A contract does not come about overnight. A possible cooperation must first be investigated and desired terms of a contract must be discussed at length. Sometimes even several parties are initially negotiated simultaneously before a contract is concluded. It is important that there is room to ‘freely’ start and break off negotiations, and fortunately there is. However, this is limited in case law.
Reasonableness and fairness
Already in the 1950s it was determined that parties who negotiate with each other are governed in their relationship by reasonableness and fairness. In other words, they must take into account each other’s legitimate interests. In 1982 the Supreme Court considered that this obligation may entail that breaking off negotiations is unlawful.
Is breaking off unacceptable?
Breaking off negotiations is not easily unlawful. The Supreme Court emphasized in 2005 that the “breakup freedom” can only be departed from if breaking off negotiations is unacceptable. This unacceptability may exist due to various circumstances, but mainly due to legitimate expectations of the other party that an agreement will be reached. Also important is the attitude of the aborting party and whether there were unforeseen circumstances during the negotiations, for example.
Continuing negotiations or damages? Positive and negative contract interest
If it turns out that breaking off negotiations was unlawful, the court can force the breaking off party to continue negotiating anyway. Damages can also be claimed. The latter can be done in two ways. Depending on the situation, damage can be compensated in such a way that the other party is put in the position as if negotiations had never taken place (negative contract interest) or in such a way that the other party is put in the position as if negotiations had continued and a contract had been concluded (positive contract interest).
Not unlawful, but reimbursing costs incurred
What if the termination was not unacceptable, but you, as the other party, suffered significant damages? For example, because you incurred high costs for the negotiations? Even then there are possibilities. Earlier this year the Supreme Court emphasized that even if breaking off negotiations is acceptable, under certain circumstances the breaking off party can be obliged to reimburse (part of) the costs incurred. On a specific ruling in that area, see also this article. The breaking off by the franchisor was not unlawful, but its conduct meant that it had to reimburse the costs incurred by the candidate. After all, even negotiations are still governed by reasonableness and fairness.
Advice?
Whether or not there is liability to compensate damage or (part of) costs incurred in the event of broken negotiations always depends on specific circumstances. Are you engaged in negotiations and in doubt whether to continue them? Or have negotiations stopped while you have already incurred costs? For a look at the specific issue and advice on possible liability, please contact Jacolien Leuvenink.
