Pre-contractual liability from a civil lawyer’s perspective

Abstract

INTRODUCTION In Chinese contract law as well as in most civil law systems, individuals are only allowed to enter into fair deals. In general, these legal systems have taken an expansive approach to pre-contractual liability. Liability is affixed for bad faith with regards to conduct (including omission of facts) during the pre-contractual stage, when the contract has not yet been formed, it has been concluded but is not yet effective, or it is void ab initio. In common law, the principle of freedom of contract and the underlying ideal of individual freedom mean that parties are free to enter also into bad deals and to negotiate in bad faith. Anglo-American legal culture expects individuals to be self-reliant, and it is not for the law to intervene to prevent loss. The Euro-Continental view is more comfortable with a paternalistic approach, as is Chinese law. In both civil and Chinese law, a broad doctrine of good faith allows judges to intervene as they deem appropriate to adapt contracts to societal and political needs, based upon the context in which the agreement was formed. ‘European Private Law’ goes further, focusing on the notion of ‘good faith and fair dealing’ in contract law, and often aims to protect the parties’ interests. The issue addressed in this chapter is whether negotiations between parties create a legal relationship. One view is that negotiations are purely preparatory and they do not imply a legally protected relationship, which is created only when the contract is concluded (common law). Another view is that although negotiations do not form a contract, the parties do engage in a collaborative effort, which results in significant investments, and they are entitled to legal protection (civil law). The picture is obviously more nuanced: even if the negotiation process creates a legally protected relationship, jurisdictions differ on the contents of the duties created by that relationship in which liability can in fact arise. In all legal systems the major issue at stake lies in the difficulty of drawing a sharp line between freedom of contract and bargaining in good faith: how far should the freedom to break off negotiations stretch, or in other words, at which point is a party’s confidence in negotiations to be protected?.