12.0 Introductie

Since time immemorial people have been negotiating. Whether they negotiated about the exchange value of a flint in relation to beads, the price of a camel, employment conditions or, in the family situation, the next holiday destination, in negotiations in general we seek to satisfy our own needs to the extent possible and to realise our basic principles. This implies that negotiating parties initially will try to create as much freedom as possible for themselves to be able to negotiate with third parties and to consider possible alternatives that will satisfy their needs just as well or possibly even betten This in itself is not wrong; it is the consequence of the principle of freedom of contract which governs our Dutch law. As almost any right, the right to break off negotiations once they started and then to conclude a contract with a third party, has its limitations. These limitations are felt where the interests of the partner in the negotiations at some point weigh heavier than the wish to fulfil the principle of the freedom of contract that not only implies that people are free to negotiate with anyone, at any time and about anything but also implies that (therefore) people also have the right to break off these negotiations at any time.

In other words: anyone who negotiates regarding the conclusion of an agreement cannot — just as in the contractual phase — lose sight of the interests of the other party and his conduct may not only be guided by his own interests but also by the justified interests of the partner in the negotiations. This area of tension forms the core of this doctoral thesis and the central research questions are directly related to this:

The purpose of this book is to answer these questions in a practice-oriented mannen The status quo of this doctrine is commented on and suggestions are made about areas where in my view this doctrine should develop in another direction and situations are found that are ambiguous. As indicated above, this book aims at being practice-oriented, which was also the reason to question the same (law) practice, by means of a survey, about their findings and wishes with respect to the doctrine which forms the subject of this book and also the reason to include some aspects of private international law.

In this part of chapter 11 in Enlish, I summarize the most essential aspects of this book. To the extent possible I will maintain the chronology of the chapters. Then I will answer the research questions and formulate a number of conclusions. I will conclude with some recommendations.

Not only in Dutch law do we encounter the doctrine of breaking off negotiations. This doctrine is known in other jurisdictions as well. Part of this book is a short comparative law study of German, English and American law. In these jurisdictions solutions have been looked for and found to solve the problems arising from the area of tension discussed in this book, be it that the roads taken in the respective jurisdictions examined by me to find the required results are very different and in respect of the legal consequences of unlawfully breaking off negotiations none of the jurisdictions examined have consequences as far-reaching as under Dutch law. For instance, in German law culpa in contrahendo can be invoked as (codified) basis for legal action based on unlawfully broken off negotiations (connected to the strict German concept of tort) and in English and American law a connection is found with the doctrine of the promissory estoppel, misrepresentation or unjust enrichment. Under Dutch law in general is assumed that the basis for a claim for unlawfully broken off negotiations is tort (an unlawful act) but that in some situations unjust enrichment as a possible basis cannot be excluded.

As indicated above, Dutch law differs greatly from the surrounding jurisdictions and in any case from German, English and American law as examined by me, with respect to the legal consequences of unlawfully broken off negotiations. Under Dutch law a claim based on unlawfully broken off negotiations not only leads to a possible obligation to compensate the costs incurred but the disappointed party in principle has a choice between claiming the costs incurred and the lost revenue. This therefore implies that the disappointed party financially has to be brought in the position he would have been in if the negotiations would have lead to the agreement that was subject to the negotiations. In addition, a claim to continue the negotiations can be lodged without however necessarily implying an obligation to contract.

To determine whether a party involved in negotiations is still free to unilaterally break off these negotiations, first it is important to determine whether the parties are still in the pre-contractual phase. For under Dutch law it is not unthinkable that the parties already are in the contractual phase even though of the number of points the parties wish to settle contractually still some points, be it of minor importance, still have not been agreed on. It has to concern points not agreed on that can be completed by the Court on the basis of, for instance, custom between parties or the additional effect of the standards of reasonableness and fairness or, if this is not an option, in any case points that are of minor importance in relation to the points already agreed on by the parties and it has to concern points on which the parties should be able to reach agreement if the negotiations had continued. In the latter case, the obligation based on the standards of reasonableness and fairness to still try to reach agreement on the points not yet settled is a contractual obligation. This obligation is deemed to be included in the consensus already reached (a so-called "pactum de contrahendel').

If it has been determined that the contractual phase has not yet been reached, this still does not mean that the negotiating parties, invoking the principle of the free-dom of contract, are free to break off negotiations at any time. The parties no longer have this freedom when the contracting partner in a legally relevant sense has started to trust that some contract will result from the negotiations or if there are other circumstances because of which breaking off the negotiations would be unacceptable in the given circumstances. These latter circumstances are in gene-ral deemed to include the involvement of (the interests of) third parties, apart from the interests of the negotiating parties themselves. However, in practice a claim on this basis is seldom or never allowable. In almost all cases it concerns the answer to the question whether - in brief - in a legally relevant sense trust has been created that the negotiations could be concluded successfully.

If a disappointed party to negotiations feels that the negotiations have been broken off improperly by the other party, the disappointed party will have to produce sufficient facts and circumstances and in contentious matters will have to prove the facts on which the above-mentioned trust can be based. It is not sufficient if the trust existed only in the perception of the disappointed party but the court also has to be able to objectify this trust. To put it another way, the trust put in the successfull outcome of the negotiations has to be legally relevant.

This basic principle has led to a variety of legal precedents which is highly casuistic. For the above-mentioned trust in the successfull outcome of the negotiations may be founded on widely divergent circumstances. An important indication is the measure in which the parties already reached agreement on what they wanted to settle within the context of the agreement negotiated about. There should at least be agreement about the essentials (which means: the essential points without which an agreement would be deemed to be legally impossible) of the intended agreement.

However, since a decision of the Supreme Court of August 2005 (the judgment JPO/CBB of 12 August 2005)1, the proverbial threshold for accepting legally relevant trust in the successful conclusion of the negotiations has been significantly raised. In this decision the Supreme Court concluded that as regards accepting this legally relevant trust, a "strict and restraint-demanding standard" has to be met. Analyses of the case law following the JPO/CBB judgment showed that the lower courts in general accept legally relevant trust in the successfull outcome of negotiations less easily than before. However, there are considerable differences to be found. It seems that not every court deciding questions of fact, judging legally relevant trust as mentioned above, is equally strict or equally cautious. In other words, there are large differences in interpretation as regards the standard to be applied. This conclusion, together with the already highly casuistic character of this issue, does not make it easier in practice to determine whether, when the occasion arises, negotiations still can be broken off unilaterally without being liable for compensation.

It all becomes extra complex because it is obvious that negotiations are not a sta-tic process but a legally dynamic process where it its very well possible that at some point established legally relevant trust in the successfull outcome of negotiations may disappear again, for instance when parties encounter a point that agreement has to be reached about but even though they further negotiate according to the principles of reasonableness and fairness, agreement about this point cannot be reached. The negotiations may then still be legally broken off. This also applies when indeed legally relevant trust in the successful conclusion of the negotiations has to be assumed but - in short - there are unforeseen circumstances because of which, despite the presence of the above-mentioned trust, an appeal to this trust cannot be honoured. Therefore the negotiations may then still be legally broken off. The circumstances in principle do have to be circumstances unforeseen by the parties and not under control of the party breaking off the negotiations.

The way to prevent that legally relevant trust arises in the formation of any agreement, is "building in" conditions precedent. The research conducted under company lawyers and lawyers described in chapter 8 shows that the legal practice not only finds it very important to build in conditions precedent during the negotiation process, for instance as part of a letter of intent, but that in legal practice these conditions precedent are indeed used often.

As indicated above, the use of conditions precedent in principle prevents justified trust in the success of negotiations from arising. For if a party for instance knows that eventually a third party has to give permission before the agreement is concluded, also knows that, provided that the reservation is consequently maintained, he cannot rely on the negotiations being concluded successfully only on the basis of statements made by the partner in the negotiations. With some emphasis I do make the condition that the reservation has to be maintained consistently. For instance, if a party makes the reservation that a third party has to grant approval but at the same time adds that obtaining this approval by the third party is only a formality, this will (again) add to the other party's trust in the success of the negotiations. The same thing happens for instance if the third party with the power to withhold approval informally says that he "does not expect any serious objections". Circumstances like this also contribute to the reservation made finally not having the intended effect.

There is a wide variety of conditions precedent. In this book I restrict myself to the conditions precedent stipulated between the parties. In chapter 6 of this book I have classified the various possible conditions precedent into three categories, which are:

Subsequently, I examined how the conditions precedent falling under the respective categories, could be classified legally. I distinguished four different classifications, which are:

Some conditions precedent may fall under various legal classifications, depending on the marmer in which they are phrased, while the other way around a category I condition precedent could never be classified as a suspensive condition because then it should be deemed to be a potestative condition. Furthermore, a category III condition precedent could not be qualified as a restriction of the power of representation.

Within the various categories of conditions precedent there may be many problems, depending on the legal interpretation in a particular case given to the condition in question. I hereby list the conditions precedent which in my view are most important per category.

First the category I conditions precedent. Within this category the option to agree on such a condition as a potestative condition is a risk. With a potestative condition a party commits to something on the condition that in future his will is unchanged. In general it is assumed that whoever commits to something on the condition that in future he still has to want to commit to this, in fact commits to nothing. Such a situation arises if there are negotiations on behalf of a company by a negotiator who is authorised to represent and who makes the suspensive condition that the Board (also a representative of the same company) has to grant approval. In my opinion such conditions precedent should not have any legal effect. However, such a reservation is very effective if such a reservation (approval by the Board) is not phrased as a suspensive condition but as a limitation of the authority to represent. The negotiator who himself has authority to represent only states that in fact he waives his authority to represent in favour of the Board.

The most obvious classification of category I conditions precedent in my view is absolutely the classification as procedural rule. For instance, the condition often made in practice that there only is an agreement if it has been put down in writing (the so-called "subject to contract" condition) or that only an agreement exists between the parties if signatures have actually been placed (the so-called "subject to signature" condition). I refer to such classic procedural rules as procedural rules in a narrow sense, to distinguish them from procedural rules where the will of a third party plays a role (with category II conditions precedent), which procedural rules I refer to as procedural rules in a wide sense.

With category II conditions precedent (where the condition taking effect therefore depends on the will of a third party) in practice the main question is to what extent the third party, which is free to grant or withhold approval, is free to determine its will. At first instance this depends on the extent of the condition which under certain circumstances may be determined by means of explanation. Has this extent been determined then the third party is still not free to determine its will. Case law shows that the arguments of the third party with the authority to grant or withhold approval, on which arguments withholding the approval is based, shall be checked against the standards of reasonableness and fairness.

There is another question: how important is the social position of the third party with the authority to grant or withhold approval? In my opinion this is very important. For the social position of this third party also determines the expectations of the partner in the negotiations as concerns the legitimacy of the arguments on the basis of which approval is granted or withheld. In my opinion this is one of the elements important to substantiate the standards of reasonableness and fairness against which the arguments in question of the refusal by the third party should be checked.

Category III conditions precedent are, if you want, the most "pure" conditions precedent in the sense that if the circumstance referred to in the reservation occurs, this does not depend on the will of (one of) the parties, nor on the will of a third party. This eliminates in advance a large number of the problems seen in practice in category I conditions precedent and category II conditions precedent. With category III conditions precedent I have to point out that in practice, in view of the nature of the condition often stipulated in this context, it may take quite a while to take effect. This may easily lead to a situation where in the mean time all kinds of things happen which on the basis of changed circumstances cause the party for whose benefit the reservation was made, to not (or no longer) want to see the reservation taking effect. Solutions to these kinds of problems should in my opinion be found in article 6:248 of the Dutch Civil Code (the derogatory effect of reasonableness and fairness) and article 6:258 of the Dutch Civil Code (the unforeseen circumstances regulation).

In order to be able to determine the relevance of the (parts of the) doctrines I examined and to gain insight into the marmer in which the legal practice handles the doctrine of the broken off negotiations and, more in particular, to get an idea of the extent in which current case law regarding this doctrine fulfils the requirements of the legal practice, in the period of mid January 2007 up to and including the middle of March 2007, I conducted a survey among a total of 2229 attorneys working in private pracvtice and 1049 company lawyers. 534 of the interviewees eventually responded by completing one of the questionnaires as included as an appendix to this doctoral thesis. The results of the survey also have been added, divided into answers from the attorneys who were interviewed and the answers from the company lawyers.

From the survey a number of interesting views emerged. To name the most important:

I therefore have to conclude that in particular regarding the answer to the question when legally relevant trust in the formation of an agreement should be assumed and regarding the answer to the question under which circumstances invoking a condition is lawful, current case law and literature are not in keeping with the wishes of the majority of the legal practitioners I interviewed, even though in particular case law, since the JPO/CBB judgment, has definitely moved into the direction of what the majority of the lawyers I interviewed wish for.

The relevance of the doctrine of the broken off negotiations for the legal practice is not only evident from the survey I conducted but also from the relatively large number of legal procedures addressing this issue. In this context it is, inter alia, relevant to ascertain what should be the sources of obligations for a (successful) claim based on broken off negotiations.

In this context I first establish that in case law it is not clearly stated what should be the legal basis for such a claim. The Supreme Court in its most recent judgements each time refers to the situation that breaking off negotiations under particular circumstances is "not justified, which means unacceptable."

Furthermore, in this context it should be mentioned that under Dutch law there is a so-called half-open system of sources of obligations. The law does not contain a full list of the sources of obligations and in general it is assumed that obligations may also arise in special cases where there is no legal regulation but only to the extent that accepting alternative sources of obligations do fit into the system of the law and connect with the cases that are mentioned in the law. In my opinion we have to exercise restraint in this matter. Even more so where there is a source which is regulated by law and which offers more than enough possibilities, where appropriate with all the required nuances, to reach liability on the basis of broken off negotiations. In my view this source is the unlawful act (tort). I feel that a lot can be said for seeing the unlawful termination of negotiations as an act in violation of the standards of social propriety which simply imply that the negotiating parties also have to have their behaviour determined by the justified interests of the other party Breaking off negotiations in violation of reasonableness and fairness will then be a violation of what is proper according to unwritten law of social and economic life and therefore leads to illegal acts within the context of article 6:162 of the Dutch Civil Code. Within this context, I believe that the standard "social propriety" of article 6:162 of the Dutch Civil Code is exchangeable with the reasonableness and fairness which governs, according to a series ofjudgments, not only the contractual, but also the pre-contractual relations. If we accept this as a basic principle, I cannot understand why tort cannot be accepted as basis. I strongly prefer, when determining the foundations of liability, from a standpoint of legal certainty, to choose the traditional sources of obligations, in particular if these connect very well with the relevant factors developed in case law as regards judging a case based on alleged unlawfully broken off negotiations.

In addition to or, in some cases, in stead of tort as a source of obligations based on broken off negotiations, under certain circumstances unjustified enrichment and undue payment could also qualify. However, I do not think that this will be the case very often.

If a claim based on broken off negotiations is successful in the sense that it is legally established that the negotiations were broken off unlawfully, the disappointed party may also claim that the party which broke off the negotiations unlawfully is ordered to continue the negotiations. This means: in so far as agreements have not already been made with a third party and unless it is evidently pointless because it is certain beforehand that the party breaking off the negotiations will remain reluctant to continue the negotiations or will (continue to) frustrate the negotiations.

An alternative for a claim to continue negotiations is the claim for damages. In so far as this claim is based on the occurrence of legally relevant trust in the formation of the agreement that was subject to the negoptitations, a choice can be made between a claim for compensation of the costs incurred and a claim for compensation of the lost revenue. Is the claim based on other circumstances because of which breaking off the negotiations is unacceptable and (in addition) there is no legally relevant trust in the success of the negotiations, then only a claim for compensation of the costs incurred is appropriate.

Case law is ambiguous in this respect. In many cases in which payment of lost revenue is claimed - in many cases without a clear motivation - only the costs incurred are compensated. Sometimes only one or a few types of costs are compensated (and therefore not all of the costs incurred). Sometimes even no compensation at all is awarded even though the negotiations were broken off unlawfully. However, dogmatically I would like to defend that if as a basic principle it is accepted that tort is deemed to be the legal basis for a claim based on unlawfully broken off negotiations, compensation of lost revenue should be the basic principle, however on the understanding that if in a particular case payment of los of revenue, for any reason whatsoever, is not considered to be opportune, a claim can be based on the regulation on circumstances imputed to the victim (art. 6:101 of the Dutch Civil Code, the regulation on imputation on the basis of reason (article 6:98 of the Dutch Civil Code) or on the legal power of mitigation of article 6:109 of the Dutch Civil Code.

As regards the legal consequences of unlawfully broken off negotiations there is a communis opinio in literature. This is not the case with respect to the legal consequences of lawfully broken off negotiations. The discussion then focuses on the possibility to obtain compensation for acquisition costs (negotiation costs) made in the context of the negotiations, if the negotiations can still be broken off in a lawful marmer. In the judgment Plas/Valburg2 the Supreme Court assumed that there could be a stage in which the negotiations may still be broken off in a lawful marmer but in which there is an obligation to compensate the costs of the partner in the negotiations. However, in subsequent judgments the Supreme Court did not (in so many words) repeat this rule. Some writers therefore believe that the Supreme Court did not want to allow this possibility anymore. I do not share this opinion, although I believe that the principle should be that the costs which according to public opinion, given the nature and extent of the negotiations, should be paid by the negotiating parties, should not be eligible for compensation. Only the part of the costs that exceeds the amount which according to public opinion should be for the own account of the parties, under special circumstances could be eligible for compensation. In my view an extra condition would be that the party, which at the request of the partner in the negotiations made extra costs, at least should have trusted that it still had a real chance to compete for the agreement negotiated about while de facto has to be established that this was no longer the case. Any party which under such circumstances requires from its partner in negotiations to incur extra costs without offering compensation, in my opinion acts socially negligent within the context of article 6:162 of the Dutch Civil Code. Under certain circumstances unjustified enrichment or, although this will not easily be the case, undue payment could also offer a basis for compensation of costs.

Procedures about unlawfully broken off negotiations often cross borders. Therefore in this book I dedicated a chapter to some private international law aspects of the doctrine. This does not only concern under which law in a particular case a claim based on unlawfully broken off negotiations, where both partners in the negotiations are not established in the same country, would be judged but for instance also the answer to the question which court in such a case would alternatively be competent to decide on a claim based on unlawfully broken off negotiations. I place these problems both in the light of the "Rome I Convention" (the successor of the Unlawful Act (Conflict of Laws) Act (Wet Conflictenrecht Onrechtmatige Daad), as well as in the light of the "Rome II Convention" (the sucessor — as of 17 december 2009 — of the so called Rome Convention on the Law Applicable to Contractual Obligations).

As regards the laffer regulation (Rome II) article 12 in particular is important. This article states that the non-contractual obligation arising from negotiations preceding the conclusion of a contract, irrespective of whether the agreement in fact has been concluded, is governed by the law that applies to the agreement or that would have applied to the agreement if the agreement had been concluded. The European legislator therefore in so many words speaks of a non-contractual obligation and therefore made a clear choice as regards the foundation for a claim based on broken off negotiations. However, article 12 of Rome II also raises questions and uncertainties. For instance, an interesting question posed by article 12 of Rome II is the question regarding the circumstances needed to reach the alternative rule of the second paragraph of this article 12 which determines which law applies if the main rule of article 12, as mentioned above, does not offer a solution. In my opinion this alternative rule is only reached in the event that the parties negotiated about the law applicable to the agreement to be concluded but (as yet) no agreement has been reached in this respect. However, this situation will not occur very often for choice-of law clauses will usually not be deemed to be essentials of the agreement negotiated about and in practice, in particular in cases where the parties negotiate without legal assistance, often are the final parts of commercial contract negotiations.

Not only the question about applicable law poses problems. The question about the alternatively competent court also poses problems. This regards the application of the Brussels I Regulation. The Supreme Court decided that alternatively competent is the court in the location where - in short - the notification that the negotiations are broken off, reaches the disappointed party. In my view this leads to arbitrariness and under certain circumstances even to undesirable forum shopping. I find that, whatever subtle solution is pursued to reach an alternatively competent court, the outcome will always be more or less arbitrary and therefore, following the footsteps of some of the lower courts, I wish to advocate that for such claims only the main rule of article 2 of the Brussels I Regulation can be followed.