Breaking off negotiations: does unjust enrichment lead to liability for damages?

Facts

The claimants, property developers, bought two plots of land from the defendants. The purchase agreement between the parties set a final date for transfer of one of the plots. The plots could not be transferred directly to the claimants because they were subject to a right of first refusal (voorkeursrecht) for the municipality. 

The parties agreed that the claimants would consult with the municipality to ensure that its right of first refusal created on the plots was not exercised and that the designated use of the plots under public law (spatial planning) was changed. This was expected to take some time. Therefore, the parties also agreed on an obligation to negotiate a (further) extension of the purchase agreement. 

When the final date in the purchase agreement expired, the parties entered into such an extension agreement. When the extension agreement also expired, the parties negotiated a further extension but  failed to reach an agreement. The defendants broke off the negotiations with the claimants. The defendants then sold the land to a third party for a higher price than the claimants would have paid.

In the proceedings, the claimants sought damages from the defendants in respect of the termination of the negotiations. The Court of Appeal dismissed their claim, because it deemed breaking off the negotiations at this stage not unacceptable. 

The claimants filed an appeal with the Supreme Court. They argued, in short, that the defendants were able to sell the plots (for a higher price) to a third party only because of claimants’ efforts (to obtain amendment of the designated use of the plots under public law). By breaking off the negotiations, the defendants unfairly benefited from these efforts. 

Plas/Valburg and CBB/JPO standards

In principle, the freedom to negotiate also entails the freedom to break off negotiations without any obligation. This is the first phase of the negotiation process as formulated in the Plas/Valburg standard judgment (ECLI:NL:HR:1982:AG4405, NJ 1983/723). 

If the negotiations have reached the second phase, the party breaking off the negotiations must reimburse the other party’s costs incurred in the negotiation process and/or the loss of opportunity (the negative interest) on the grounds of the principle of reasonableness and fairness. 

In the third phase of the negotiations process, breaking off negotiations is considered unacceptable. If this ‘unacceptability’ standard – which should be applied strictly and with restraint – is met, there are several remedies that the injured party can invoke. The injured party can either claim damages for lost profits (the positive interest) or instead seek an order to continue the negotiations until an agreement is reached. See also our earlier blog post of 30 June 2021 in this regard.

In the subsequent CBB/JPO standard judgment (ECLI:NL:HR:2005:AT7337, NJ 2005/467) the Supreme Court ruled that breaking off negotiations may be unacceptable because of the other party’s legitimate expectation in the formation of the contract or in light of the other circumstances of the case. 

Back to the case at hand…

As far as that (further) extension of the purchase agreement was concerned, the parties were indeed still in a precontractual phase in which breaking off negotiations was not ‘unacceptable’. However, the Supreme Court ruled that, despite the fact that the ‘unacceptability’ standard did not apply, the negotiations may have reached a stage in which a party may not break off the negotiations with the other party without being obliged to reimburse (a part of) the other party’s costs. 

What’s new is that the Supreme Court considers that such reimbursement obligation could arise on the basis of unjust enrichment (Article 6:212 of the Dutch Civil Code), as the defendants may have benefited from the efforts already made by the claimants, especially in relation to the municipality. Whether and to what extent this is the case, depends among other things on the contents of the purchase agreement and the extension agreement. This is in line with the observation by Advocate General Hartlief (ECLI:NL:PHR:2024:263) in his advisory opinion to the Supreme Court that such reimbursement obligation should be seen as a contextual obligation to reimburse certain costs in a specific case, which should in the view of Hartlief be distinguished from the possible obligation to pay damages consisting in the ‘negative interest’ in third phase of Plas/Valburg and, in his view, entails a more limited reimbursement obligation.

As the Court of Appeal only took the ‘unacceptability’ standard into account in its assessment and failed to assess the defendants’ liability for the claimants’ costs, the Supreme Court annulled the Court of Appeal’s judgment and referred the case to another Court of Appeal for judgment.