jan. 1981, n. 430; Cass 14 Apr. 1975, n. 1411.

98Cass, sez. II, 14 Mar. 1985, n. 1987. See P.G. Monateri, ‘Concorso di colpa e affidamento nella responsabilita` precontrattuale’, RCP 1985, 761.

99Cass 29 Nov. 1985, n. 5920.

100Cass 14 Mar. 1985, n. 1987; Cass 11 Oct. 1994, n. 8295. The care required of a professional may be higher: Trib. Foggia, 31 Dec. 1993. See M. Bessone, ‘Rapporto precontrattuale e dovere di correttezza (osservazioni in tema di recesso dalla