What damages can you claim if negotiations are broken off?

The basic principle is that each party is free to break off negotiations at any time and for any reason, without being liable for damages. However, parties can agree different arrangements in writing, for example in a Letter of Intent. Read more about the focus points of a Letter of Intent in a previous blog here .

Where the parties have not specifically agreed on the consequences of breaking off negotiations, the following principles should be observed:

1. Parties are obliged to determine their behaviour by their own interests as well as those of the other party;
2. Each party is free to break off negotiations without being liable for damages, unless there is a legitimate expectation or other circumstances of the case are unacceptable;
3. This should take into account the extent and manner in which the aborting party contributed to the creation of that trust and the legitimate interests of the aborting party;
4. Whether unforeseen circumstances have arisen in the course of the negotiations may also be relevant here, while, in the event that negotiations are continued over a long period despite changed circumstances, what is decisive with regard to this trust is how it should finally be assessed at the time of breaking off negotiations against the background of the entire course of the negotiations.

When a party breaks off negotiations, several things can be claimed. The cases are briefly discussed separately.

Renegotiation

If breaking off negotiations is unacceptable by the standards of reasonableness and fairness, a claim to continue negotiations could be brought. However, a court will have to treat a claim based on reasonableness and fairness with caution.

A claim to renegotiate may be subject to a penalty payment, so granting such a claim could have a significant impact on the aborting party. An award of a claim to renegotiate implies that the terminating party is not allowed to negotiate with a third party during the negotiations.

Sometimes, such a claim cannot be brought, for instance when no further performance is possible with regard to the agreement to be concluded or when it is obvious that the parties no longer want to do business with each other.

Negative contract interest

A party can claim the negative contract interest from the aborting party when there are well and no there is a legitimate expectation that a contract would be concluded.

The negative contract interest is intended to put the non-breaching party in the situation as if no negotiations had ever taken place. This refers primarily to the costs incurred by the non-breaching party (including wage costs of its own negotiators). These are costs that exceed normal acquisition costs.

However, negative contract interest can also consist of lost profits, in the sense of lost contracts. This loss of opportunity is only eligible for compensation if exclusivity of bargaining has been agreed.

Positive contract interest

A claim for compensation of the positive contract interest is only possible if there is justified reliance.

Legitimate expectations exist when negotiations have reached a stage where there is agreement on essential elements of the agreement, provided that the agreement on those essential elements is not such that an agreement on main elements can already be said to exist.

In other words, the non-breaking party thought and could reasonably believe that some kind of agreement would be reached on the basis of the negotiations, or on the basis of the other circumstances of the case. The legitimate expectation requires an act of the aborting party.

Restraint should be applied in a claim for compensation of the positive contractual interest so as not to unduly compromise the freedom of negotiation.

Both positive contract interest and negative contract interest cannot be claimed.

Resumen

If an opposing party breaks off negotiations or if you wish to break off negotiations yourself, it is wise to investigate beforehand what consequences this might have. It is better to make an informed choice, than to make a choice and examine afterwards whether the choice was informed.