Faulty Termination of Negotiations: Compensation and Liability

Extract

[...] For example, in a judgment of the Commercial Chamber of the Court of Cassation of 11 July 2000, it was ruled that the termination of negotiations must be loyal, and that bad faith can be characterized when one party knowingly maintains parallel negotiations without informing the other party. In the same logic, the judgment of 14 June 2000 (Civil Chamber emphasizes the importance of not misleading one's co-contractor during negotiations. This solution is in line with the case law of the Court of Cassation, which, in several cases, has recognized the possibility of condemning for abusive termination of negotiations when it is made in a disloyal or abrupt manner. [...]

[...] The Alain Manoukian company, on the other hand, claimed compensation for the loss of the chance to obtain the expected gains. Thus, to what extent can the rupture of negotiations be qualified as faulty and what is the scope of repair in the event of abusive rupture? In its judgment of November the Court of Cassation confirmed the decision of the Court of Appeal and rejected the appeal. It ruled that the bad faith of the shareholders justified the conviction for abusive rupture of the negotiations, while rejecting the claim for full compensation including the loss of the chance to obtain the expected gains from the operation of the business assets. [...]

[...] This solution has also been confirmed in other judgments. For example, in a judgment of 7 January 2009, the Court of Cassation ruled that the fact that a third party benefits from the breakdown of pre-contractual negotiations does not engage its liability if it has not actively contributed to this breakdown through unfair conduct. This demonstrates that contract law provides a certain level of protection to third parties in negotiations, as long as they do not intervene fraudulently in the pre-contractual relationships of other parties. [...]

[...] This approach ensures a balance between contractual freedom and legal security. B. The bad faith retained in the rupture of negotiations In the ruling of 26 November 2003, the Court of Cassation sanctions the behavior of the shareholders who led parallel negotiations with the company Les Complices while continuing to make the company Alain Manoukian believe that the discussions were proceeding normally. The Court notes that the shareholders acted « with bad faith », in deliberately deceiving the Manoukian company by making it believe that « only the absence of the accounting expert was delaying the signature of the protocol », while they had already concluded an agreement with a third party. [...]

[...] However, on November the Manoukian company discovered that the shareholders had concluded, as of November 10, a promise of transfer with a third party, the Les Complices company, without informing their co-contractor and while continuing to maintain the hope of a near signature with Manoukian. The latter then pursued the shareholders for faulty termination of the negotiations. On the procedural level, the shareholders were condemned by the Paris Court of Appeal in a ruling of 29 October 1999 to pay damages to the Manoukian company, which also contested the amount of compensation, estimating that its prejudice should have included the loss of the chance to conclude the contract. [...]