Case 4

A is a manufacturer of computer hardware who wants a new building designed in which to house his operations for the production of hardware. In February he approaches B, a specialist architect, and B begins negotiations with a view to his being engaged as architect for the project. B's policy is not to undertake more than one commission at a time, nor is he prepared to compete in competitive tendering; and in the hope of concluding a contract with A for his services he does preparatory work on plans and specifications for the building he would propose to design, without yet concluding any contract with A. A had also, at the same time, begun negotiations with C, another architect, but did not tell B. A year later, A contracts with C to be the architect on the project, having negotiated with C as well as with B throughout the period. B discovers this only after C's contract with A is concluded. No contract is at any stage concluded between A and B, but B complains that he would never have undertaken the preparatory work (because of his policy on tendering and single-project work) had he known of the negotiations with C. What liability (in contract, tort, restitution, or any other form of liability), if any, does A have to B arising out of A's parallel negotiations? Would it make any difference if A knew of B's policy on tendering and single-project work?

Case 1

A, who has a bookshop on High Street hears that C, a nationwide chain of bookshops, is negotiating with B to buy for €1.2m large premises that B owns and which are located opposite to A's shop. A fears competition from C, and so starts negotiations with B for the purchase of the premises, pretending he wants to move his shop to larger premises and that he is prepared to pay €1.5m. This makes C withdraw from the negotiations and C decides to buy another shop on Market Street at the other end of town. After that A breaks off his negotiations with B. Ultimately B succeeds in selling the premises for only €1m. What liability (in contract, tort, restitution or any other form of liability), if any, does A have to B?

Discussions

Austria

The General Civil Code of Austria of 1811 (ABGB) contains no specific provision dealing with precontractual liability or culpa in contrahendo in general, since this concept was ‘discovered’ by the German scholar Rudolf von Jhering some 50 years after the Austrian codification. Nevertheless, precontractual liability has become an acknowledged concept in Austria.

The ABGB makes no clear distinction between contractual liability and non-contractual (or delictual) liability. Nevertheless, there are a number of differences which make it more favourable to a victim to bring a claim that is based on contractual liability rules, rather than on tortious grounds. Since contractual liability provides these considerable advantages for the victim, ‘contract shopping’ is attractive.

The dilemma

Precontractual liability relates to liability from a specific temporal standpoint: the time before a contract has been created. Thus, the very definition of such liability is coupled with a dilemma: if a contract has not been created, why should precontractual liability be imposed? This liability apparently could not be based on contract, since a contract has not been created. On the other hand, if such liability is grounded, for example, either in torts or in restitution it might be incompatible with the contractual principle of no liability. The absence of contractual liability means that the parties are free not to deal. Liability based solely on negotiations might seem to override the negative freedom not to deal. This dilemma is well reflected in the different approaches adopted by the common law, on the one hand, and the civil or continental law, on the other hand.

Israeli law under the common law: no rule of precontractual liability

The common law does not recognise a general principle of good faith which might create a basis for precontractual liability. This derives from a wide application of the principle of the freedom of contract and from what seems to be ‘a respect for the contractual rules of the game’. It reflects adherence to the rule of law in the strict sense and to the values of certainty and predictability in law. It gives preference to rules over standards. It puts emphasis on a clear demarcation line between negotiations and contract. It encourages self-reliance.

Case 2

B was A's tenant under a three-year lease of a warehouse; the lease was due to come to an end at the end of 1999, and in July 1999 the parties began negotiations for the renewal of the lease. Before opening negotiations with A, B had explored the possibility of moving to another warehouse, and had found a possible alternative warehouse which he could have rented from X, but since it was at the same rent and would have involved expenses in moving to the new warehouse, he told X that he was not interested in concluding that lease. Earlier in 1999, A had already decided to sell the warehouse, in order to realise its capital value, and had begun negotiations with C for the sale which continued alongside the negotiations with B for the lease renewal. As A knew, C intended to buy the property with a view to leasing it to another company, D, but to induce C to pay a higher price, A started and continued the negotiations with B in order to demonstrate the potential profitability of the warehouse by way of rental income. During the negotiations B continued to use the warehouse as a major distribution point, and made no further effort to find an alternative warehouse. One week before the end of the lease, A told B that he was not prepared to renew the lease, because he had agreed to sell the warehouse to C; and that C would not be offering to grant a lease because he would be leasing it, from 1 January 2000, to D. The evidence of the negotiations with B for the renewal of his lease induced C to pay a significantly higher price than A could otherwise have expected to have received for the warehouse.

Case 6

A and B are negotiating for the sale by A to B of A's business. At the start of the negotiations, A agrees that ‘for a period of three months he will not negotiate with any third party nor consider any proposal from a third party with a view to concluding a contract for the sale of the business’. During the negotiations between A and B the price is agreed (as €2m) although there is no contract concluded because of other outstanding matters, including the question of whether B will continue to employ the whole of A's workforce. After two months, A receives a proposal for the sale of the business from C, who agrees to take on the whole workforce and to pay a higher price (€3m). A then breaks off the negotiations with B and, after conducting negotiations with C, concludes a contract with C for the sale of the business. During the negotiations, B had incurred accountants' and lawyers' fees in investigating the state of the business. The real value of the business, as established by independent experts, is €3m. What liability (in contract, tort, restitution, or any other form of liability), if any, does A have to B? Would it make a difference if A had instead agreed that ‘he will negotiate with B in good faith and only break off the negotiations for a proper reason’?

This volume is designed to form another piece in the jigsaw of the map of private law in Europe – a map which is being drawn, piece by piece, through the results of the various projects undertaken by the Common Core group.

This project was first conceived at the meeting of the Contracts sub-group of the Common Core group in Trento in 1996, although it took a number of years for the project to take shape. The work of our national reporters and other contributors, and our own editorial work to produce this volume, have therefore been carried out over a number of years. We describe the Common Core method, and the particular approach which we have taken to our own project, in the Introduction.

It seemed particularly appropriate for this project to be undertaken under the joint editorship of a Dutch lawyer and an English lawyer; not simply because this ensures that both the ‘civil law’ and the ‘common law’ are represented in the editorial team (this does not mean that we wish to reinforce the caricature of the so-called civil law/common law divide, on which we comment in the Conclusions) but because, of all the legal systems represented within our project, Dutch law and English law represent the extremes of principle. Amongst the ‘civil law’ systems, Dutch law is known for having a particularly strong view of the liability which one negotiating party may incur towards the other once the negotiations have reached an advanced stage, accepting that in principle this might even extend to remedies designed to compensate the innocent party for her failure to obtain the contract under negotiation.

Case 12

A is a major manufacturer of computers. B, who has recently established his business of design and manufacture of computer components, approaches him and tells him that he has designed a new form of computer chip which will allow hand-held computers to be produced to run at twice the current speed. A tells B that he is interested in the details, because he may wish to introduce the chip into his new model of computers, and they begin negotiations with a view to contracting for B to manufacture the computer chips for A. During the negotiations A asks for, and B gives, information about the detail of the design of the computer chip which A says he needs in order to evaluate whether the chip will be suitable for his computers. The design is not yet protected by any intellectual property rights (such as patent). After some time, A says that the price B is proposing is too high, and breaks off the negotiations; he then approaches C, asking C to produce the same kind of computer chip at a lower price than B had been asking. A passes on to C the design information he had received from B. C agrees to produce the chips, and a contract is formed between A and C for their production. What liability (in contract, tort, restitution, or any other form of liability), if any, does A have to B?

Case 13

A contracts to sell a harvesting machine to B, a farmer, which B requires to enable him to harvest his asparagus crop. In the pre-contractual negotiations, A told B that the machine would be able to harvest one acre a day, but when B comes to use it he discovers that it can only harvest half an acre a day. B is unable to obtain an alternative machine in time to save the half of the crop that cannot be harvested before it is ruined. He now also has a machine which he knows will be inadequate for next year's harvest. What liability (in contract, tort, restitution, or any other form of liability), if any, does A have to B?

Would it make a difference if A had made no statements about the capacity of the machine, but instead during the negotiations B told A that he expected that the machine would be able to harvest one acre a day?

Discussions

Austria

Since a contract has been concluded, the rules on ‘warranty’ (Gewährleistung) apply. The fact that express stipulations were made in the precontractual negotiations does not affect the application of §§922ff. ABGB. These rules have been changed most recently by the Warranty Amendment Act BGBl I 2001/48, which came into effect on 1 January 2002. The person suffering from a breach of express warranty must first claim repair or replacement of the non-complying delivered good.

The problem

Negotiations are the natural prelude to a binding agreement. During negotiations, parties evaluate contractual opportunities and define the terms of a mutually profitable transaction with an informal exchange. They speak with each other and communicate their respective interests and expectations regarding the potential transaction. During these interactions, the parties often preserve a certain degree of ‘freedom of negotiation’. Before entering into a binding contract, parties retain some freedom to change their mind, to negotiate with other prospective parties, to acquire information to verify the profitability of the proposed transaction, and to hold out if changes in the circumstances or some other aspect of the transaction make it unprofitable. A necessary consequence of the parties' freedom of negotiation is the lack of binding force of their manifestations of intent. Expressions of intent during the negotiation phase do not bind the parties and generally cannot be used to obtain performance before a contract is finalised. Negotiations enable parties to test the feasibility of a mutually beneficial transaction.

During negotiations, as information is gathered and the prospective contract begins to take shape, it may become reasonable for parties to make some reliance investments. From an economic perspective, these reliance investments may indeed be beneficial (for one party or for both) because they can increase the value of the contract, if the parties enter into one. While potentially increasing the net private surplus from the transaction, these ‘relation-specific investments’, however, always involve some risk.

This is the ninth book in the series The Common Core of European Private Law published within the Cambridge Studies in International and Comparative Law. The Project was launched in 1993 under the auspices of the late Professor Rudolf B. Schlesinger.

The methodology used in the project is still unparalleled. By making use of case studies it goes beyond mere description to detailed inquiry into how most European Union legal systems resolve specific legal questions in practice, and to thorough comparison between those systems. It is our hope that these volumes will provide scholars with a valuable tool for research in comparative law and in their own national legal systems. The collection of materials that the Common Core Project is offering to the scholarly community is already quite extensive and will become even more so when more volumes are published. The availability of materials attempting a genuine analysis of how things are is, in our opinion, a prerequisite for a fully-fledged and critical discussion on how they should be. Perhaps in the future European private law will be authoritatively restated or even codified. The analytical work carried on today by the almost 200 scholars involved in the Common Core Project is a precious asset of knowledge and legitimisation for any such normative enterprise.

We must thank the editors and contributors to the already published volumes, and those who are working hard to achieve future results.

Case 9

A tells his friend, B, that he wants a house built on his (A's) land, but he cannot see how he will be able to afford the normal, full costs of having the house built. B, who runs a building firm, tells A that he would be able to find the time to undertake the job, and would be able to do it for a price which is lower than a commercial building firm would charge. While A and B are still in negotiation as to the price and other details about the final scope of the works, B starts the building work. When the house is nearly complete, A breaks off the negotiations because he finds that he cannot afford even the (lower than commercial) price which B wants to charge. What liability (in contract, tort, restitution, or any other form of liability), if any, does A have to B?

Discussions

Austria

Under Austrian law the facts of this case will not lead to the application of the rules of civil liability, whether contractual or non-contractual, since there are specific provisions within the chapters of the ABGB on property law that deal with ‘constructions on another person's land’.

The relevant provisions in the Austrian codification are §417, dealing with the construction of buildings on one's land with materials of another; §418, on the construction of buildings on the land of another with one's own materials; and §419, on the construction of buildings on the land of another with another person's materials.

Introduction

The Council of Europe's Framework Convention for the Protection of National Minorities (‘FCNM’) was adopted in 1994 and entered into force in 1998. Article 1 of the FCNM proclaims that: ‘The protection of national minorities and of the rights and freedoms of persons belonging to those minorities forms an integral part of the international protection of human rights, and as such falls within the scope of international co-operation’. The purpose of this chapter is to show, from the monitoring practice, several implications of that assertion: (1) the interpretation and application of the FCNM draws on the basic principles underlying universal human rights, including that human rights are for everyone and are therefore different from citizens' rights, and that they shall be ensured without discrimination; (2) earlier usages of the concept of minorities, derived from practices before 1945 when human rights were made part of the emerging international law of cooperation, are invalid to the extent that they conflict with contemporary human rights; (3) while the FCNM reaffirms the applicability of standard human rights to persons belonging to minorities, it goes beyond that by providing additional rights for such persons and by imposing obligations on the state to protect the minorities as groups.

The term ‘standard human rights’ refers to the rights contained in the Universal Declaration of Human Rights and in the global and regional conventions derived from that declaration.

Introduction: a fragmented regime

The European Union is an odd candidate for a role in the synergy of minority protection regimes, since it has never developed a self-conscious minority protection policy or adopted a legal instrument expressly aimed at protecting minority rights. Accordingly, its ‘synergetic potential’ has usually been depicted as passive: it took up minority protection standards from elsewhere (mainly those adopted in the framework of the Council of Europe and the Organization for Security and Co-operation in Europe (‘OSCE’)) and gave them its backing in the context of relations with countries seeking accession. In recent years, however, the European Union (‘EU’), as an increasingly all-purpose organisation, has started claiming a more active role, developing new approaches to minority protection which are both innovative and complementary to what is done elsewhere. This role has been acknowledged and is being examined systematically in the literature, even though the official legal instruments and policy documents of the EU itself have not, thus far, offered any comprehensive statement on the EU's position in this area.

For an entity with policies on practically everything, then, the EU has been slow to develop one in relation to minorities. Even the concept of ‘minority’, let alone ‘minority protection’ or ‘minority rights’, is absent from the EU and EC Treaties, and was included in the Constitutional Treaty (‘CT’) only after much haggling at the Intergovernmental Conference which followed the drafting Convention.