that the highest court (Hoge Raad) will not go into. Although the agreement is fairly vague it explicitly says that A is allowed to break off the negotiations for a proper reason. In this case B had more than one proper reason. First, C agrees to take on A’s whole workforce. If A cares about his workers it may be crucial to him that the new owner of his business takes on the whole workforce, whereas in the negotiations with B this question had remained open. Secondly, A agrees to pay a higher price (E3m). The difference in price is substantial: 50 per cent more. Therefore, it seems, under the alternative agreement A would probably not be liable.

Norway

Agreement to negotiate exclusively: no binding contract for the sale of the business exists – the agreement with respect to price is not sufficient – and the question then becomes whether A is subject to precontractual liability. A appears to have committed an obvious breach of duty with respect to B, which therefore should constitute liability. Determining the degree of liability, however, could give rise to certain problems.

According to Norwegian law, the parties can agree to follow certain rules during the negotiations, for instance, with respect to precontractual agreements. Such agreements are ‘binding as far as they go’.56 The agreement between the parties imposes on A ‘a period of three months during which he is not to negotiate with any third party nor [to] consider any proposal from a third party with a view to concluding a contract for the sale of the business’, which naturally also excludes other offers during this period. This binding agreement has been deliberately broken by A, and he is liable.

In the first instance, B can claim the accountants’ and lawyers’ expenses, in accordance with the reliance interest. Admittedly, the requirement to show cause and effect between the unlawful act and the

56Cf. Rt 1992, 1110, the Stiansen case, at 1114, which refers to a letter of intent with respect to a contract for the construction of buildings. In the rules of tendering, which are typical precontractual agreements, this has been stated on several occasions. One such occasion is referred to in Rt 1997, 574, the Lrlingeklausul case, at 577 where the presiding judge states: ‘The participants – if they have put time and money into submitting a tender – have the right to rely on the owner basing his negotiations and decisions on the agreed terms.’ In Rt 1998, 1951, the Klubben case, at 1957, it was said: ‘The municipality of Ulvik invited tenders for snow removal in the district. This implied that the municipal authorities in their choice to whom to grant contracts, also committed themselves to follow the rules for tendering.’ In neither case were the invitations to submit tenders subject to the EU/EEA regulations.

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loss might be a problem. The unlawful act occurs after the bulk of the expenses have been incurred, and nothing indicates that A originally had any other intention but to keep to the agreement. However, Norwegian courts might be willing to reduce to some extent the requirement of cause and effect in these cases.57

One might also ask if B may claim the expectation interest. In the present case this constitutes E1m (E3m less E2m). Whether it is possible to claim this loss as resulting from an unlawful act during the precontractual period has yet to be determined in Norway. Within the legal regulations with respect to tenders, two cases are available, both of which tend to favour such liability.58 If, in principle, B can claim such losses, the main problem is trying to demonstrate that he would have been awarded the contract if matters had been conducted according to the agreement. In the present case, we are informed that the parties had agreed on the purchase price. However, how strong is the likelihood that the remaining problems would be solved? And further, what is the likelihood of the business being sold at £1m below its real value? Does the agreement with respect to B’s offer exclude consideration of C’s offer?

Agreement to negotiate in good faith: if the parties had limited themselves to agreeing that A ‘will negotiate with B in good faith and only break off the negotiations for a proper reason’, it is far more uncertain whether A has broken his obligations towards B.

In such a case, there is no agreement to negotiate exclusively. The parties have in reality agreed on the usual obligation to act in good faith in precontractual situations. There is then no obligation that the

57In Rt 1997, 574, the Lrlingeklausul case, at 577, it was stated: ‘Preventative measures, and the particular difficulties arising with respect to liability in such situations, indicate in my opinion that no strict requirements should be applied as to cause and effect in order to establish liability where obviously unlawful acts have been committed.’

58In Rt 1997, 574, the Lrlingeklausul case, at 578, the presiding judge added, but without influencing the judgment, that ‘what is clear is that the parties, who would have been granted the business if the mistake had not occurred, can claim damages, presumably based on positive contractual liability’. In Rt 1998, 1398, the Torghatten case, legal obligations based on expectation interest were imposed on the municipal authorities. However, the case concerned compensation in a public administration situation, and therefore is not of major significance in resolving common disagreements with respect to tendering. Both cases concerned invitations to submit tenders which fell outside the EU/EEA regulations. For another argument that the expectation interest, circumstances allowing, should be awarded, see Simonsen, Precontractual Liability,

p. 352ff.

negotiations be exclusive.59 Furthermore, a breach of agreement as a result of a better offer from a third person would essentially be considered a valid reason from a business point of view for terminating the negotiations. Even if Norwegian courts would strongly emphasise the obligation to act in good faith when the parties have agreed to it, it is nonetheless doubtful whether A’s conduct is wrongful.

However, two questions arise: first, whether A is free to disregard the agreement on the purchase price of E2m. One can assume that the price was the major reason for breaking off negotiations with B. Norwegian law has no cases to refer to in this respect. In certain situations it has to be assumed that so-called ‘back trading’ (returning to points on which one had formerly agreed) would be contrary to the parties’ obligation to act in good faith. The main rule, however, is that partial agreement is not binding on the parties. In the present case, A presumably would have renegotiated the price. There are also grounds for him to withdraw for the same reason. The second question is whether B should have been given the opportunity to match C’s offer. In other words, should A have had a duty to warn B? There is reason to expect that A in the current situation should have given B this opportunity.

In the event of a breach of the obligation to act in good faith, the damages would be assessed as in the case of the agreement to negotiate exclusively, above.

Portugal

B can claim compensation based either in contractual liability or precontractual liability, but only for the expenses of the lawyers’ and accountants’ fees.

A and B have entered into a lock-out agreement. This kind of agreement is not very common in Portugal and only some legal writers refer to it.60 Our legal system would regard it as a contract establishing an obligation non facere. Therefore, B can claim losses and damages based only in the fact that A has failed to fulfil his obligation – contractual liability, established in article 798 of the Civil Code. As no penalty clause was stipulated, B would have to prove that he has suffered loss arising from A’s breach. However, the fact of B being unable to buy the

59See the Norwegian report on case 4.

60See E.S. Ju´nior, ‘Acordos interme´dios: Entre o inı´cio e o termo das negociac¸o˜ es para a formac¸a˜o do contrato’ ROA 57 (1997), 565, 594–5 and L.M. Leita˜o, ‘Negociac¸o˜ es e responsabilidade pre´-contratual nos contratos comerciais internacionais’ ROA 60 (2000), 49, 65ff.

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business for a price well below the market value cannot be seen as a loss arising from the breach of the contract because the sale was not yet concluded and therefore B had not acquired the right to purchase the business at that price (expectation interest). In Portuguese law a simple loss of the chance to purchase the business is not sufficient for a claim to expectation interest damages. Therefore B would be entitled to claim only compensation for his expenses, the accountants’ and lawyers’ fees.

The same solution arises from the rules of precontractual liability.61 In fact, the agreement on the price and the promise not to accept other proposals would be seen as a situation of reliance, which cannot be harmed without a good reason. The acceptance of another proposal in this situation would be considered as a breach of the duty of loyalty which makes A liable for the reliance interest. Therefore he could be required to pay the expenses B has incurred. The fact that B cannot buy the business at the agreed price is not, however, a loss that can be covered by precontractual liability, according to the majority of legal writers.

If A had instead agreed ‘that he will negotiate with B in good faith and only break off negotiations for a proper reason’ it makes no difference to the solution of this case. In fact, this kind of ‘agreement to negotiate’ would be considered irrelevant under Portuguese law as statute62 already establishes a duty to negotiate in good faith, from which can be established that no one should break off negotiations without a proper reason, and in this case A has a ‘proper reason’.63

Scotland

The undertaking by A given to B not to negotiate with other parties may operate as a free-standing contract or unilateral promise, so-called ‘lock-out’ agreements being valid obligations in Scots law.64 As consideration is not a requirement of Scots contract law, the lack of any consideration on A’s part would not preclude the enforceability of such an obligation. It would seem from the facts given that this undertaking has been broken, which should entitle B to damages for breach of contract or breach of promise.

61 Article 227 CC. 62 Article 227 CC.

63The Portuguese rules of interpretation require a contract to be interpreted by a normal person in the position of the party (art. 236 CC). Concepts such as ‘proper reason’ therefore give some margin for the judge’s interpretation.

64Dawson International plc v. Coats Paton plc 1988 SLT 854, affd. 1989 SLT 854.

One possible measure for the quantification of a damages claim for breach of a lock-out agreement would be to calculate B’s lost chance of concluding the deal, and use this as a multiplier in relation to the anticipated profit to be gained from the deal. It may, however, be impossible to assess the level of chance of such a deal being concluded successfully, in which case damages for the lost chance would not be awarded. As an alternative, wasted expenditure might be sought. In

Dawson International plc v. Coats Paton plc,65 the damages sought (some £8.3m) represented the costs of underwriting the proposed merger of the companies, printing and professional services related to the bid, and tax chargeable on recovery of these costs; in other words, wasted expenditure. These damages were sought under two alternative heads, namely breach of contract and the equitable recovery of wasted expenditure. While the case based upon the equitable remedy was dismissed by the judge, the claim based upon damages for breach of contract was thought relevant. Lord Prosser, considering the case at a further stage of procedure,66 addressed the question of whether wasted expenditure was an appropriate quantum for assessing damages. He agreed that it might be if it were possible to show that such expenditure would have been recovered had the breach of contract not occurred. On the facts of the case, he thought this unlikely. The general point is more important, however: such a quantification is theoretically possible in Scots law, even if it may be hard to recover in practice. If damages are awarded for the loss of the chance of concluding the deal, then damages for wasted expenditure would not be awarded, and vice versa.

Would it make a difference if A had instead agreed that ‘he will negotiate with B in good faith and only break off the negotiations for a proper reason’? It is unlikely that such an obligation would be enforced by the Scottish courts. A similar obligation was denied effect by the English courts in Walford v. Miles,67 which may fairly be described as the apogee of good faith scepticism in English law. This case has not been directly commented upon in any reported Scottish decision. At first sight, however, the decision in McCall’s Entertainments (Ayr) Ltd v. South Ayrshire Council (No. 1),68 in which Walford was cited to the court, appears

65 1988 SLT 854, affd. 1989 SLT 854. 66 1993 SLT 77. 67 [1992] 2 AC 128.

681998 SLT 1403. See also, for full facts proved after trial of the case and suggestive of the landlord’s bad faith, McCall’s Entertainments (Ayr) Ltd v. South Ayrshire Council (No. 2)

1998 SLT 1423.