Case 7: Breakdown of merger negotiations

Case 7

A and B, both major firms of accountants, negotiate with a view to the merger of their firms. A breaks off the negotiations.

There are three separate situations to consider:

1.A breaks off the negotiations after three years of very intense negotiations in which both parties have incurred considerable expenses, but where the parties recognise that they have not yet reached agreement on all major points and A has not made any statement to B that it is convinced that they will reach final agreement.

2.A breaks off the negotiations quite soon after their beginning, but after the parties have reached agreement on all major points, and only a few minor points remain to be settled. A has not made any statement to B that it is convinced that they will reach final agreement. B has already incurred legal expenses.

3.A breaks off the negotiations when the parties have not yet reached agreement on all major points but A has more than once made statements to B that it is convinced that they will reach final agreement. B has already incurred legal expenses.

What liability (in contract, tort, restitution, or any other form of liability), if any, does A have to B in each of these situations if A gives no reason for breaking off the negotiations? Would it make a difference if it (honestly) gives as the reason for breaking off the negotiations:

(i)it has received a better offer from C for a merger of A’s firm with C’s firm;

(ii)it has discovered that there is an insurmountable cultural difference between the firms;

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