27 December 2019

Liability for breaking off negotiations in The Netherlands

Liability for breaking off negotiations in The Netherlands

Different phases of the negotiation process affect the legal consequences for parties that withdraw from negotiations. In our practice we notice that breaking off negotiations could lead to disputes. Parties are often uncertain whether or not parties are bound to the contract or are obliged to compensate loss or damages. In this blog, Dutch contract lawyer Marie-Louise van Kleef explains the precontractual phase.

Negotiations in the Netherlands

Dutch contract law or tort law does not include any provisions on liability in negotiations; the rules in this part have mainly developed by the courts. Consequently, the negotiations are controlled by the principles of reasonableness and fairness. By commencing contractual negotiations, parties enter into a judicial relationship governed by good faith. This could lead to many issues regarding the fact under which conditions a party may held liable to compensate for breaking off negotiations.

Different stages during the precontractual phase

The legal doctrine had distinguished tree stages during the contractual phase:

Phase 1: in this phase parties are free to break off negotiations without being obliged to compensate the other party.

Phase 2: in this phase parties have reached a level of the negotiation process in which a party can only break off the negotiations when it compensate the other parties expenses. Aforementioned is determined by the principle of ‘good faith’.

Phase 3: in this phase the other party reasonably expects that at least a contract will result from the negotiations. Breaking off the negotiations in this phase can be contrary to good faith. Terminating negotiations in phase 3 therefore leads to the circumstance that a party is liable for the expenses incurred by the other party. Incidentally a party might even be liable to compensate lost profits.

Determining the contractual phase is essential in order to estimate your opportunities and possible weaknesses of the case.

Consequences of terminating negotiations

The various phases during the negotiations may be unclear. The consequences and precontractual liability depend on the concrete agreements and whether or not material and essential elements of the contract have been agreed upon. All circumstances are taken into account when determining a termination as acceptable in the light of reasonableness and fairness.

Lawyer, specialized in breaking off negotiations under Dutch law

If you have any questions regarding to the precontractual phase or breaking off negotiations under Dutch law, please do not hesitate to contact Ms. Van Kleef from Blenheim Attorneys in Amsterdam. We can assist in all kinds of issues regarding the negotiation process when Dutch law applies.

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