Talks that ran for months, a deal everyone assumed was done, and then one side walks away. The question that follows is always the same: can they simply do that, and who pays for the work already done? Dutch law gives a clear answer, and it is not the one most people expect. The starting point is that you may break off negotiations. Liability is the exception, and the threshold for it is high.
This page sets out when breaking off does become wrongful, what the disappointed party can claim, what a court will actually look at, and — more usefully — how to make the whole question go away before it arises.
Negotiating is already a legal relationship
From the moment parties enter into negotiations they are no longer strangers. Since the Supreme Court’s Baris/Riezenkamp judgment of 1957 it has been settled that negotiating parties enter into a special relationship governed by good faith, in which each must take account of the other’s justified interests. Articles 6:2 and 6:248 of the Dutch Civil Code carry that principle through the law of obligations.
That relationship has consequences before any contract exists. It can give rise to a duty to disclose information the other side plainly needs, a duty not to negotiate in parallel while suggesting exclusivity, and — the subject of this page — limits on simply walking away.
The standard: when is breaking off wrongful
The governing rule comes from the Supreme Court’s judgment of 12 August 2005 in CBB/JPO. Breaking off negotiations is wrongful only where doing so would be unacceptable, either because of the other party’s justified reliance that a contract would come about, or because of other circumstances of the case. The Supreme Court described this in terms that matter: it is a strict standard, and one that requires restraint on the part of the court.
Three things follow from that wording, and they decide most cases.
- The default is freedom. A party may break off. The disappointed party has to establish why this particular breaking off crosses the line, not the other way round.
- Reliance has to be justified. Hoping the deal would close is not enough. The reliance must be one that the other party’s own conduct made reasonable.
- The moment of breaking off is judged in context. The court looks at how the negotiations developed, what each party did, and whether circumstances changed in the meantime. A party who breaks off because the market moved is in a different position from one who breaks off because a better offer arrived while the other side was told the deal was closed.
What courts have taken into account
The case law is fact-driven, but a pattern recurs. Circumstances that have weighed in favour of the disappointed party include agreement on all essential points with only the formalities outstanding, a jointly prepared final draft, a party being encouraged to start work or incur costs before signature, and assurances given about the outcome. Circumstances weighing the other way include open points on price or scope, an express reservation, a party that kept negotiating with others, and a change in the underlying facts such as financing falling through or a permit being refused.
The three phases, and what remains of them
Dutch practice still works with the sequence from the Supreme Court’s Plas/Valburg judgment of 1982, which is worth knowing because it is how the other side’s letter will be framed.
| Phase | Where the negotiations stand | Consequence of breaking off |
|---|---|---|
| First | Early talks, nothing settled | Free to break off; each party bears its own costs |
| Second | Talks advanced, but no justified reliance in a contract | Free to break off, but the costs incurred by the other party may have to be reimbursed |
| Third | The other party could justifiably assume a contract would result | Breaking off may be unacceptable: damages, which can include lost profit, or an order to continue negotiating |
One nuance is worth being honest about, because it is live in the literature. CBB/JPO does not mention Plas/Valburg at all, and it formulates a single strict standard rather than a graduated one. Some authors read that as the end of the second phase. Others point out that CBB/JPO concerned a claim for lost profit only, so the judgment says nothing about a costs claim. In practice the lower courts continue to award negotiation costs in appropriate cases, resting that on the supplementary effect of reasonableness and fairness rather than on the strict CBB/JPO test. The practical takeaway: a costs claim has a materially better chance than a lost-profit claim, and the two should not be argued as though they stood or fell together.
What can be claimed
- Negotiation costs (the negative interest). External advisers, due diligence, engineering or design work, travel. This is the claim that most often succeeds, and it is helped enormously by invoices that show what was done and when.
- Lost profit (the positive interest). What the claimant would have earned had the contract been concluded. This requires the third phase and therefore the full strict standard. It is awarded rarely.
- An order to continue negotiating. A court can order the parties back to the table, sometimes in summary proceedings and reinforced by a penalty. It is a real remedy where the counterparty is manoeuvring rather than genuinely withdrawing, though it cannot force a contract into existence.
Whichever route, the burden of proof lies with the party that was left standing. That makes the negotiation record decisive: minutes, drafts with dates, emails confirming what was agreed at a meeting, and any message in which the other side expressed confidence about the outcome.
How to avoid the question entirely
Almost all of this risk is avoidable, on both sides, with documents that take an hour to prepare.
Use a reservation, and use it properly
A reservation — subject to board approval, subject to financing, subject to satisfactory due diligence, subject to contract — prevents justified reliance from arising in the first place. Three rules make the difference between a reservation that works and one that does not. State it in writing at the outset, not once the talks turn difficult. Repeat it in the correspondence, because a reservation made in the first meeting and never mentioned again loses force as the talks progress. And act consistently with it: a party that says the deal is subject to board approval while telling the counterparty to start ordering materials undermines its own proviso.
Put a letter of intent in place
A short letter of intent should say in terms which parts are binding and which are not, that no party is bound until a signed contract exists, that each bears its own costs, and that either party may withdraw at any time. Where confidentiality or exclusivity is agreed, those clauses can be made binding while the rest is not — that combination is normal and enforceable.
Deal with costs before they are incurred
Where one party is asked to invest during the talks — a design, a pilot, a survey — say in writing what happens to those costs if no contract follows. A break fee or a cost-sharing arrangement is cheaper than a dispute about phases, and it converts an argument about legal doctrine into a matter of arithmetic.
If the other side has broken off
Act quickly and in this order. Secure the record before people leave and mailboxes are cleaned out: drafts, minutes, the message chain, the moment when each open point was closed. Set out your costs with supporting invoices. Then decide what you are actually after — reimbursement, resumption of talks, or damages — because those are three different letters, and a demand that asks for everything at once is easier to dismiss than one that asks for what is defensible.
Where the other party is still holding the door open, a firm letter naming the reliance they created and the costs it caused is often enough to produce a settlement. Where they have gone, the question becomes an evidential one, and it is worth taking a sober view of which phase your file actually supports before writing anything.
Frequently asked questions
Can I simply walk away from negotiations?
As a rule, yes. Dutch law treats freedom to break off as the starting point, and liability as the exception. It becomes wrongful only where breaking off would be unacceptable given the other party’s justified reliance that a contract would result, or given other circumstances. The Supreme Court has described that as a strict standard requiring restraint.
Do I have to pay the other side’s costs?
Sometimes, and considerably more often than you would owe lost profit. Where negotiations had progressed far and the other party incurred costs with your knowledge and encouragement, a court can order those costs to be reimbursed even where no contract was ever going to be enforced.
Can a court force us to conclude the contract?
No court will conjure a contract into existence, but it can order the parties to continue negotiating, if necessary in summary proceedings and with a penalty attached. That is a real risk for a party that is stalling rather than genuinely withdrawing.
Does a letter of intent make us bound?
That depends entirely on what it says. A letter of intent can be wholly non-binding, wholly binding, or — most commonly and most sensibly — binding only as to confidentiality, exclusivity and costs. What it must not be is silent on the point, because silence is what leaves the question to be decided afterwards by a court.
How long do I have to bring a claim?
A claim of this kind is subject to the ordinary limitation rules, which run from the moment you know both the damage and who is liable for it. In practice the constraint is evidential rather than formal: the value of a negotiation file falls quickly once the people involved have moved on.
Talks broken off, or thinking of breaking them off?
Both sides of this question benefit from advice before the letters start. If you have been left with the costs of a deal that did not close, the question is which phase your file supports and what can realistically be recovered. If you are the party that wants out, the question is how to do it without creating a claim. Our lawyers advise on both, in Dutch and in English. Contact Law & More for an assessment of where you stand.
