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In this case, A’s liability arises from his misconduct during the negotiations: first, for having induced B to rely on his offer to purchase the premises at a higher price, thus inducing C to withdraw his own offer; and then for breach of good faith in having broken off the negotiations immediately after C’s withdrawal. As a consequence, B not only failed to obtain the price he hoped for from A, but also lost the contract with C at E1.2m, having in the end sold the premises for only E1m. Recoverable damages for precontractual liability are said101 to consist only in the negative interest (interesse negativo).102 In this case, they will therefore be E0.2m. Punitive or exemplary damages are not awarded, although recently it has been said that in certain cases103 malicious conduct or gross negligence could lead to an increase in the level of damages awarded. Since the measure of damages is left to the evaluation of the trial judge,104 a punitive element in the award of damages could be used by the judge within the exercise of this discretion.

Netherlands

In Baris/Riezenkamp (1957)105 the Hoge Raad decided that parties starting negotiations enter into a legal relationship that is dominated by good faith, which requires them to take each other’s interests into account. Although this was a case about mistake, it is generally regarded as the starting point for the development of the broader doctrine of precontractual good faith. The ground-breaking case with regard to liability for breaking off negotiations is Plas/Valburg (1982).106 Since this

trattativa)’, RTDPC 1972, 962, 965ff.; Trimarchi, Rischio e responsabilita`, emphasising how the level of care has to be related to current practice.

101The correspondence between precontractual liability and negative interest has been emphasised by Luminoso, La lesione dell’interesse negativo. Recent decisions confirm the constant line of Italian case law, e.g. TRIB-T. Udine, 22 Apr. 1996; Cass 30 Aug. 1995, n. 9157; Cass 13 Dec. 1994, n. 10694; Cass 26 Oct. 1994, n. 8778; Cass 25 Feb. 1994, n. 1897; Cass III, 30 Mar. 1990, n. 2623; Cass II, 11 Sep. 1989, n. 3922.

102Positive interest (interesse positivo) is related to the due fulfilment of the contract. It cannot be awarded, in order to respect the principle of freedom to withdraw from negotiations.

103Especially in cases related to defamation or environmental protection, as App. Milano, 23 Dec. 1986; Corte Cost., 30 Dec. 187, n. 641; TRIB-T. Napoli, 18

Sep. 1989; TRIB-T. Roma, 24 Jan. 1989; TRIB-T. Milano, 27 Jun. 1991; TRIB-T. Roma, 24 Nov. 1992.

104As stated in Cass, sez. lav., 15 Dec. 1999, n. 14109.

105HR 15 Nov. 1957, NJ 1958, 67, note Rutten.

106HR 18 June 1982 (Plas/Valburg), NJ 1983, 723, note Brunner; AA 32 (1983) 758, note Van Schilfgaarde.

case, the Hoge Raad has distinguished three stages in the negotiating process. At the first stage, both parties are entirely free to break off negotiations. At the second stage, a party is still free to break off negotiations, but if he does so he has to pay the expenses the other party has incurred. Finally, at the third stage the parties are no longer free to break off negotiations. This is the case when the other party may reasonably believe that some contract of the type the parties were negotiating about will be concluded or if other circumstances of the case make breaking off unacceptable.107 If a party breaks off at that third stage he is liable in damages, which may even amount to the expectation interest. Also he may be ordered to continue negotiations. However, in a more recent case, De Ruiterij/Ruiters (1996),108 the Hoge Raad has limited its Plas/Valburg doctrine. In that case it held that a party is not liable in all cases where the other was justified in expecting the imminent conclusion of a contract, because in determining whether there is liability the interests of the party breaking off the negotiations must also be taken into account; moreover, a change of circumstances during the negotiations may also provide a justification. This decision, of course, raises the question whether a (new) better offer from a third party may justify breaking off negotiations even in that stage. In the third stage, breaking off is in itself contrary to good faith. In other words, in opposition to other systems, under Dutch law an advanced stage of negotiations can actually cause a party to lose his right to break off negotiations. Thus, Dutch law has replaced the clear-cut distinction between contract and no-contract by a gradual process where at a very advanced stage of negotiations, a party can claim to be put financially into the position as if a contract were concluded.109 As to the nature of liability: the Hoge Raad has based its ‘three stages rule’ on tort and good faith alternatively, and sometimes on both.110 In the most recent decisions, the Hoge Raad has based liability directly on good faith.111 The drawback of such a ‘third way’ approach to liability would be in most systems that the code only provides for two regimes of liability (contract and tort) and therefore acceptance of a new third regime by the courts would lead to

107See HR 23 Oct. 1987, NJ 1988, 1017, note Brunner (VSH/Shell).

108HR, 14 June 1996, NJ 1997, 481, note HJS (De Ruiterij/Ruiters).

109Cf. Van Schilfgaarde, note on Plas/Valburg, above n. 106.

110For a decision based on tort see, e.g., HR 13 Feb. 1981, NJ 1981, 456, note Brunner (Heesch/Reijs).

111See, e.g., HR 16 June 1995, NJ 1995, 705, note Stein.

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considerable uncertainty. However, in the Netherlands this approach is possible since the Dutch Code provides for a single regime for any type of liability.112 As to the extent of liability, if a party breaks off negotiations in the so-called second stage, as discussed above, he must reimburse the other party’s expenses. A party who breaks off negotiations in the third stage, where breaking off is no longer allowed, is liable for the expectation interest. This was first accepted in the Plas/ Valburg case. The principle has been repeated in every later case on breaking off negotiations.113 However, it should be added that there have not yet been many cases where expectation damages actually were awarded. The Dutch rule can be explained by the fact that in the so-called third stage, which begins at the moment the other party could reasonably expect that a contract would be concluded, breaking off itself is unlawful (contrary to good faith). The damage caused by this unlawful act (that is, the breaking-off) is the non-conclusion of the contract, since at that stage of the negotiations, the contract would have been concluded if the negotiations had not been broken-off. Thus, the fact that Dutch courts accept expectation damages when negotiations are broken off in the third stage is just a logical consequence of considering their breaking-off itself at a certain point unlawful (contrary to good faith).114

As has been said, in the ‘third stage’ even the expectation interest can be recovered. However, from case law it is not clear when the reliance interest can be recovered. It seems likely that when the negotiations have reached the third stage the defendant is liable also for the reliance interest (that is, the claimant is entitled, in the alternative, to either the expectation interest or the reliance interest). Indeed, it has been argued115 that it is only at that stage that liability for the reliance interest should arise, as in most other European countries. Moreover, a recent case has raised some controversy among observers.116 In that case the Hoge Raad formulated, as a general

112See arts. 6:95ff. and 3:310 BW.

113See, e.g., HR 24 Nov. 1995, NJ 1996, 162.

114The Plas/Valburg case has been commented upon by several foreign authors, such as Farnsworth, Sacco and Van Ommeslaghe. Most of them disapprove of the Dutch rule. See, e.g., P. Van Ommeslaghe, Rapport Ge´ne´ral, in La bonne foi, Travaux de l’Association Henri Capitant, Tome XLIII 1992 (Paris 1994), p. 34.

115M.W. Hesselink, ‘De schadevergoedingsplicht bij afgebroken onderhandelingen in het licht van het Europese privaatrecht’, WPNR (1996), 6248 (pp. 879–83), 6249 (pp. 906–10).

116HR 12 Aug. 2005, NJ 2005, 467 (CBB/JPO).

standard for determining liability, that the parties are free to break off the negotiations, unless breaking off would be unacceptable. This general standard contains two novelties. First, the Hoge Raad expresses and emphasises, for the first time, the freedom in principle to break off negotiations (and it underlines that the standard is a severe one, which ‘requires restraint’ of the courts). Secondly, the Hoge Raad no longer mentions what has become known as the ‘second stage’. This omission has brought some academic writers to the conclusion that the second stage is no longer recognised and also that the reliance interest is not recoverable unless breaking off was unacceptable (because of justified detrimental reliance or other circumstances).117 However, others argue that the omission was due to the fact that, when the case came before the Hoge Raad, the only issue was about the expectation interest.118 Another explanation might be that in the Plas/Valburg case, the liability for expenses did not depend on whether the defendant was still allowed to break off the negotiations.119

In this case, it is not likely that B will be able to recover his loss from A on the basis of the doctrine of breaking off negotiations. There are no indications that the negotiations reached the ‘third stage’, and so there is no liability for the expectation interest (lost profit, i.e. E0.5m). As discussed above, it is uncertain whether at some stage in negotiations breaking-off leads to liability for the reliance interest. Therefore, in this case there is probably no liability under this doctrine for B’s lost opportunities.

However, A may be liable for entering into or for continuing negotiations without having a real intention of reaching an agreement with B. One could argue that under these circumstances, A has committed a tort (onrechtmatige daad) by conducting negotiations with B.

117T. Harlief and R.P.J.L. Tjittes, ‘Kroniek Vermogensrecht’, NJB 2005, 1605–6; C.E. Drion, ‘Vooraf’, NJB 2005, 1781; R.P.J.L. Tjittes, ‘De afbraak van de aansprakelijkheid voor afgebroken onderhandelingen’ in van Kooten and Wattendorff, Hartkampvariaties, p. 139ff.

118G.J. Knijp, ‘Plas/Valburg geldt nog altijd’, NJB 2005, 2375–6.

119There is yet another possible, albeit admittedly rather speculative, reading. If indeed the second stage was abolished in this case that would make it easier for the Hoge Raad to turn the formerly third stage (and now new second stage) into a stage where, without changing the test for liability, the recoverable damages would be limited to the reliance interest. On this reading the recent case may have paved the way for a more radical change in the direction of the European common core (a ‘Europefriendly interpretation’).