Pre-contractual liability explicitly provided for in the new contract law

1. Freedom to contract remains assured

Overall, the principle of freedom to contract, without having to justify, is maintained (except for cases stipulated by law).

You are therefore still free to contract with whomever you wish.

The contractual content is also free to determine insofar as it meets the legal validity requirements.

In the pre-contractual phase, within the new contract law as well, parties remain free to initiate, conduct and terminate negotiations. But in doing so, they must always act in good faith.

So far, there is nothing new.

However, it is good to know that the risk of pre-contractual liability starts the moment you start contractual negotiations. We will come back to this later.

2. Providing information during the pre-contractual phase

During the pre-contractual phase, the parties are expected to provide each other with all the information needed.

This entails: the information they are legally obliged to give to each other, the information in accordance with good faith and customs and the information they should give each other taking into account the capacity of the parties, their reasonable expectations and the object of the contract.

Thus, any information you think your contracting party might need, you must provide to that party. This is important because a breach of this duty of information may lead to the nullity of the contract or to pre-contractual liability.

3. Pre-contractual liability now provided for by law

An important novelty in the new contract law is that pre-contractual liability has been given a legal basis.

If negotiations are broken off incorrectly, this may give rise to extra-contractual liability. In that case, the injured person must be put back in the situation he would have been in if no negotiations had taken place.

This could also be claimed within the old contract law on the basis of precedents in case law, but now the sanction for pre-contractual liability has also been laid down by law.

Thus, it is now provided that where a legitimate expectation has been created that a contract would be concluded without any doubt, the party terminating the negotiations can be held liable up to the recovery of the loss of the expected net benefits from the non-concluded contract.

These are important consequences because even if the contract does not materialise, you may still be held to the expected net benefits from the contract you were negotiating.

To avoid liability, it can be important to sign a pre-contractual document (LOI) providing that negotiations do not guarantee any outcome and that all parties know that nothing is guaranteed until something is finally signed.

Here are some applications viewed from different legal expertise fields:

• Commercial and economic law

Under distribution law, there is a very specific obligation to conclude a pre-contractual information document. If this is not done, the consequences can be significant, as the nullity of the contract can be claimed, as well as additional financial liability.

• Corporate law: pre-contractual liability in the context of M&A agreements 

In corporate law, pre-contractual liability also arises in the context of acquisition agreements, and more specifically in the context of "pre-contracts" concluded prior to such an agreement. These are often considered non-binding by the parties. For example, one thinks of the letter of intent (LOI), agreements in principle, memorandum of understanding, etc. The aim of these pre-contractual documents is to set out in broad terms, the agreements that will be made in the context of the transaction. These pre-contractual agreements are then later confirmed/refined in a final acquisition agreement. 

If the parties do not want to give binding force to the pre-contract, they must expressly state so in the pre-contract. But even in such a case, there is an obligation on the parties to negotiate in good faith and on the basis of the agreed principles. This implies that the parties must cooperate in the negotiations and cannot break off negotiations without reasonable justification. 

What can be considered a "reasonable justification" to break off negotiations is a subjective issue to be decided by courts. But where previously the principle of pre-contractual liability itself had to be confirmed by the courts, this principle is now explicitly enshrined in law. 

4. Conclusion

If you do not wish to incur pre-contractual liability, you should ensure that you enter and conduct any contract discussion in good faith. Therefore, do not enter discussions recklessly on the assumption that you can always get out of them as long as nothing has been signed. Even without a signed contract, you risk being held liable.

Should you need assistance concerning this item, please do not hesitate to contact our specialists via info@seeds.law or +32 (0)2 747 40 07.