You are negotiating a contract with a current or future business partner. You’ve been negotiating for months, incurring various costs in the process. Suddenly, your partner no longer wishes to commit to you and puts an end to your negotiations.
Your
business partner may not be in the right. We explain how to identify an abusive breach of business relations and limit your financial losses.
Who is affected?
The main players in commercial relations are companies and their partners. These partners may be customers, suppliers, producers or distributors. Whether they are SMEs or major groups, solid commercial relationships are essential to business development.
What are “talks”?
Discussions, also known as the “contractual negotiation phase”, are characterized by written or oral exchanges that take place before the parties conclude a contract. Depending on the complexity of the relationship between the parties, and the financial and economic stakes of the contract to be formed, the negotiation phase can be more or less lengthy.
In principle, this pre-contractual phase is characterized by a principle of freedom. In other words, each party is free to propose what it wishes, ask for what it wishes, and terminate negotiations.
There are, however, certain rules governing negotiations, such as the obligation to provide information and confidentiality, as well as the termination of talks.
In this way, the party who terminates negotiations may be held extra-contractually liable (also known as liable in tort) for improperly terminating talks.
What is meant by “abusive termination of talks”?
Pre-contractual negotiations must be conducted in good faith (article 1104 of the French Civil Code). In application of this rule, a fault during the talks may give rise to extra-contractual liability (in tort).
To identify a fault, judges take into account the reasons given for the breach, the legitimate expectations of the other party in concluding the contract, the means/expenses already made available to the other party, the duration and progress of the talks, the complexity of the negotiations and the absence of legitimate reasons for the breach.
In all cases, if a fault is identified, in order to engage the liability of a party, it is also necessary to identify damage (harm suffered by the other party) and a causal link between the two. These are the conditions laid down in Article 1240 of the French Civil Code.
In concrete terms, you’ve been talking to one of your prospects for 8 months with a view to signing a contract. You’ve even started making investments to be able to honor the future contract: buying larger premises, purchasing more equipment, etc.
Penalties for abusive termination of commercial relations
If a party is able to demonstrate a fault in the breach of talks, a prejudice and a causal link between the two, the judge may admit the abusive nature of the breach.
In this case, as the parties are not bound by a contract, only delictual liability can be engaged. This means that the prejudice suffered by the party who suffered the breach will be compensated by damages.
The compensable prejudice may take the form of costs incurred during the negotiation phase, or the cost of cancelling the contract. On the other hand, the compensable loss cannot correspond to what a party could have gained from the conclusion of the contract, since no contract has been concluded.
How do I break off talks?
It is therefore possible to break off talks freely, provided you do not do so abusively.
It is important to avoid causing prejudice to the potential co-contractor, particularly if he has already advanced funds, made improvements or if breaking off negotiations will have numerous consequences for him, particularly financial.
In order to break off negotiations while avoiding causing the other party any prejudice likely to engage your liability in tort, it is entirely possible to reimburse the expenses incurred by the other party, for example.
What can I do if I suffer prejudice as a result of an abusive breach of contract?
Abusive breaches of contract may enable you to hold the person with whom you intended to enter into a contract liable in tort.
If you consider that the breakdown of the talks is abusive and causes you financial prejudice, you can sue the other party for reimbursement of the sums advanced or payment of damages.
For further information, please do not hesitate to contact us.
