Case 8: A shopping centre without a tenant

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partner’s confidence in the completion of the deal prevails, is a matter of case-by-case analysis.1

The crucial question is again whether A’s conduct was such as to lull B into a false sense of security that the rental agreement would be concluded. Was it ‘lulling B into a false sense of security’ when A remained silent upon witnessing that B included in the construction work elements of the design and construction which it had proposed? Was it right for A to observe the building work advancing further before initiating a survey of the prospective client base, and was it right for A to break off the negotiations after the survey gave rise to a disappointing prognosis of the profitability of a department store in B’s building?

A ought to have warned B as soon as it realised that B was adhering to the design A had proposed for the layout of the shopping centre.2 A had a duty of care vis-a`-vis B. The violation of this duty results in a liability under the established rules of culpa in contrahendo. A will have to compensate B’s reliance loss: the difference in the construction costs, if adherence to A’s design caused higher costs. It is doubtful whether A would have to pay the cost of reconstructing the building by removing the specific construction elements indicating it to be A’s store and reshaping the building in a neutral design. It is certain, however, that B has no claim for the loss of rent from A.

Denmark

B, who is a professional, acts improvidently by building the shopping centre following A’s concepts without having obtained any contractual commitments from A. A probably has no duty to warn B when B starts and continues to build even if A is uncertain whether it will use the building. A Danish court would probably be confirmed in this view by the decision in the Swedish Supreme Court decision in the Abacus case.3 A has no liability to B.

England

A has no liability to B unless either B can show some statement by A on which to found a claim in the tort of deceit, or the English courts are

1See, e.g., OGH 8 Oct. 1975, SZ 48/102; 6 July 1976, SZ 49/94; 30 May 1979, SZ 52/90; 30 Jan. 1980, SZ 53/13.

2See, e.g., OGH 28 May 1991, JBl 1992, 118; 29 May 1995, SZ 68/105.

3NJA 1978.147; see the Swedish report below.

prepared to develop English law in a manner similar to developments already made by the High Court of Australia.

B has no claim in contract for A’s failure to take the lease, because the negotiations for the lease are not yet concluded and, in any case, a contract to grant a lease of more than three years must be in writing, signed by both parties.4 Nor does there appear on the facts to be any other contract. Although B undertakes building work in accordance with A’s indications about the layout it wishes to have, there is no contract between them for the building work: B does the work in anticipation of the proposed lease. A commits no tort by breaking off the negotiations, unless it made a false statement about its intention to continue with the negotiations and take the lease, at a time when it had already no such intention or when it knew that there was a risk that it would not be able to take the lease. Such a statement would be fraudulent, and so would form the basis of a claim by B in the tort of deceit to recover the losses he has suffered by relying on it. This is not the lost profits which the actual shopping centre (with A as tenant) would have made: that would be the measure of damages in contract, not tort. But B could claim in the tort of deceit the sum by which his wealth is diminished by his reliance on A’s fraudulent statement: this may be the costs wasted in building the shopping centre and the lost use of his capital in the meantime (that is, his capital could have been employed in another shopping centre, without A’s involvement).5 Although there is no evidence that A made such a statement, a court would be likely to examine very carefully its words and conduct to see whether it made a fraudulent misrepresentation. This liability arises only if B can identify a misrepresentation: A has no duty to inform B about the risks he runs by incurring the costs of building to A’s layout – not even when A knows that it might not in fact proceed to a finalised contract.

B will argue that there might be a claim in restitution, under which he is entitled to be paid the value of the services (the building work) performed at A’s request. However, such a claim is unlikely to succeed. A party to a contract which is not ultimately entered into may sometimes be able to recover in restitution for the value of services performed at the other party’s request which go beyond the normal preparatory work for the intended contract. This is an area of English law which is not entirely settled. In principle a claim in restitution

4Law of Property (Miscellaneous Provisions) Act 1989, s. 2.

5East v. Maurer [1991] 1 WLR 461.

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ought to be limited to the value of the benefit received by the defendant (which would here be nil, since the work is done on B’s own property), but sometimes judges have held that the mere fact that the claimant performed services at the defendant’s request was itself a benefit for which the defendant must pay; and the value of the benefit has been measured by the claimant’s cost of providing the services.6 However, the case here seems not even to fall within this principle, since it does not appear that there was a sufficiently clear request by A that B should begin the work in anticipation of the conclusion of the negotiations for the lease; and in a case where it is still not yet clear that the contract will be entered into, the normal rule is that precontractual expenditure is at the risk of the spending party.7

In a case similar to the facts given here, the High Court of Australia has extended the doctrine of promissory estoppel to impose liability on the party seeking to withdraw from negotiations. In Waltons Stores (Interstate) Ltd v. Maher,8 there was not yet a concluded contract to grant the lease of the property but the prospective tenant, who had sought to withdraw, had encouraged the landowner to continue to build the property when he had already decided not to take the lease. The High Court held that the tenant was estopped from denying that he was bound to complete the lease, because it would be unconscionable for him to retreat from his implied promise to complete the contract. The remedy was not, however, specific enforcement of the undertaking to complete the contract, but damages. This analysis is not, however, possible in England below the level of the House of Lords since it has been authoritatively held by the Court of Appeal that promissory estoppel cannot be used to create new obligations; the doctrine generally applies only to prevent one party to a contract from going back on a promise to the other party that he will not enforce his existing rights under the contract.9

6William Lacey (Hounslow) Ltd v. Davis [1957] 1 WLR 932; Brewer Street Investments Ltd v. Barclay Woollen Co Ltd [1954] 1 QB 428 (Lord Denning: the other two judges decided the case on the basis that there was a contract for the work). For discussion of the

controversial aspects of the valuation of the benefit for a claim in restitution, see Goff and Jones, The Law of Restitution, ch. 26; P. Birks in Burrows, Essays on the Law of Restitution; Burrows, The Law of Restitution, pp. 16–25, 372–81.

7Regalian Properties plc v. London Docklands Development Corporation [1995] 1 WLR 212; there, however, the negotiations were expressly ‘subject to contract’.

8(1988) 164 CLR 387.

9Combe v. Combe [1951] 2 KB 215; Baird Textile Holdings Ltd v. Marks & Spencer plc [2002] 1 All ER (Com) 737. The facts in our case are, though, less strong than in Waltons Stores