50 pr econtractual liability in european private law

If so, he may be liable (even though there was no detrimental reliance by B on the imminent conclusion of the contract) because of A’s positive (but not disclosed) intention not to conclude a contract with B. However, there does not seem to be any specific authority for this claim in Dutch law. Liability should be based on the general tort clause.120 If this liability can be established, B will probably be able to recover the damage which he suffers as a result of the loss of prospective buyer, C – that is, E0.2m.

Norway

Since A entered into negotiations with B without a genuine intention of purchasing the premises, he is liable to pay damages to B based on the reliance interest.

It is probably more correct to consider such precontractual liability as a unique type of liability in Norwegian law. Precontractual liability is designed to protect the basic expectations of the parties with respect to good faith and fair dealing in the precontractual period. However, contractual aspects could also apply, for instance, when a ‘letter of intent’ has been issued, or in the regulations relating to tenders.

Recent Supreme Court cases show that conduct during the precontractual period can provide a basis for claiming damages.121 In the Kina Hansen case122 the presiding judge123 summed up legal developments in Norway to the present time in this way:

Under which legal regulation this situation should be judged is not clearly determined in Norwegian law. With respect to the conditions governing the right to damages in cases of reliance interest, there is little material to refer to in previous cases, and no clearly defined legal doctrine. However, blameworthy behaviour during contract negotiations should have been displayed – such as acting in bad faith, or in a dishonest or misleading manner. In a recently published thesis, unreasonable or irrelevant reasons for breaking off negotiations are discussed as possible grounds for liability: see Lasse Simonsen, Precontractual Liability, 1997, especially p. 226ff.124

120Article 6:162 BW.

121See Rt 1998, 761, the Kina Hansen case, Rt 1995, 543, the Selsbakkhøgda housing cooperative case, and Rt 1992, 1110, the Stiansen case.

122Rt 1998, 761.

123See p. 772. In Norway the term used is the first voting judge (førstvoterende).

124Bad faith is used here to translate the Norwegian term ‘illojalitet’, which indicates a blameworthy act.

Entering into precontractual negotiations presupposes a genuine possibility of the parties’ reaching a binding agreement.125 Whenever one party has no such intention, but has other motives for the negotiations, there is no such possibility. B has the right to be placed in a financial position similar to that which he would have been in if A had not entered into negotiations with him – according to the so-called reliance interest. In other words, B should be placed in a situation where he would be able to pursue his negotiations with C without the interference of A.

The loss suffered by B involves the eventual sale of the premises for E1m whereas, without A’s interference, he would have been able to obtain E1.2m, or at least there would have been a strong likelihood of obtaining this price. This consequential loss (disponeringstapet) ‘comprises’ an unrealised gain with respect to a third party.126

From the perspective of reliance interest, there are two necessary causal elements. First, the loss must be due to the unlawful act. In the present case, there is a question as to the likelihood that B would have sold the premises at a price of E1.2m if A had not interfered. According to common theory, a strong likelihood must be shown. Secondly, only foreseeable losses can be recovered. In the present case, however, it seems possible for A to predict the loss, as he presumably knew of the price negotiations between B and C.

Portugal

A is liable to B under the doctrine of culpa in contrahendo, which is established in article 227 of the Co´digo Civil.127 It is against the principles of good faith to enter into negotiations without any intent to conclude a contract.128 In this case, the negotiations caused B the loss of a better contract, so the amount of damages would be established by reference to the difference in the value of the contracts.

According to the traditional view, and still the opinion of the majority of writers, the liability based in culpa in contrahendo is limited to the reliance interest and therefore cannot involve the expectation

125 Simonsen, Precontractual Liability, p. 192. 126 Ibid. p. 343ff.

127‘Anyone who negotiates with another to conclude a contract has the duty, either in the negotiations or in its formation, to act according to the rules of good faith or he will be liable for losses due to his fault’.

128The rule of good faith requires the parties always to behave with the intention of concluding the contract. See Cordeiro, Tratado de Direito Civil Portugueˆs, I-1, p. 399.

52 pr econtractual liability in european private law

interest.129 A new approach, however, holds that even in culpa in contrahendo the liability should involve the expectation interest.130

A must therefore pay damages of at least E0.2m (reliance interest), although this could be higher if a court accepted the view that the expectation interest can be awarded. B has no other remedies in this case.

Scotland

A has carried out negotiations in bad faith, having no genuine intention to contract. A ‘pretended he wants to move his shop to larger premises and that he is prepared to pay E1.5m’. Such a pretence may constitute fraudulent misrepresentation under Scots law, entitling B to damages in delict. The classic definition of fraud in Scots law is provided by the Institutional Writer, Erskine, who describes this intentional delict as ‘a machination or contrivance to deceive’.131 It may readily be appreci-

ated from Erskine’s understanding that, as one leading commentator on the law of contract has put it, ‘fraud has a wide definition’.132

Before B could successfully claim damages he would have to overcome two hurdles. First, B would be required to show some sort of positive act by A which caused the misrepresentation. The classic example is misrepresentation by words, but conduct alone has been sufficient to amount to a finding of misrepresentation.133 The facts suggest that some positive words or conduct have been used by A to convey the pretended intention, and that this requirement has therefore been met. The second obstacle to an award of damages is that B would need to show that the misrepresentation was made with the requisite mental intent. To succeed in a claim for fraudulent misrepresentation B would need to show either (i) that A positively knew the statement was false or (ii) that A positively believed the statement was

129See Telles, Direito das Obrigac¸o˜es, p. 77; Varela, Das Obrigac¸o˜es em geral I, p. 271; Jorge, Direito das Obrigac¸o˜es, p. 166; Costa, Responsabilidade civil pela ruptura das negociac¸o˜es

preparato´rias de um contrato, p. 78; Da Silva, Estudos de Direito e Processo Civil (Pareceres), p. 73 and Leita˜ o, Direito das Obrigac¸o˜es, I, p. 317. For court decisions, see RC 13 Feb. 1991 in CJ 16 (1991), 1, 71.

130See Cordeiro, Da Boa Fe´ no Direito Civil, p. 585, and Tratado de Direito Civil Portugueˆs, I-1,

407.There is already a court decision supporting this doctrine: RL 29 Oct. 1998 in CJ

33(1998), 4, 132.

131Erskine Institute, 3.1.16.

132McBryde, The Law of Contract in Scotland, para. 14–09.

133Gibson v. National Cash Register Co Ltd 1925 SC 500; Patterson v. H Landsberg & Son (1905) 7 F 675.

false even though he did not positively know it was false (liability only arising if in fact untrue) or (iii) that A made the statement with reckless indifference to the veracity of the remarks and that the statement related to a matter of importance between the two parties. The facts of this scenario suggests that this requirement is also met, as A appears to have made the pretence knowing it to be false.

It therefore appears that a damages claim for fraudulent misrepresentation could be made out. The measure of such a damages claim is designed to restore B to the position he would have been in had the wrongful act not been committed. In this case, one must ask: had A not made the false representations about his contractual intent, would B have concluded a contract of sale with C (or indeed any other party) for E1.2 m? Proof of such a counterfactual outcome might be difficult. Were causation of loss impossible to prove on the balance of probabilities, a claim for damages for misrepresentation would fail. However, a possible alternative claim might lie for B’s loss of a chance of avoiding the E0.2m losses.134 Such a claim would be measured by the value of the chance lost: for instance, the loss of, say, a 75 per cent chance of avoiding the E0.2m loss would be valued at 75% x E0.2m, i.e. E0.15m.

No other remedies for B are readily apparent on these facts, it not having yet been established incontrovertibly that there is a general duty in Scots law to negotiate in good faith.135

Spain

In Spanish law, precontractual liability (culpa in contrahendo) in its proper sense is based on article 1902 of the Civil Code (tort), under which any damage intentionally or negligently caused in violation of the general principle neminem laedere gives rise to liability. Under this provision, the abrupt and unjustified breaking-off of negotiations can give rise to liability for damages caused by it, the conceptual foundation (justification) being the general principle of good faith,136 which requires a certain standard of behaviour during continued

134For a recent delictual loss of a chance case, see Paul v. Ogilvy 2001 LT 171, commented upon in M. Hogg, ‘Paul v. Ogilvy: a Lost Opportunity for Lost Chance Recovery’ (2003) 7 Edin LR 86.

135See generally on obligations of good faith in Scots law, Forte, Good Faith in Contract and Property.

136Cf. art. 1258 CC.