New Civil Code - Contractual Negotiations and Potential Liabilities

For several years, Belgian law has been through numerous reforms, including its Civil Code, with the adoption of a new version of such seminal piece of legislation. Its Book 5, titled "Obligations" (reforming general contract law), is due to come into force on January 1st, 2023. This post, the first of a short series, introduces one of the reform’s noticeable aspects: the liability of parties during a precontractual negotiation.

This responsibility, which already existed in practice under its Latin name of culpa in contrahendo, will be formally codified as of January 1st by articles 5.14 et seq. of the New Civil Code.

The new Code recalls that, unless provided by law, everyone remains free to enter into a contract and does not have to justify the reasons for his or her choice (or lack thereof).

The same applies to the conduct of negotiations, provided that everyone also acts "in accordance with the requirements of good faith".

This point is important since it implies that, during pre-contractual negotiations, the parties must provide each other with all the information the law, good faith and tradition require them to share with the other party. The parties reasonable expectations shall be taken into account regarding the subject matter of the negotiations and that of the contract.

Finally, the new Civil Code adds consequences, should a party fail to comply with such obligations.

By contrast to the (future) old Code, a party’s liability that, during negotiations, does not behave in accordance with the principles mentioned in this post or that improperly breaks off negotiations is expressly mentioned, while the matter was formerly addressed by precedence only.

One could think of several examples, such as deliberately conducting negotiations with the sole or primary purpose of wasting a party's time, making it pacesetting in a parallel negotiation, or even misleading it to reveal information that would not have been revealed in other circumstances.

Finally, the Code provides for a sanction mechanism. In the event of a wrongful conduct during negotiations or their unjustifiable termination, the new Code provides that the party wronged by such conduct "shall be put back in the position in which it would have been had there been no negotiations".

If the negotiations were sufficiently advanced to allow said party to believe that the contract would probably have been entered into, the injured party may seek compensation for the loss of the net benefits expected from the contract.

Finally, it should be kept in mind that it will be up to the claimant to establish its prejudice and thus to prove both its existence as well as its valuation. Therefore, the parties should take the necessary measures to document their negotiations and to be careful about the content of the letters of intent and other Memoranda of Understanding that they may enter into. The scope and content of non-disclosure agreements will also remain of importance.