54 pr econtractual liability in european private law

negotiations.137 Academic writers and case law have established four criteria to determine whether there is liability:138 the existence of a reasonable situation of confidence concerning the conclusion of the contract; the absence of justification for the break-off of negotiations; the proof of damage to one of the parties; and a causal link between the damage and the confidence inspired. The cases where such a liability has been admitted concerned expenses which were made in anticipation of the conclusion of a contract, such as the giving up of a business or travel expenses.139

A is negotiating in bad faith. But the damage which occurs is not a consequence of B’s confidence in A’s will to contract, but of C withdrawing from the contract. For this reason, A would not be held liable on the foundations of culpa in contrahendo stricto sensu. But A’s liability could be established on the doctrine of abuse of right.140 Based on this rather old theory one could say that, even if A has the right to negotiate as he wants, he is not to do it in a way which is contrary to the sense of the right itself and certainly not in a way that causes harm to others. Article 7.2 of the Civil Code establishes liability if any act or omission which clearly goes beyond the normal limits of exercising a right causes harm to a third party. In this case, we could argue that negotiating without any intention of concluding a contract but only to prevent someone else from concluding the contract is an abuse. However, it is not beyond doubt that negotiating itself can be considered as the exercise of a right.141

Sweden

A is liable to compensate B in the sum of E0.2m.

Due to the form requirements for sales of real estate (the agreement has to be in writing and contain, inter alia, the price and a declaration by the seller that the ownership of the property is transferred to the buyer), there is some uncertainty as to whether there can be liability on the basis of culpa in contrahendo. Neither party is bound by an agreement

137STS, 26 Feb. 1994, RJ 1994\1198; Dı´ez-Picazo and Gullo´n, Sistema de Derecho Civil, vol. II, p. 81.

138STS, 14 June 1999, RJ 1999\4105.

139STS, 16 May 1988, RJ 1988\4308; Tribunal Superior de Justicia de Baleares, 10 Mar. 1997, AS 1997\1007.

140‘Abuso de un derecho’: art. 7.2 CC and art. 1902 CC: STS, 14 Feb. 1944, RJ 1944\293; Sentencia de la Audiencia Provincial de Barcelona, 23 Sep. 1993, AC 1993\2109, SEXTO.

141Audiencia Provincial de Barcelona (cited above n. 140).

for the sale of real estate until it fulfils the form requirements. However, as A negotiated with B with the sole intention of preventing the sale of the property to C, there is some support in the case law and legal doctrine for liability.142

In NJA 1973.175, where the parties were negotiating a sale of real estate and the owner incurred costs for changes of the property in accordance with the wishes of the prospective buyer, the Supreme Court found that the buyer could not be liable ‘only because of the promise to buy the property’. As the circumstances in the case showed that the prospective buyer had not undertaken to bear the cost of the changes regardless of whether the contract was concluded or not, the Supreme Court found that the owner was not entitled to damages. It is evident from the facts of the case that the prospective buyer had a real intention to buy the property when initiating the negotiations. Had that not been the case, the statement by the Supreme Court cited above gives some support for liability.143

In NJA 1990.745, the parties had for more than a year been negotiating a contract. The intention was that one of the parties (L) would become a distributor of goods on condition that the other party (S) acquired a final licence agreement for the goods. As the negotiations had developed so far that both parties intended to conclude the agreement if the licence agreement was concluded, the Supreme Court found that S had an obligation to consider L’s interests. S could therefore be liable for damages if S acted in a disloyal manner, by for instance not informing L about significant matters for the successful completion of the negotiations. The Supreme Court found that S had not acted in such a disloyal manner. However, S was considered to have an obligation to inform L as soon as possible when the decision had been made not to conclude the agreement with L. This obligation was not fulfilled as S informed L about the decision almost a month after the decision. As L had not incurred any significant costs during this period, the Supreme Court found that S was not liable for damages.144

142 Grauers, Fastighetsko¨p; Hellner, Kommersiell avtalsra¨tt; J. Kleineman, ‘Avtalsra¨ttsliga

formfo¨reskrifter och allma¨nna skadestandsra¨ttsliga ansvarsprinciper’, JT 1993–94,

433; J. Kleineman, ‘Skadestandsgrundande upptra¨dande vid avtalsfo¨rhandlingar’, JT 1991–92, 125; Ramberg and Ramberg, Allma¨n avtalsra¨tt.

143J. Kleineman, ‘Avtalsra¨ttsliga formfo¨reskrifter och allma¨nna skadestandsra¨ttsliga ansvarsprinciper’, JT 1993–94, 442ff.

144J. Kleineman, ‘Skadestandsgrundande upptra¨dande vid avtalsfo¨rhandlingar’, JT 1991–92, 135ff.

56 pr econtractual liability in european private law

These cases show that one can become liable for damages when misleading another party with fault (that is, either intentionally or carelessly). Due to the circumstances in the present case, A would probably be considered to have acted with fault, as his act was intentional. Therefore, A is liable for damages. B is entitled to compensation for all costs incurred during the negotiations with A. If B could prove with some degree of certainty that C would have purchased the property, A is also liable for the difference between the price C would have paid and the price finally received for the property, E0.2 m.

Switzerland

The Swiss Code of Obligations of 1912 (OR) contains no specific provision dealing with precontractual liability in general. But the concept of culpa in contrahendo, developed by Rudolf von Jhering,145 is found in some special provisions, first in the former Swiss Code of Obligations of 1881, and later in the new Code of Obligations and the Swiss Civil Code (ZGB) of 1912.146 Moreover, the concept of culpa in contrahendo has generally been accepted by courts and academic writers.147 On the one hand, culpa in contrahendo is based on a general analogy with the special provisions. On the other hand, it is based on the concept of good faith and fair dealing according to ZGB 2, a provision which applies throughout Swiss private law.148

From the moment when the parties start negotiations or, even earlier, when they prepare the ground for the contract, a relationship of reliance (Vertrauensverha¨ltnis) exists between the parties that leads to a legal relationship (Rechtsverha¨ltnis) with duties of protection and loyalty

145‘Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfection gelangten Vertra¨gen’ (1861) 4 Jherings Jahrbu¨cher fu¨r die Dogmatik des bu¨rgerlichen Rechts, 1.

146Among these provisions are liability of the party acting under error (OR 26), liability for wilful deception and duress (OR 28 and 29 together with OR 31 III), liability of a principal who does not ask for the return of his power of attorney (OR 36), liability of the unauthorised agent (OR 39) and liability of a ward or a minor alleging to be capable of concluding contracts (ZGB 411 II).

147See BGE 120 II 331, 336; BGE 134 III 390, 395ff.; Zu¨rcherKommentar-Scho¨nenberger/ Ja¨ggi, OR 1 n. 566ff.; BernerKommentar-Kramer, OR Einleitung n. 133ff.; BernerKommentar-Kramer, OR 22 n. 4ff.; BaslerKommentar-Bucher, OR 1 n. 78ff; CommRomand-The´venoz, OR Intro. 97–109 n. 19ff.; Piotet, Culpa in contrahendo et responsabilite´ pre´contractuelle en droit prive´ suisse; Gonzenbach, Culpa in contrahendo im schweizerischen Vertragsrecht; Gauch et al., Schweizerisches Obligationenrecht Allgemeiner Teil, n. 948ff.; Tercier, Le droit des obligations, n. 572ff.

148ZGB 2 I: ‘Every person is bound to exercise his rights and fulfil his obligations according to the principles of good faith’.

(Schutzund Loyalita¨tspflichten) for both parties.149 There are different opinions on the legal basis of the culpa in contrahendo, because of the different modalities (Haftungsmodalita¨ten) of tortious liability and contractual liability: several differences (the rules of vicarious liability, burden of proof and limitation periods) make it more favourable for a victim to bring a claim based on contractual liability rules (nonperformance of obligations) than on tortious liability rules.150 In accordance with an emerging opinion in academic writing, the Swiss Federal Court holds that culpa in contrahendo is neither contractual nor tortious but a liability by virtue of law,151 a liability sui generis with its own rules. For each modality of the liability there has to be a pragmatic decision whether contractual rules or tortious rules should apply by analogy in order to find an appropriate solution. In the field of vicarious liability and of the proof of fault, the contractual rules apply in favour of the victim. By contrast, the Federal Court applies the short period of prescription of one year (which is criticised by the prevailing opinion of academic writers).

The extent of the liability is generally limited to the negative interest (reliance interest).152 But this rule is not without exceptions. In some provisions153 the judge is authorised to award more damages in the interest of equity. According to writers, the judge should apply these provisions in other situations by analogy and award damages up to the positive interest (expectation interest).154

149BernerKommentar-Merz, ZGB 2 n. 264; BernerKommentar-Kramer, OR Einleitung

n.134ff.

150Vicarious liability: a contracting party is fully liable for the acts of auxiliary persons (OR 101), whereas in tort the liability is limited to acts of employees and servants (not independent auxiliaries) and the principal is not liable if he proves that he has taken all precautions appropriate under the circumstances to prevent damage of that kind (OR 55); burden of proof of fault: in tort the victim has to prove the fault of the wrongdoer (OR 41), but in contract the party breaching his duties has to prove that he was not at fault (OR 97); limitation periods: in contract ten years (OR 127), but the claim based on tort is barred after one year from the date when the victim has knowledge of the damage and the wrongdoer, and in any event, after ten years from the tortious act (OR 60).

151‘Gesetzliche Haftung’: BGE 101 II 268, BGE 104 II 94. The theory was established by Peter Ja¨ggi in Zu¨rcherKommentar-Scho¨nenberger/Ja¨ggi, OR 1 n. 592. For details on the theory and its origins see Loser, Vertrauenshaftung im Schweizerischen Schuldrecht,

nn.1145ff., 1149.

152BGE 130 III 345, 349. Cf. Koller, Obligationenrecht Allgemeiner Teil, § 28 n. 36.

153OR 26 II, OR 39 II.

154Cf. Koller, Schweizerisches Obligationenrecht Allgemeiner Teil, § 28 n. 37; Loser, Vertrauenshaftung im Schweizerischen Schuldrecht, nn. 238ff., 1241ff.

58 pr econtractual liability in european private law

In recent years the Federal Court and academic writers have developed the concept of culpa in contrahendo and generalised it together with some other liabilities to a non-contractual (but with similarities to a contractual) liability – so-called liability based on reliance (Vertrauenshaftung).155 The liability based on reliance contains not only the traditional cases of culpa in contrahendo but also other forms of liability, for example, the responsibility of the principal for apparent authority, even if specific performance is awarded.156 Moreover, a person can be held liable who is not the future party of a contract but has in some way (for example, by false information) influenced the contracting parties. According to this principle, an expert, for instance an assessor of the value of a house, may be liable if his client uses the appraisal report a second time later on while concluding another contract.157 And the creditor of a company that has gone into bankruptcy was allowed to sue the parent company of the group, because it had induced the reliance that it would ensure the fair and correct behaviour of all group companies (group standard).158

155BGE 134 III 390; BGE 133 III 449; BGE 130 III 345; BGE 121 III 350; BGE 120 II 331. Recently and in detail see Loser, Vertrauenshaftung im Schweizerischen Schuldrecht (with an English summary of the theory in nn. 1369ff.); see also BernerKommentar-Kramer, OR Einleitung n. 150f.; BaslerKommentar-Bucher, OR 1 n. 69aff.; BaslerKommentarWiegand, OR vor 97–109 n. 11; Chappuis and Winiger, La responsabilite´ fonde´e sur la confiance – Vertrauenshaftung; Gauch et al., Schweizerisches Obligationenrecht Allgemeiner Teil, n. 982aff.; Schwenzer, Schweizerisches Obligationenrecht Allgemeiner Teil n. 52.01ff.; Tercier, Le droit des obligations, n. 1094ff.; H.-P. Walter, ‘Die Vertrauenshaftung: Unkraut oder Blume im Garten des Rechts?’, ZSR 2001 I, 79ff.; Werro, La responsabilite´ civile, n.

¨

305ff.; C. Widmer ‘Vertrauenshaftung – Von der Gefa¨hrlichkeit des Uberflu¨ssigen’, ZSR 2001 I, 101ff. This liability may apply when a party (A) to a special relationship (mainly in connection with a future or already existing contract) induces and then breaks the reliance of the other party (B) to his detriment. The sanction can consist in a remedy through which the reliance of B is fulfilled or in a remedy that awards only the negative interest. The reliance is mostly based on assumptions regarding the present, fact or law; sometimes the assumptions have regard to the future behaviour of A.

156BGE 120 II 197. The Federal Court has also used this new concept to award damages in the expectation measure if a contract fails for lack of formality, although the victim knew the invalidity (BGE, 28 Jan. 2000 no. 4C.280/1999 in SemJud 2000 I, 549). And in a claim against a committee of an athletic competition, the Federal Court awarded damages for the expenses of an athlete who was not allowed to participate in the competition, after the committee changed the rules for participation (BGE 121 III 330). For an overview on the different scopes of application of the liability based on reliance see Loser, Vertrauenshaftung im Schweizerischen Schuldrecht, nn. 259ff., 1377ff.

157BGE 130 III 345.

158BGE 120 II 331. In a recent case (BGE 133 III 449), however, the Federal Court set out its reasoning: there is generally no protection of the reliance that the counterparty will fulfil a ‘promise’ without a binding contract. For further details on this concept, see Loser, Vertrauenshaftung im Schweizerischen Schuldrecht, nn. 971, 979ff.

In particular, this last type of liability based on reliance (culpa in contrahendo or liability of ‘third persons’) has given rise to criticism against the new concept.159 The critics are less opposed to the liability itself than to the theoretical grounds of the liability. It is argued that the liability (especially of ‘third persons’) should be based on tort rather than on a new concept between tort and contractual liability. The background of the debate, on the one hand, relates to the question whether the modalities of tortious liability (which are less favourable to the victim as mentioned above) are appropriate.160 On the other hand, there are different opinions on the scope of tortious liability in Swiss law (OR 41). Some authors reject the prevailing opinion that Swiss tort law protects special interests defined by the law, and that damages for pure economic loss are awarded only in case of the violation of a special norm (Schutznorm).161

It should be noted that a reform of the Swiss law of liability has been planned. According to the reform project culpa in contrahendo and any other form of liability based on reliance would be integrated into tort law.162 On the other hand, most differences between tort and contractual liability would be eliminated. The reform project, however, has been criticised, and it is not clear whether and to what extent it will be implemented.

On the facts given, A is liable on the ground of culpa in contrahendo. He has started negotiations with B without any intention to conclude a contract with B but with the sole purpose of inducing B not to conclude a contract with C. B’s reliance was based on an assumption related to

159 Cf. Schwenzer, Schweizerisches Obligationenrecht Allgemeiner Teil, n. 52.01ff.; Werro, La responsabilite´ civile, n. 314ff.; C. Widmer, ‘Vertrauenshaftung – Von der Gefa¨hrlichkeit

¨

des Uberflu¨ssigen’, ZSR 2001 I, 101ff.

160Despite the critics the Federal Court adopts the short limitation period of tortious liability (one year) for the liability based on reliance and for culpa in contrahendo: see BGE 134 III 390, 397ff.

161For the prevailing opinion with a narrow scope of tortious liability, compare BGE, 26 Sep. 2001 no. 4C.193/2000 E. 4a; and BGE, 30 Oct. 2002 no. 4C.202/2002 E. 4.1; BGE 133 III 323, 330; less clear BGE 130 III 345, 347. OR 41: ‘Whoever unlawfully causes damage to another, whether wilfully or negligently, shall be liable for damages.

Equally liable for damages is any person who wilfully causes damage to another in

Draft-OR 46; cf. P. Loser, ‘Kritische Uberlegungen zur Reform des privaten Haftpflichtrechts – Haftung aus Treu und Glauben, Verursachung und Verja¨hrung’, ZSR 2003 II, 133ff. For the Draft Rules and a Commentary see Revision und Vereinheitlichung des Haftpflichtrecht, Vorentwurf eines Bundesgesetzes/Erla¨uternder Bericht

(Bern, Bundesamt fu¨r Justiz, 2001; also at http://bj.admin.ch).

60 pr econtractual liability in european private law

the present fact; that is, A’s willingness to bargain and his serious intention to conclude the contract. The reliance is broken because the assumption was wrong. A is to blame for wrong information. He has breached his duty to negotiate in good faith.163

A must compensate B’s negative interest: he must put B into the position he would be in without the unfair negotiations. B would have sold the premises for E1.2m and now had to sell for E1m. A must pay the difference: E0.2m.

Wilful behaviour gives the right to damages in the expectation measure, according to some provisions.164 The extension of this rule to cases of broken-off negotiations is not appropriate, because it would conflict with the freedom to conclude the contract. The possibility of compensation in the expectation measure, according to prevailing

opinion, is limited to situations where a contract has been concluded (even if it is not valid).165

Editors’ comparative observations

At first sight, this set of facts gives rise to a common solution amongst the jurisdictions – a ‘common core’. All jurisdictions provide B with the remedy of damages, based on the ‘reliance’ interest. However, the solutions are in fact more nuanced: there is variation not only in the technical legal basis of A’s liability, but also in the identification of the ‘trigger’ for liability (the key facts which give rise to the liability) and in the calculation of the ‘reliance interest’.

Basis of liability: in giving their answers to this first case within the volume, most reporters have taken the opportunity of giving some account of the general approach of their jurisdiction to precontractual liability. The contrasts between the jurisdictions will become clearer as they are applied to the later cases, but already some lines can be drawn. A clear majority have a general principle of precontractual liability, although its legal basis varies. Some jurisdictions have an explicit and specific legislative rule for precontractual liability (Germany, Greece,

163BernerKommentar-Kramer, OR 22 n. 12, 14ff.; Hartmann, ZBJV 2003, 516ff.; Loser,

Vertrauenshaftung im Schweizerischen Schuldrecht, n. 620.

164OR 26 II, OR 39 II.

165Cf. Koller, Schweizerisches Obligationenrecht Allgemeiner Teil, § 28 n. 37; Loser, Vertrauenshaftung im Schweizerischen Schuldrecht, nn. 616ff., 628, 1241. Contra Widmer, Umfang des Schadenersatzes bei nicht zur Perfektion gelangten Vertra¨gen, 78, 178ff. (relevance of the causation if the contract would have been concluded).

Italy and Portugal); some regard the general principle of precontractual liability as part of the law of tort, and therefore base its legislative authority on the general legislative provision governing tort (Finland, France, Spain); some see it as an implicit principle, deduced either from other rules within the legislative texts (Austria and Switzerland; this was also the position in Germany before the 2001 reform of the BGB) or, in the case of non-codified jurisdictions, from general principles of law (Denmark, Norway and Sweden). By contrast, the reporters for England, Ireland and Scotland make clear that there is no generally accepted principle of precontractual liability (the Scottish reporters rather tantalisingly say ‘not yet’) and therefore they have to turn to other specific bases of liability for the pre-contract phase (contract, tort, restitution).

In applying these rules, all the jurisdictions would find A liable for his conduct described in the facts. England, Ireland and Scotland find A liable in tort. Most of those which have a general principle of precontractual liability find that A has broken his precontractual duties. But on the facts, in order to impose liability the Netherlands would turn to the law of tort (and not the general precontractual duty); Spain would turn to the doctrine of abuse of rights (rather than the general precontractual duty under the law of tort); and Austria and Germany would both consider that A might be liable in tort as well as for culpa in contrahendo. These differences point to the fact that the reporters do not all identify the same ‘trigger’ for liability on the facts.

‘Trigger’ for liability: as we shall see in the following cases, there are various different possible events during the precontractual phase that might give rise to liability on one negotiating party in favour of the other. The way in which a party starts the negotiations might give rise to a claim; or the way in which he conducts himself during the negotiations; or the way in which he breaks off the negotiations. Or there might be some particular state of mind which triggers the liability (such as the fact that some act by one party during the negotiations, which causes loss to the other party, was done with the intention to cause harm or – if it can rather loosely be said to be a state of mind – was done negligently). Or there might be a misrepresentation by one party, which causes the other to make a mistake and therefore suffer loss. The reports on case 1 already show some difference between the jurisdictions as to their focus on the various possible ‘triggers’.

The clearest division is between the jurisdictions that accept a general principle of good faith in negotiations, and those that do not. England, Ireland and Scotland regard the key fact here as being A’s

62 pr econtractual liability in european private law

misrepresentation about his intentions to conduct serious negotiations with B. And, more than that, it is crucial to the result that A’s misrepresentation was fraudulent. This places the claim within a specific tort: fraudulent misrepresentation, or deceit. Amongst the other jurisdictions, however, there is some difference of emphasis. Most focus on the fact that A started the negotiations in bad faith (Austria, Denmark, Finland, France, Germany, the Netherlands, Norway, Portugal and Switzerland) although some find alternative bases: the intention to cause harm (Austria, Germany and Greece – the first two as additional claims in delict, the last as part of the assessment of the breach of the duty of good faith); the bad faith conduct of the negotiations (Greece, Italy, the Netherlands, Spain and Sweden); the bad faith breaking-off of the negotiations (Austria and Italy). Some of these bases are taken together by some reporters, and therefore a firm distinction between them (such as between A having started and having continued the negotiations in bad faith) is not always made – generally, it appears, because these reporters are not addressing themselves to a particular question such as ‘did A begin the negotiations in bad faith’ but the more general legal question ‘was A in breach of his duty to negotiate in good faith’.

Remedy: all jurisdictions award damages to B, to compensate him for his ‘reliance interest’ losses. In most cases the reporters identify this as being E0.2m, as reflecting the value of the loss of the sale to C. Some reporters explicitly include B’s wasted costs in the recoverable damages, but it is not clear that any reporters would exclude the wasted costs, as long as they are causally related to the wrong which gives rise to the liability.

However, the reporters take slightly differing views about the figure of E0.2m as damages. Some jurisdictions will take an (apparently scientific) approach to the calculation of the actual loss that flows from B’s loss of the sale to C. Several jurisdictions will investigate the likelihood of the sale having proceeded with C at the price of E1.2m, and, indeed, whether the price of E1m ultimately secured by B is the best price he could (reasonably) have obtained, before being satisfied about the calculation; and where there is a doubt will reduce the damages by reference to the chance of the sale to C. In the case of some jurisdictions, however, the precise assessment of damages is said to be difficult to predict, even if there is no uncertainty about the sale to C, because of the judge’s discretion in the assessment (Denmark, France, Italy). France falls in both categories: it has a rule of assessment of damages which takes into account the chance of the loss of a replacement

contract; but then the actual assessment of the figure is less certain because of the trial judge’s power to assess the loss. It should be noted that these matters are not in any jurisdiction a peculiarity of the law governing precontractual liability. Although perhaps the question of chance might commonly arise in such claims (because inevitably a negotiating party’s losses will very often comprise the benefits he might have secured had the negotiations not been conducted by the other party in bad faith), the issues raised here are just highlighting differing views amongst the jurisdictions about how to value and compensate loss.

There is only one possible exception to the solution of ‘reliance’ damages in this case: in Portugal there is some support in the legal literature (and in one decided case) for the award of damages on the ‘expectation’ measure for culpa in contrahendo, although the reporter’s own preferred position is to maintain the traditional approach of ‘reliance’ damages, which therefore keeps him in line with all the other jurisdictions.