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third stage was not reached, and A was not liable to compensate the expectation interest.

However, as discussed above, even before the third stage was reached a party may have to compensate the other party’s expenses when it breaks off negotiations. It is not at all clear under what circumstances negotiations reach this ‘third stage’. In this case, one could argue that if A had not made these reckless statements B would not have incurred all the expenses. Therefore, if B can prove this, one could argue that A should compensate B’s reliance interest. The argument that the parties were professionals could go either way: as a professional, A should not make such reckless statements; as a professional, B should not rely on mere statements of personal expectations. If A is indeed liable for the reliance interest, the question arises whether this would be different if it (honestly) gave as the reason for his breaking off the negotiations one of the circumstances which are mentioned in the statement of facts. Reasons (i) and (ii) seem to provide a good justification whereas (iii) is a reason which A probably should have thought of before starting negotiations.

Norway

As a rule, there is no requirement imposed on a party during the precontractual period to specify the reasons for breaking off negotiations: there does not exist a procedural requirement for providing a reason. However, there is reason to expect that the cause of the breach should not be irrelevant or unreasonable; there does exist a minimum material requirement as to the underlying reason for the break-off of negotiations. This is the case whether the cause of the break-off has been disclosed to the other party or not.53

In situation 1, there are also two aspects to the significance of the length of time of the negotiations. If, throughout the three years the negotiations have been carried on, reasonable progress has been made, such extensive negotiations might indicate that these are now in the

53See Rt 1995, 543, the Selsbakkhøgda housing cooperative case, at 552: ‘The presumption with respect to this type of agreement [letter of intent] is that the parties are not forced to enter into the intended agreement; however, in some situations, there might be certain considerations which should prevent the parties from withdrawing from the agreement too easily.’ This is supported in Simonsen, Precontractual Liability. This was discussed by the Supreme Court in Rt 1998, 761, the Kina Hansen case, at 772, though without a position being taken on the matter.

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lead to a liability for wasted expenditure if unsuccessful financing causes the project to be abandoned.’ In such a case, the requirements would presumably be more stringent with respect to tendering for a project which appears as a definite possibility, rather than negotiating a merger. But at least where the negotiations imply the use of greater resources, which seems to be the case in the present situation, the point of view expressed in the judgment is very significant.

(iv) ‘A general recession’: unfavourable economic fluctuations are part of the general risk which both parties in the negotiation process have to take.56 Consequently, no one can be liable in situations where negotiations break down owing to such conditions.

Knowledge of the reasons for the discontinuation of negotiations imposes an obligation on A to inform the other party. In the Swedish courts, this was stated in NJA 1990.745, the Super-V Pump case:57

From the discussion it appears that an agreement between the business firm and Go¨sta Svensson was not reached until 16 February 1982, and that the board consequently determined that Bertil L. should no longer be considered eligible for obtaining a resale agreement with exclusive rights. It was the duty of the firm to inform Bertil L. of its decision as early as possible.

Similar conditions would also hold under Norwegian law. On this basis, it is apparent that if A fails to provide information about the reasons for discontinuing negotiations at the earliest possible moment, it will be held liable. Losses which could be claimed by B are expenses which could have been avoided if information had been given in due time.

Situation 2 is different insofar as the negotiations after a brief period of time have led to agreement on all major points of the contract, and that only ‘a few minor points remain’ to be settled, at which time A decides to break off the negotiations. Even in this case A does not have a procedural duty to give B a reason for discontinuing the negotiations, although good business practice would require that an explanation be provided. (Further, it would be difficult to determine the consequences a failure to inform might have.) It must, however, have a good reason for breaking off.58

With respect to the material requirements for not breaking off negotiations on irrelevant or unreasonable grounds, the requirement of good faith is more rigorous when the parties are in the final stages of negotiation. Whether the parties have spent considerable time or little

56 Simonsen, Precontractual Liability, p. 199ff. 57 At 760.

58There are, however, no Norwegian Supreme Court cases determining the duty to have a good reason for terminating the negotiations in their final stage.

time to reach this stage is, however, of little consequence. The only difference here in relation to the possible reasons for breaking off is in reason (i). Since the parties now are at the very end of the negotiating process – they are about to enter into a binding contract – it would be timely to impose a duty to inform the other party, so as to enable that party to match an offer from a third party. Whether one for a short period may still operate under a prohibition to negotiate with others is more doubtful. Furthermore, a prohibition against entertaining other offers is out of the question unless such a limitation has already been agreed to.

In situation 3, where A on several occasions has announced that their goals would be reached, the requirement as to what constitutes a valid reason for breaking off becomes more rigorous. Statements such as this contribute to strengthening the belief that an agreement would be achieved. This holds even if the parties are not yet in the final stages of the negotiations. A well-founded assumption of entering into an agreement would provide greater legal protection than less definite assumptions. The discussion in relation to situation 2 of the possible reasons for breaking off would equally apply in situation 3.

Portugal

In situation 1, B is entitled to compensation based in precontractual liability for the expenses it has incurred if A breaks off the negotiations which have lasted three years without giving any reason at all. Article 227 of the Civil Code establishes a duty to negotiate in good faith, from which it can be derived that no one should break off negotiations without a proper reason. The fact that A has not made any statement to B that it is convinced that they will reach final agreement does not prevent precontractual liability, because the fact that the negotiations lasted for so long and were so intense created a situation of trust.

If A (honestly) gives a reason for breaking off negotiations, the situation would be different. However, the reason must be very strong to justify that breach of trust. If the reason (i) is the fact that it has received a better offer from C for a merger of A’s firm with C’s firm, it is a fair reason to break off negotiations because there was no lockout agreement, so a better proposal is always a ground to break off negotiations.59 The fact that A has discovered (ii) that there is an

59See M.J. de A. Costa, Responsabilidade civil pela ruptura das negociac¸o˜es preparato´rias de um contrato, p. 63.

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insurmountable cultural difference between the firms could also be a fair reason to break off negotiations, but A should have investigated the cultural differences and so it does not necessarily exclude A’s precontractual liability unless B had kept it a secret from A. The fact that A (iii) cannot afford the merger is certainly not a ground to break off long-term negotiations because A should have known about it earlier. Finally, the fact (iv) that the recession has made the merger less attractive is certainly not a valid ground to break off long-term negotiations. Only a strong economic reason against the merger would be sufficient.60

If A knew of the reason a year before it broke off negotiations it can no longer invoke it, because it is against good faith not to disclose a fair reason to break off negotiations as soon as it is known.61 The remedy would be the expenses B incurred during the year.

In situation 2, B is entitled to compensation for the expenses it incurred, based in precontractual liability,62 if, without giving any reason at all, A breaks off the negotiations which have already come to an agreement on all major points. Here we have also a situation of reliance, because the fact that the parties easily reached agreement on all major points creates in B the impression that the negotiations would continue and a final agreement would be reached. This is similar to situation 1, with only the difference that the negotiations were at the beginning when they were broken off. However, the fact that the negotiations were at the beginning does not necessarily exclude precontractual liability if a situation of trust was created by A. The fact that A has not made any statement that it is convinced that the parties would reach final agreement is not a sufficient reason to exclude any situation of trust, because the fact that an agreement was immediately reached on all major points can also be considered as a situation of trust.

As in situation 1, if A (honestly) gives a reason for breaking off negotiations the situation would be different. However, as in this case the negotiations were at the beginning the reason does not have to be as strong to justify the breach of trust. Reason (i) is a fair reason to break

60Portuguese law refers to change of circumstances after the completion of a contract in art. 437 and only considers it relevant if the change is ‘abnormal’ and ‘not covered by the normal risks of the contract’.

61As regards to the duties of disclosure imposed by the rule of good faith, see A.M. Cordeiro, Da Boa Fe´ no Direito Civil, p. 549ff.

62Article 227 CC.