GLOSARIO DE VERBOS QUE SE PUEDEN UTILIZAR EN LA ELABORACION DE LOS OBJETIVOS

The next scenario involves A leading B to believe that they may enter into a contract. However, A never had an intention to enter into the contract and later ends the negotiations. In contrast to the unjust enrichment scenario there is now evidence of the intention of the party breaking off the negotiations. From the scenario above it is clear that the minimum recovery for B in both countries lies in restitution. The question is whether B may recover damages.

The German approach to fraud

The main case for breach of duty to bargain in good faith (§§ 280 I; 311 II (1) BGB (Culpa in contrahendo), as shown above, is the feigning of serious negotiations. The necessary requirement lies in the ‘qualifizierten Vertrauensbestand’ - the qualified

171 _{Cf. § 817 BGB, where the recipient has breached a statute or good morals.}

172_{Way v Latilla [1937] 3 All ER 759 (HL).}

173 _{Though the German court would probably (in light of § 311 BGB) award reliance damages or}

59 trust relationship. The breach of the trust relationship, i.e. the breaking off of

negotiations, leads to compensation on the basis of the negative interest (reliance). One party must have unmistakably led the other party to believe that a contract would certainly be formed and that party’s breaking off is seen as a grievous infringement of the duty of honest behaviour.174 _{The most common example is} intentional misbehaviour.175 _{Interestingly, as the liability arises from the intention} of the other party not to contract, the liability can arise before the negotiations have even been broken off. This was confirmed by a Court of Appeal176 _{in Stuttgart} in 2007.177 _{The claimant, a Swiss company, entered negotiations for the take-over} of company AS. The defendant was the sole shareholder of company O, which in turn was a consultant to company AS. The idea was that a new company, owned by the claimant, was to be founded that would hold all the shares of company AS. Many meetings followed and the claimant drafted the documents, developed business plans and received the confirmation of the bank to support the take-over. The defendant took part in a workshop with company O in which they mainly discussed remuneration of the board of director and the financial planning for the following years. Shortly afterwards company AS sent the claimant an email stating that they were not willing to continue negotiations due to the fact that the

defendant was unwilling to participate. The defendant then engaged in

negotiations with AS directly and ultimately took over the company. The claimant

174 _{Pfister, Festschrift für Werner Lorenz (J.C.B. Mohr Tübingen 1991), p. 166.}

175_{BGH NJW 1996, 1885 (Tax Avoidance Case) .}

176 _{Oberlandesgericht.}

60 asserted that the defendant used the information gathered during the negotiations to further his own interest and always knew that he would be unwilling to contract. The court agreed that if the defendant had always known he was unwilling to contract he would have been liable. However, in this case the evidence178 _{– in} particular the fact that he had attended the workshop – was sufficient to rebut the claim that he had always known that he would be unwilling to contract.179

The English approach to fraud

In cases where a statement is made fraudulently, the other party will be liable for the loss that the fraudulent statement caused. A statement is fraudulent if made with knowledge of its falsity, without belief in its truth, or recklessly.180 _{In Derry v}

Peek181_{the claimant had been induced to buy shares in a company after the}

directors of the company had made statements in the prospectus to the effect that they would have the right to use steam engines rather than horses on the tram lines – this was seen as a great advantage at the time. The Board of Trade later refused to give their consent to the use of steam and consequently the company went into liquidation. The Court of Appeal held the directors liable on the basis that the directors should have known the statement to be untrue. The House of Lords

178 _{No doubt if the information was not publicly available he could also have been liable for misuse}

of confidential information. This applies to both the German and the English cases. For more

information see Beale and others, Contract Law: Ius Commune Casebooks for Common Law of

Europe (2nd edn, Hart Publishing 2010), p.425, 426.

179 _{See also the hypothetical case discussed in Zimmermann and Whittaker, Good Faith in European}

Contract Law (Cambridge University Press 2000), p.236-238.

180_{Derry v Peek [1889] 14 App Cas 337 (HL), 374.}

61 reversed the judgment and held that due to the fact that the directors honestly believed the statement to be true based on the belief that the consent of the board of traders was virtually certain, there was no ground for a claim in fraud.182 _By contrast, in Brown Jenkinson183_{the claimant, on the request of the defendant, had}

issued a clean bill of lading (even though they knew that the goods were in bad condition). When the goods arrived damaged the claimants attempted to rely on the indemnity given by the defendant against their loss. The Court of Appeal held that as the claimants had issued a clean bill of lading with the intention that it would be relied on, the requirements for a claim in the tort of deceit were fulfilled (and therefore the indemnity was illegal and could not be relied on). There was no need to show that the claimant intended to cause any loss.

Fraud therefore requires the intention to deceive the other party followed by some sort of positive representation. Anything less than a deliberate or reckless act could only amount to negligent or innocent misrepresentation (see ch 3.08 on

‘negligently misleading’). A claim in deceit is commonly brought to provide the claimant with a remedy in cases where he has been induced into a contract through the misrepresentation of the defendant. It is not limited to such scenarios, as shown below, and the claimant will be able to rely on the tort of deceit so long as he can show, as Cotton L.J. expressed in Arkwright v Newbould184_{, that the} defendant has made a statement to be acted upon by others which is false, and

182 _{Ibid. at 379.}

183_{Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621 (CA).}

62 which is known by him to be false, or is made by him recklessly, or without care whether it is true or false, that is without any reasonable ground for believing it to be true. The requirement is therefore not that the claimant must prove that the defendant intended to cause a loss but he must prove an intention to deceive.185 Whilst Derry v Peek186_{involved the inducement into a contract this does not limit}

the scope of deceit to cases in which a contract has ensued. Richardson v

Silvester187 _{addressed a misrepresentation at the pre-contractual stage where no}

contract came into existence. The defendant had publicly advertised for the letting of a farm and the claimant, on the basis of the advertisement, incurred expenses inspecting and valuing the premises. It then became apparent that the defendant never had the power to let the property and had advertised the property ‘to serve some purpose of his own’.188 _{The court held that the claimant hat been deceived.}

In the American case of Markov v ABC Transfer & Storage Co189 _{the lessor of a} warehouse misrepresented to the lessee that the lease would be renewed for a further three years even though he had an intention to sell the property. The property was sold and the lessee, due to the fact that he had to move on short notice, lost an important customer. The court held that this would have not occurred had the lessor not deceived the lessee and awarded the lessee damages

185_{Derry v Peek [1889] 14 App Cas 337 (HL), 374 per Lord Herschell.}

186 _Ibid.

187_{Richardson v Silvester [1873-74] LR 9 QB 34 (QB).}

188 _{Ibid. at 34.}

63 for the increase in cost for having to move at short notice and damages for the lost profits from one of their large clients which they would have otherwise retained.

It would seem also that in cases in which the defendant represents to the claimant that he intends to contract and he honestly holds that belief190_{, he is free to change} his mind. However, upon the change of mind he has a duty to inform the

defendant. In cases where he fails to inform, a case of fraudulent misrepresentation may arise. In Slough Estates191_{the claimant was granted permission by the local}

council to develop a site. A third party soon obtained planning permission for a different site only three miles away for a similar development and the claimant did not believe that both could be run profitably. The defendant assured the claimant that a tenancy mix agreement would be enforced by the council against C which would reduce the competition to the claimant. Later the council and the third party entered into a secret agreement that the terms of the tenancy mix agreement would be relaxed but continued to represent to the claimant that the agreement was still in force. The claimant therefore alleged that there had been a fraudulent misrepresentation and the court agreed that there was a misrepresentation from the time that the decision was made to relax the terms of the agreement and the claimant had not been informed.

190 _{Otherwise there would be grounds for a case in fraudulent misrepresentation: East v Maurer}

[1991] 1 WLR 461 (CA).

64 Preliminary conclusions

Both systems provide a remedy where A has deliberately mislead B as to his

intention to contract. While the German courts base their decision on the misuse of trust placed in the defendant,192 _{the English courts base their decision on the} dishonesty of the defendant. Essentially though, the values in both system are the same, namely the protection of the claimant against intentional (and reckless) dishonesty at the pre-contractual stage that causes loss. This adds to the section of unjust enrichment in that there the claimant will only be able to recover the gain to the defendant whereas in this case the claimant will be entitled to all his loss naturally flowing from the fraud.

192 _{E.g. BGHZ 76, 343 (Failed Shopping Centre Case) , 349, confirming BGHZ 71, 386 , 395. This case}

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