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Pre-contractual liability in the Netherlands means that a party who breaks off contract negotiations may have to pay damages. Each party is in principle free to break off negotiations, unless that would be unacceptable because of the other party’s justified reliance that the contract would be concluded or other circumstances of the case (Hoge Raad 12 August 2005, ECLI:NL:HR:2005:AT7337 (CBB/JPO), para 3.6).
There is no specific article in the Dutch Civil Code on broken-off negotiations; the rules come from case law of the Dutch Supreme Court (Hoge Raad). The court looks at how far the negotiations had progressed, how the party breaking off contributed to the other party’s reliance, and the legitimate interests of both parties.
What are your obligations during contract negotiations?
Under Dutch law, negotiating parties must let their conduct also be guided by each other’s legitimate interests (CBB/JPO, para 3.6). In practice this means: do not create expectations you do not intend to meet, be clear about conditions such as internal approvals, and share information the other party clearly needs. If a party fails to inform the other side where it should have done so, and the other side concludes the contract under a mistake, and would not have concluded it with a correct view of the facts, the contract can be annulled (Article 6:228(1)(b) Dutch Civil Code). Please contact our contract lawyer for contract negotiations with a Dutch party.
When can you break off negotiations under Dutch law?
The Supreme Court’s test is: each negotiating party is free to break off the negotiations, unless this would be unacceptable because of the other party’s justified reliance that the contract would be concluded, or because of the other circumstances of the case. The court takes into account to what extent and how the party breaking off contributed to that reliance, and that party’s own legitimate interests. Unforeseen circumstances during the negotiations can also matter. If negotiations continued for a long time despite changed circumstances, what counts is how the reliance must be assessed at the moment of breaking off, against the background of the entire course of the negotiations (CBB/JPO, para 3.6). Each case must therefore be examined on its own facts. Our Dutch lawyers at MAAK Advocaten in Amsterdam can advise you on how to assess the termination of negotiations in your case.
What is pre-contractual liability under Dutch law?
Dutch law, like many other legal systems, starts from freedom of contract: parties are free to enter into a contract or not. A characteristic of Dutch contract law, however, is the role of reasonableness and fairness (redelijkheid en billijkheid) and good faith. Already during negotiations, each party must take into account the legitimate interests of the other. Keep this in mind when you negotiate under Dutch law, especially if you are considering breaking off negotiations. Pre-contractual liability in the Netherlands is mainly based on case law, in particular Hoge Raad 12 August 2005, ECLI:NL:HR:2005:AT7337 (CBB/JPO). Our attorneys in the Netherlands would be happy to advise you.
What are the phases of contract negotiations in the Netherlands?
Pre-contractual negotiations are not specifically regulated in the Dutch Civil Code. The case law of the Supreme Court determines the obligations of the parties during negotiations. A party whose negotiating partner breaks off unacceptably can claim damages; in CBB/JPO, the other party also claimed, in the alternative, an order to continue negotiating. The further the parties have negotiated and the more details they have agreed, the more difficult it becomes for one party to simply withdraw. For damages covering the profit the contract would have produced, the Supreme Court applies a strict test that calls for restraint (CBB/JPO, para 3.7).
In practice, negotiations are often described in three phases. This is a model, not a statutory rule; the court always applies the single test described above:
- During the first phase of “open negotiations”, the parties can withdraw without any obligations to the other party, such as the payment of damages.
- During the second phase of negotiations, although the parties remain free to break off from the negotiations, they may have to bear the costs incurred by the other party in order to fulfil their obligation to act in good faith.
- In a third phase, breaking off can be unacceptable. If the other party could justifiably rely on the contract being concluded, the damages can also cover the profit it would have made, calculated by comparing its current position with the position if the contract had been concluded. The court only awards this after a strict test (CBB/JPO, paras 3.6 and 3.7).
Is a letter of intent or pre-contract binding under Dutch law?
In contract negotiations, it is not unusual for documents to be drawn up during the negotiations which contain the basic intentions of the parties. Examples can be preliminary agreements in the form of a Letter of Intent, a Memorandum of Understanding or a Heads of Agreement. Our Dutch attorneys will be pleased to assist you in the preparation of these documents.
Under Dutch law, such documents, alone or together with other correspondence, may already form a binding contract. A contract is concluded by an offer and its acceptance (Article 6:217(1) Dutch Civil Code), and the obligations must be determinable (Article 6:227); the parties do not have to agree on every detail. Whether a document binds the parties depends on its interpretation: what matters is the meaning the parties could reasonably give to it in the circumstances and what they could reasonably expect from each other (Hoge Raad 13 March 1981, ECLI:NL:HR:1981:AG4158 (Haviltex)). The title “letter of intent” is therefore not decisive.
If a contract has been concluded, it has not only the legal effects agreed by the parties but also those that follow from the law, custom and reasonableness and fairness (Article 6:248(1) Dutch Civil Code). A Dutch court can therefore fill gaps in the agreement.
Our Dutch lawyers therefore advise our clients, as a rule, to stipulate in preliminary contracts that the documents or parts thereof are not to be regarded as binding and that no obligations arise from them. In addition, conditions may also be included which must be fulfilled before a contract is concluded. To ensure maximum effectiveness and legal certainty, such preliminary contracts and the provisions included in them must be carefully and fully worded.
It is advisable to have a Dutch lawyer review a letter of intent before signing. An English-speaking lawyer with expertise in Dutch contract law can also accompany you during the negotiations and advise you on your position with regard to pre-contractual liability in the Netherlands.
Frequently asked questions about pre-contractual liability in the Netherlands
What is pre-contractual liability in the Netherlands?
It is the liability of a negotiating party towards the other party before a contract is concluded, mainly for breaking off negotiations when that is unacceptable. The rules come from case law of the Dutch Supreme Court, in particular CBB/JPO (ECLI:NL:HR:2005:AT7337).
Can you be liable for breaking off negotiations under Dutch law?
Yes, but only by exception. Each party is in principle free to break off, unless this would be unacceptable because of the other party’s justified reliance that the contract would be concluded or other circumstances. The court also weighs how the breaking party contributed to that reliance and its own legitimate interests (CBB/JPO, para 3.6).
What damages can be claimed after broken-off negotiations?
Depending on the stage of the negotiations, the costs incurred and, where the other party could justifiably rely on the contract being concluded, the lost profit under that contract. For lost profit, the Supreme Court applies a strict test that calls for restraint (CBB/JPO, para 3.7).
Is a pre-contract or letter of intent legally binding in the Netherlands?
It can be. A contract arises through offer and acceptance (Article 6:217 Dutch Civil Code), and its obligations must be determinable (Article 6:227). Whether a letter of intent binds the parties depends on its interpretation under the Haviltex test. State expressly what is and is not binding.
Is there a pre-contractual duty to disclose information under Dutch law?
Yes, indirectly. A contract concluded under a mistake, which would not have been concluded with a correct view of the facts, can be annulled if the other party should have informed the mistaken party, given what it knew or should have known about the mistake (Article 6:228(1)(b) Dutch Civil Code). This does not apply to a mistake about a purely future circumstance or one that should remain at the mistaken party’s risk (Article 6:228(2)).
Primary sources
- Dutch Civil Code (Burgerlijk Wetboek), Book 6: Articles 6:217, 6:227, 6:228 and 6:248
- Hoge Raad 12 August 2005, ECLI:NL:HR:2005:AT7337 (CBB/JPO), paras 3.6 and 3.7
- Hoge Raad 13 March 1981, ECLI:NL:HR:1981:AG4158 (Haviltex)
Need advice on pre-contractual liability in the Netherlands?
Do you have questions about Dutch contract law, or do you need advice on drafting contracts or on pre-contractual liability in the Netherlands? Remko Roosjen, lawyer at MAAK Advocaten, will be happy to help you.
