Irish society of comparative law

2° - The rarely admetted granting of expectation interests

65. In the main, expectation interests are based on the culpa in contrahendo doctrine. However, two fundamental questions have to be distinguished. The injured party may be tempted to request a compensation either because by the loss of an opportunity to conclude the contract or because of the loss of the opportunity to conclude a contract with a third party. The first basis seems to be refused by nearly all legal systems (a) while the second one may be received occasionally (b).
a. The general rejection of compensation for prejudices caused by the non conclusion of the conclusion of a contract

66. Is it possible to compensate the prejudice due the non-conclusion of the contract? Can we imagine that damages will be granted with regard to the financial stake of the contract that was expected to be concluded? The answer seems to be negative and common sense could indicate that it should not be taken to that point. Such a situation would effectively be financially equivalent to the conclusion of the contract. However, is it possible to compensate the loss of the opportunity to sign the contract? This compensation will necesserally be inferior to the financial stake that was hoped, because there is also a chance that the contract would never have been concluded. French case law seemed, at a certain time, attracted by this type of solution⁸⁹.
Remarkably, French doctrine showed a lot of enthusiasm toward this idea⁹⁰, even though it was still giving a rise to few reservations⁹¹.

67. However, French Supreme Court had to opposer herself to this type of solution. In November, the 26^th of 2003, a French court of appeal decided in its “Manoukian”⁹² ruling that “the constitutive circumstances of a blameworthy conduct committed in exercise of the right of unilateral rupture of pre-contractual negotiations is not the cause of the prejudice consisting in the loss of the opportunity to obtain the gains that could have arisen from the conclusion of the contract”.
Consequently, French law does not admit the existence of a prejudice resulting from the loss of profits caused by the non-conclusion of a contract. This position is reiterated, for instance, in a decision of the Commercial Division of the French Supreme Court dated March, the 1^st of 2011 (no. 10-12268). Here, the Supreme Court nullified the decision of the court of that granted a EUR 100,000.00 compensation for the loss of the chance of the conclusion of the contract. In detail, the court of appeal relies on the development of negotiations as well as on the fact that the parties already agreed on some important points.

Indeed, the Supreme Court held that “in the absence of a definitive and determined agreement, the prejudice incurred by M. X.… only included fees caused by the negotiations and fees of a necessary prior assessment. In contrast, the prejudice included neither the gain, that could be generated in case of the conclusion of the contract and could be taken from the activities of the company “ATS studios”, nor the loss of the opportunity to obtain the gain”.

The solution that the Supreme Court adopted has been integrated to the 2008 Ministry of Justice obligation reform project. Indeed, Article 20 pas.3 provides: “The damages allowed should not aim at compensating the loss of the profits expected from the unconcluded contract”.

68. Nevertheless, this does not prevent legal disputes before French courts about the aforementioned compensation of fees caused by negotiations (legal fees, for instance, but moreover, some pre-contractual negotiations may generate high investigations for computer and industrial installations, compliance costs, etc.), and the compensation of other prejudices that is awarded by judges.

69. Another decision of the Paris Court of appeal, pole 5, Ch. 5, dated November, the 25^th of 2010 may be mentioned, holding that “the judgment will be confirmed considering the fact that it held that the Pergo companies had abusively broken off the pre-contractual negotiation between the parties, and therefore, on March 2002, the company Décor Tapis was obliged to break off an agreement concerning the occupation of Metz premises; and due to the fact that the prejudice incurred by Décor consists in investment made in pure lost and in the loss of profits based on this project whose success was not ensured. Therefore, the court appreciated an amount of EUR 100,000.00”. However, it is important to point out that the aforementioned contract had already been partly, which is getting us far from the of the hypothesis of a simple breaking off of negotiations.

70. Of course, Belgian law applies the French solution. Generally, the loss of expected advantages based on the contract, that would have been concluded if negotiations had les to a positive result, cannot constitute compensatory damages⁹³. The main idea is that the negotiations do not engender a right to conclude the contract⁹⁴. In contrast, the doctrine does not necessarily agree with this approach⁹⁵.

71. Similarly, the Luxembourg’s Court of appeal legal precedents are limiting the compensation of the damage caused by the rupture of negotiations to fees generated by an unsuccessful negotiation and prior studies and expenses made by the other party⁹⁶. Nevertheless, some Districts Courts would grant the expected gain of the non-concluded contract⁹⁷.

72. German case law applies the same solution. In pre-contractual situations, the injured party will not be able to recover the value of the promised performance, explicitly the expectation interest (Erfüllungsinteresse, positives Interesse) because this claim implies the definite conclusion of the contract⁹⁸. Prior to conclusion of the contract, the injured party is entitled to achieve the expectation interest only on condition that the parties had concluded a binding pre-contract concerning the conclusion of the principle contract. However, a letter of intent does not include a binding stipulation concerning the forthcoming principle contract but only documents the sincerity of the parties’ intention regarding the future principle contract. In this regard, it is crucial to distinguish clearly between a pre-contract and a letter of intent⁹⁹.

b. The remedy for the loss of the opportunity to conclude the contract with one or several third parties

73. The contract signed in order to frame the negotiations generates some expectations that entitle the aggrieved party to compensation. Exceptionally, the German law recognises this type of compensation.
In German law, the damages recoverable under articles 311 II, 241 II, 280 I BGB also include ‘positive interest damages’ in exceptional cases. Such favourable circumstances arise when the injured party proves that it would have concluded a more favourable contract if the breach of the pre-contractual duty had not taken place¹⁰⁰. Finally, the loss of reputation caused by an arbitrary termination of the pre-contractual negotiations causes claim for damages in favour of the injured party provided that the injured party suffered an economic loss and this would not have happened without the blameworthy conduct of the injuring party.

74. Nonetheless, beyond the culpa in contrahendo doctrine, courts of various countries recognise the possibility to obtain damages for the loss of the opportunity to conclude a contract with a third party on the same or more advantageous conditions. Italian and French law have the same approach. A decision of the Commercial Division of the French Supreme Court dated April, the 7^th of 1998 ruled that “by deciding that company P had, because of the blameworthy conduct of company S, immobilized in pure loss its patented process for four years without having the possibility to negotiate with other parties during this period, and due to the fact that company S disclosed its know-how, and by assessing damages deriving from this situation, the court of appeal legally justified her decision”.

75. The time that the party spends in order to conclude a contract represents lost time in regard to the possibility of conclusion of a contract with a third party. Evidently, a chance has been lost. This lost opportunity to conclude a contract with a third party has nothing to do with the breaking off of the contract, but instead, with the conduct of the author of the rupture, which means with the expectations of a probable reaching of an agreement that he engendered in the other party’s mind. Finally, these expectations dissuade the other party from looking for other contractual partners.

76. The aggrieved party has to prove that a loss of a chance is real. If the behavior of the injuring party actually dissuades the other party from the opportunity to contract with another party at the same time, it will be necessary to prove “that the victim would have conclude the contract with the third party and would have benefit from it”¹⁰¹. Consequently, a complaint had been rejected for the reason that the injured party “did not substantiate its opportunity to conclude a contract with the third party”¹⁰².

77. Swiss law recognizes the compensation of the lost gain under the condition that the contract with the third party could have been concluded. Still, to obtain compensation, the injured party has to prove that the contract would have been concluded surely and that the only reason of its rejection was the fact that the party had ongoing contractual negotiations with the party he is claiming damages to. “Of course, this kind of compensation¹⁰³ can only be brought in court in a few exceptional cases”.

CONCLUSION

78. As a conclusion for this study, we will note that almost every legal system is relying on the freedom of contract principle. Everyone is therefore absolutely free to conclude or end the negotiation that he entered in for the takeover of a company. The will of the parties to negotiate in a frame that generates obligations can be expressed in a letter of intent that contains pretty universal clauses. Beyond these remarks, it has to be underlined that different legal systems do not have the same approach of the breaking off of negotiations phenomenon. Common law countries are hostile to the idea of a sanction for the breaking off, except maybe in very specific circumstances. European law principles and some national legal systems impose an obligation to negotiate in good faith that arises from specific provisions of the law, an obligation that leads to the observation of some misbehavior.

79. If the bases of the actions in compensation are different, the results of it are always modest, which is pretty logical considering that the judge wants to preserve the freedom of contract., In the majority of legal systems, it seems possible to compensate the damnum emergens. On the other hand, about the lucrum cessans, the only conceivable compensation is the basis of the loss of an opportunity to negotiate with a third party: but this way is tight.

1 Professor at Paris 1 University, Sorbonne School of Law, IRJS – André Tunc Institute

2 Professor at Jules Verne University (Univeristy of Picardie), IRJS – André Tunc Institute.

3 Capital finance 22 mars 2010 n° 966 p. 10.

4 Capital finance, loc. cit.

5 J.-M. AMBROSI, J.-M. LONCLE et J.-Y. TROCHON, « Pratique des négociations dans les rapprochements d’entreprises », EFE 2011, n° 206, p. 152.

6 Cass. com., 23 octobre 1990, Lexilaser, case n° 1215.

7 Cf. Sandie LACROIX DE SOUSA, « La cession de droits sociaux », LGDJ 2010, n° 306, p. 262.

8 « Contrats entre Etats ou entreprises étatiques et personnes privées. Développements récents », Recueil des cours de l’Académie de Droit International de La Haye, 1983, p. 40.

9 Carlo MASTELLONE, « Choice of law and jurisdiction clauses in cross-border agency and distribution agreements from an EU perspective », UIA Seminar, The Issues which really count for clients in International Agency, Distribution and Franchising Agreements – An Update for some, an eye opener for others ! Atlanta 1-2 May 2009 p. 4.

10 Friedrich KESSLER & Edith FINE, “Culpa in contrahendo, bargaining in good faith, and freedom of contract: A comparative study”, 77 Harv. L. Rev. (1964), 401 (401); M. Winfried THOMAS SCHNEIDER, supra note 1 (960).

11 Sylviane COLOMBO, “The present differences between the civil law and the common law words with regard to culpa in contrahendo”, Tilburg foreign Law Review, vol. 2:341, p. 341 (349).

12 R. NOAVA, “Culpa in contrahendo, a comparative study: Chilean law and United Nations Convention on contracts for the international sales of goods (CISG)”, Arizona Journal of International & Comparative Law, vol. 22 no. 3 (2005), 583 (584); KESSLER & Edith FINE, supra note 10 (402).

13 Friedrich KESSLER & Edith FINE, supra note 10 (402).

14 R. NOAVA, supra note 12 (584).

15 Friedrich KESSLER & Edith FINE, supra note 10 (402).

16 Sylviane COLOMBO, supra note 11 (350).

17 M. Winfried THOMAS SCHNEIDER, supra note 10 (960).

18 German Civil Code translation.

http://www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.html#BGBengl_000P249

19 M. Winfried THOMAS SCHNEIDER, supra note 10 (960); R. NOAVA, supra note 12 (585).

20 M. Winfried- THOMAS SCHNEIDER, supra note 10 (960).

21 J. TROCHON, J. M. LONCLE, « Les risques juridiques inhérents aux pourparlers dans les rapprochements d’entreprises », Petites affiches, Septembre 1996, n° 106, p. 4, para. 4.6; Sylviane COLOMBO, supra note 11 (351).

22 V. HENTE, “The recent German law, implementing a modernisation of German contract law”, RDAI / IBLJ, no. 3 (2005), 359 (359).

23 R. KNÜTEL, Zur Schuldrechtsreform, NJW 2001, 2519 ( 2519); V. HENTE, supra note 22 (359).

24 V. HENTE, supra note 22 (359).

25 C. WITZ, « Pourquoi la réforme et pourquoi s’y intéresser en France ? », Revue internationale de droit comparé, vol. 54, no. 4, oct. - dec. 2002, 935 (938); R. KNÜTEL, supra note 23 (2521).

26 V. HENTE, supra note 22 (369).

27 Cour de justice des Communautés européennes, C-334/00, Conclusion de l’avocat général Geelhoed présentées le 31 janvier 2002, para . 60 ff; M. Winfried THOMAS SCHNEIDER, supra note 10 (961).

28 Obligations created by legal transaction and obligations similar to legal transactions.

(1) In order to create an obligation by legal transaction and to alter the contents of an obligation, a contract between the parties is necessary, unless otherwise provided by statute.

(2) An obligation with duties under section 241 (2) also comes into existence by

the commencement of contract negotiations

the initiation of a contract where one party, with regard to a potential contractual relationship, gives the other party the possibility of affecting his rights, legal interests and other interests, or entrusts these to him, or

similar business contacts.

(3) An obligation with duties under section 241 (2) may also come into existence in relation to persons who are not themselves intended to be parties to the contract. Such an obligation comes into existence in particular if the third party, by laying claim to being given a particularly high degree of trust, substantially influences the pre-contract negotiations or the entering into of the contract

29 Duties arising from an obligation

(1) By virtue of an obligation an obligee is entitled to claim performance from the obligor. The performance may also consist in forbearance.

(2) An obligation may also, depending on its contents, oblige each party to take account of the rights, legal interests and other interests of the other party.

30 Damages for breach of duty

(1) If the obligor breaches a duty arising from the obligation, the obligee may demand damages for the damage caused thereby. This does not apply if the obligor is not responsible for the breach of duty.

31 M. SCHWAB, “Grundfälle zu culpa in contrahendo, Sachwalterhaftung und Vertrag mit Schutzwirkungen für Dritte nach neuem Schuldrecht”, JuS 2002, 773, 773.

32 M. Winfried THOMAS SCHNEIDER, supra note 10 (961); M. SCHWAB, supra note 31 (773).

33 N. BASS, “Eleventh hour collapse: An elements-based comparison of the German doctrine of culpa in contrahendo and Australian principles of pre-contractual liability”, MqJBL (2009) vol. 6, 217 (223).

34 Voir Enrico CASTALDI et Lisa Alice JULIEN, « La cession de participations en droit italien », Journal des sociétés, n° 82, Décembre 2010, p. 26 et s.

35 Enrico CASTALDI & Lisa Alice JULIEN, op. cit., loc. cit.

36 There is very rich literature on this topic in Belgium. See notably, B. de CONNINCK « Le droit commune de la rupture des négociations précontractuelles », in Le processus de formation du contrat, Bruxelles, Bruylant 2020, p. 21, LGDJ ; M. FORGES « Principes applicables à la rupture et à l’aménagement conventionnel des pourparlers en droit belge », Annales de droit de Louvain 1995, p. 439-462.

37Etienne MONTERO & Marie DEMOULIN, « La formation du contrat depuis le Code civil de 1804 : un régime en mouvement sous une lettre figée », in Le droit des obligations contractuelles et le bicentenaire du Code civil 2004 p. 61-120.

38 Olivier RISKE, « Le processus d’uniformisation du droit privé européen et la responsabilité précontractuelle », Mémoire Faculté de Droit Université de Neuchâtel, 2009 n° 3.2.2.2.

39 Voir Nicolas ROUILLER, « Devoirs précontractuels (Culpa in contrahendo) : l’identification exacte de leur violation et ses conséquences », Centre du droit de l’Entreprise de l’Université de Lausanne, Bulletin CEDIDAC n° 45, octobre 2006.

40 Sandrine TISSEYRE, « Le rôle de la bonne foi en droit des contrats », Thesis, Paris 1, 2010, n° 20.

41 Laurent VANDOMME, « La négociation des contrats internationaux », in RDAI/IBLJ, n° 5, 2003, p. 495.

42 Bénédicte FAUVARQUE-COSSON, « La confiance légitime et l’estoppel », article, § 3.4.2.2, Electronic Journal of Comparative Law, vol. 11-3 (December 2007).

43 Cf. FARNSWORTH, “Precontractual Liability and Preliminary Agreements : Fair Dealing and Failed Negotiations”, 87, Columbia Law Review, 217, 221 (1987).

44 Lord ACKNER in Walford v. Miles (1992) 1 All E.R. 453 (HL). On that case, see B.J. DAVENPORT, « Lock-Out Agreements », (1991) 107 LQR 366 ; P. NEILL, « A Key to Lock-Out Agreements », (1992) 108 LQR 405 ; R.P. BUCKLEY, « Wadford v. Miles : False Certainty ABOUT Uncertainty – An Australian Perspective”, (1993) 6 JCL 58 ; Lord STEYN, “Contract Law : Fulfilling the Reasonable Expectations of Honest Men”, (1997) 113 LQR 433.

45 Omer TENE, « Good Faith in Precontractual Negotiations: A. Franco-German American Perspective”, Working Paper November 8, 2006, Social Science Research Network.

46 850 F.2d 1217 : Shelly Feldman, Individually and D/b/a Shelly Feldmanassociates, Plaintiff-appellant, v. Allegheny International, Inc., et al., Defendants-appellees

47 Ralph SCHLOSSER, « Les lettres d’intention : portée et sanction des accords précontractuels » in « Responsabilité civile et assurance », Etudes en l’honneur de Baptiste RUSCONI, Lausanne, 2000, p. 345 et s.

48 Laurent VANDOMME « La négociation des contrats internationaux » article précité p. 496. Voir aux USA « A court might hold a larger breakup fee as a penalty, especially where … the break up fee is preclusive or coercive » (martin D. GINSBURG et Jack S. LEVIN “Mergers, Acquisitions, and Buyouts” Wollers KLUWER 2008, Volume 3 n° 1702-4-3). Dans le système américain, les break-up fees peuvent atteindre 2 à 4% du prix d’acquisition : ces chiffres constituent de « reasonables breakup fees » (Martin D. GINSBURG et Jack S. LEVIN « Mergers, Acquisition, and Buyouts » précité)

49 Ralph SCHLOSSER « Les lettres d’intention … » article précité p. 360

50 There is a lot of literature in France on this topic, see for instance, Jacques GHESTIN « La responsabilité délictuelle pur rupture des pourparlers en droit français » in Liber Amicorum Guido ALPA « Private Law beyond the national systems » 2007, JCP 2007, Etude I 157 ; Olivier DESHAYES « La rupture des pourparlers », LPA 9 octobre 2008 n° 203 p. 4 et s. ; Patrick CHAUVEL « Rupture des pourparlers et responsabilité délictuelle », Dalloz 1999 p. 514.

51 Cass. com., 23 octobre 1990, Lexilaser, case n° 1215.

52 Cass. com., 12 janvier 1999, Droit et patrimoine, septembre 1999, p. 97, obs. P. CHAUVEL.

53 Cass. com., 18 décembre 1990, Juris-data n° 003 753.

54 Sandrine TISSEYRE, thesis, supra note 40, n° 181

55 Cass. com., 9 nov. 2010, 09-70726, publié au Bull.

56 Etienne MONTERO et Marie DEMOULIN, précités n° 27.

57 MONTERO et DEMOULIN,