Culpa in Contrahendo
by Jan von Hein
The Europeanization of contract law, especially the work on the Draft Common Frame of Reference (DCFR), raises the question where to draw the line between the law of contract and the law of delict or whether there might even be a ‘third way’ between the two. Differences among the legal systems of the Member States exist particularly in the field of pre-contractual liability, ie culpa in contrahendo (c.i.c.).
2. German law
a) Historical background
C.i.c. was first established by Rudolf von Jhering ((1861) 4 Jherings Jahrbücher für die Dogmatik des bürgerlichen Rechts 1) for a limited number of cases, especially to protect those who suffer damages because they rely on the validity of a declaration given by another party that is subsequently avoided by that other party. Soon, the courts extended the doctrine’s area of application in order to overcome the weaknesses of the German law of delict. The Reichsgericht (RG) had to decide a case where a customer was severely injured when a roll of linoleum fell onto her while she was visiting a shop (RG 7 December 1911, RGZ 78, 239). Since § 831 of the Bürgerliches Gesetzbuch (BGB) (German Civil Code) enables the principal to exculpate himself from the faults of those who act within his enterprise (Verrichtungsgehilfen), the customer was not entitled to claim damages from the shop owner under the German law of delict. This was not only an unjust but also an unreasonable result from an economic point of view because the best opportunity to insure against damages cost-efficiently is usually allocated to the shop owner. Although the question as to whether c.i.c. is of a tortious or contractual nature had deliberately not been decided by the drafters of the BGB, the RG ruled in favour of the customer by applying § 278 BGB, a rule of contract law that attributes the fault of those employed in performing his obligations (Erfüllungsgehilfen) to the contracting party. It was not until the reform of the law of obligations in 2002 that the German legislature codified c.i.c. as an element of contract law (§ 311(2), (3) BGB) in order to encourage the reception of German law by other European countries. It is stated in the explanatory report to this bill that even though the courts had established c.i.c. as a legal concept, the fact that it was not codified in the BGB would not make it easy to recommend the adoption of promising developments of German law to other countries or to introduce such concepts into European law (BT-Drucks 14/6040 14 May 2001, p 162).
b) Modern Law
Today, German c.i.c. has a very wide-ranging area of application and is designed for a variety of cases. The c.i.c. claim is governed by §§ 280(1), 311(2), 241(2) BGB and is mainly used to compensate for the structural shortcomings of the German law of delicts. In contrast to the legal systems of Romanic countries, the German law of delict is largely limited to the violation of property, life, health and other erga omnes rights; generally speaking, it does not offer protection against pure economic loss. This fundamental policy decision is based on a respectable motive because it ensures the liberty to act without having to fear liability. At the same time, however, not every legal interest that is worthy of protection can be protected within the limits of such a framework. These problems are partly solved within the law of delict itself, eg by the means of lowering the requirements for malicious intent in § 826 BGB or by developing further erga omnes rights in the judge-made case law such as the right to an established and operating business. In a large number of cases, however, the problems are solved by extending the scope of contract law, especially in cases governing liability for professional advice. Further shortfalls of the law of delict became evident in cases in which the principal’s liability is limited due to his possibility of exculpating himself (see 2. a) above). Finally, the burden of proof generally lies with the claimant even though the written procedural rules (estimation of damage, § 287 of the German Code of Civil Procedure (ZPO)) and case law mitigate this obligation in certain regards (duty of the defendant to state the relevant facts, the so-called secondary burden of proof, eg in the field of product and medical liability (product liability)). However, the application of § 280(1)2 BGB as a provision of contract law is more advantageous in this regard because of a reversal of the burden of proof concerning the defendant’s fault.
Today, German comparative lawyers generally agree that at least the liability for bodily harm (linoleum-roll case and lettuce-leaf case, see BGH 28 January 1976, BGHZ 66, 51) has to be characterized as delictual from a functional point of view. Some efforts concerning this classification were made before the reform of the law of obligations, especially by extending the range of delictual duties of care. These efforts failed, however, and under § 311(2) 2 BGB, codifying the initiation of a contract as part of contract law, such a classification would mean a violation of the existing law.
While the functionally delictual nature of the linoleum-roll and lettuce-leaf cases is evident, there are further cases where a clear classification cannot be achieved as easily, such as the breaking-off of contractual negotiations and the breach of pre-contractual duties of disclosure. These cases are rather ‘contract-like’ but their exact classification and the actual scope of c.i.c. in such cases are still controversial.
3. Other legal systems in Europe
Only a few legal systems, eg Austria, are modelled on the German notion of c.i.c. Others, such as the Italian system, recognize the institution of c.i.c. but have not yet clarified its nature. A large number of legal systems, such as that of France, have categorized the cases of c.i.c. mainly as being part of the law of delict.
An independent solution exists in the common law systems, eg in English law. English contract law knows no general duty of good faith and fair dealing that is similar to the German Treu und Glauben, an institution that allows the courts to correct unfair results in favour of persons who rely in good faith on the acts of another. Although there are many specific institutions that may be functionally equivalent in the individual case (eg estoppel, duress, misrepresentation, mistake), liability for the breaking-off of contractual negotiations is not particularly embraced since it entails a restriction of the freedom of contract. Moreover, the possibilities of the parties taking the necessary precautions themselves (eg by means of a letter of intent) are emphasized more strongly than in German law. Nonetheless, informed by law and economics, Anglo-American lawyers have become increasingly aware of the fact that the protection of investments made at a pre-contractual stage can be very efficient, especially with regard to more complex projects. It has also been suggested in English legal literature that cases where one party has made investments because he or she trusted in the formation of a contract should be solved by applying principles of unjust enrichment. Yet this institution is not meant to compensate for the loss that occurred on the side of the trusting party, but rather aims at the reversal of any enrichment on the part of the party breaking off the negotiations. Frequently, however, no such enrichment has occurred. A minority opinion suggests solving the problem under tort law as in France. However, in English tort law there is no general clause as is the case in the French Code civil. The multitude of different grounds for liability developed in case law, which can only be understood in the historical context, make it hard to find a place for the breaking-off of contractual negotiations in tort law.
The liability for breach of the pre-contractual duty of disclosure in the acquis cannot be clearly classified as part of contract law since, for example, even the directives in the field of competition law such as the Unfair Commercial Practices Directive (Dir 2005/29) establish duties of disclosure in favour of the consumer (information obligations (consumer contracts)). These duties do not only serve the individual interest of the party who has to be informed, but also protect the public interest in setting up market transparency. In the cases where duties of disclosure are infringed and no contract is subsequently formed, the legal consequences are also not clearly classified as part of contract or tort law.
In German legal practice, c.i.c. plays a major role in the field of public procurement law. Article 2(7) Dir 92/13 eases the burden of proof for the bidder who has been robbed of a ‘real chance of winning the contract’ because procurement law has been violated. The German legislature laid this standard down in § 126, 1 of the Act against Restraints of Competition (GWB) as a separate basis for a claim. It is not shaped as a fault-based liability claim but as one of strict liability. Additionally, the claim requires the threshold of § 100(1) GWB to be passed, and it is limited to damages related to the costs of preparing a bid or of participating in an award procedure. However, since further claims for damages are still allowed (§ 126, 2 GWB), German legal practice concerning the violation of public procurement law has not changed, because most claims are based on § 311(2) BGB. Therefore, no indication of a Europeanization of c.i.c. can be found in public procurement law, either.
5. Principles of contract law and the Common Frame of Reference
A closer affinity to German legal conceptions can be found in the field of ‘soft law’, ie in the Principles of European Contract Law (PECL). Article 2:301 PECL establishes a liability for the breaking-off of contractual negotiations if one party acts in bad faith, especially if it enters into negotiations or continues to negotiate without really wanting to form a contract (Art 2:301(2), (3) PECL). The UNIDROIT Principles of International Commercial Contracts (PICC) (Art 2.1.15 UNIDROIT PICC) have provisions that are almost identical with regard to content. Furthermore, both sets of model rules require the parties to maintain as confidential any information received from the other party in the course of negotiations (Art 2:302 PECL; Art 2.1.16 UNIDROIT PICC). Even though two of the most relevant case types of c.i.c. in German law are thus incorporated in these instruments, it must not be forgotten that, compared to German law, they are less differentiated and rather rudimentary. Other cases that are of great importance in legal practice such as pre-contractual liability for bodily harm are not incorporated at all. In sum, c.i.c. in the PECL and the UNIDROIT PICC has a much smaller scope of application than in German law. In 2009, the Draft Common Frame of Reference (DCFR) was presented which is modelled on the PECL and the UNIDROIT PICC. It contains rules concerning pre-contractual duties in Book II, Chapter 3 (Art II.-3:301(3) DCFR, liability for the breaking-off of contractual negotiations; Art II.-3:302 DCFR, confidential dealing with information). Article II.-3:101–107 establish duties of disclosure that are mainly based upon the acquis on consumer protection, and Art II.-3:201 DCFR makes it possible to correct input errors that occurred in the process of distance selling. All these duties are regulated in Book II on contract law and not in Book VI which concerns non-contractual obligations.
6. Private international law and international civil procedure
The decision of the European Court of Justice (ECJ) in the Tacconi case in 2002 (ECJ Case C-334/00 – Tacconi  ECR I-7357; critical comment by Peter Mankowski,  IPRax 127) was a watershed for the classification of c.i.c. in European international civil procedure and private international law. Briefly summarized, the Italian Tacconi raised a claim against the German HWS which had allegedly acted in bad faith when contractual negotiations were broken off. The question at hand was whether Tacconi could sue HWS in the courts at the place of performance according to Art 5(1) of the Brussels Convention, now the Brussels I Regulation (Reg 44/2001), in the courts at the place where the harmful event occurred according to Art 5 no 3 Brussels I or only in the courts at the place of general jurisdiction according to Art 2(1) Brussels I. First, the ECJ affirmed settled case law according to which the terms ‘contract’ and ‘tort’ in Art 5(1) and (3) Brussels I are to be interpreted autonomously. This means that the interpretation is neither to be based on the classification of c.i.c. in German nor Italian law. The ECJ emphasized that the term ‘contract’ in Art 5(1) Brussels I means an obligation that the parties have entered into voluntarily. According to the ECJ, this requirement was not fulfilled in the case of a breaking-off of contractual negotiations because the liability arose by operation of law. Therefore Art 5(1) Brussels I could not be applied to the case. Furthermore, the ECJ did not classify c.i.c. as a case sui generis and did not open up a ‘third way’ which would have meant that only the place of domicile was available for jurisdiction (Art 2 Brussels I). Instead, the ECJ chose the jurisdiction on torts as a default option so that the claim for the breaking-off of contractual negotiations could be raised in the forum delicti commissi. The decision in the Tacconi case reflects a general scepticism of the ECJ towards an extension of contract law by the Member States. It intends to protect the defendant from being sued involuntarily at the jurisdiction of performance even though he could not foresee the legal consequences of his acts. The decision of the Tacconi case is in line with the subsequently enacted Rome II Regulation (Reg 864/2007) that characterizes c.i.c. as a claim of a non-contractual nature (non-contractual obligations (PIL)).
7. Future prospects
The characterization of c.i.c. in the European conflict of laws as non-contractual has not resulted in its exclusion from the DCFR. Such an exclusion would not have been appropriate in view of the close functional relationship between a number of c.i.c. cases (duties of disclosure, breaking-off of contractual negotiations) and contract law. Moreover, this relationship is recognized in Rome II, at least with regard to the conflicts rule which follows the principle of an accessory connection (non-contractual obligations (PIL)). It would be in accordance with this assessment of c.i.c. if the final version of the Common Frame of Reference (DCFR) were to include problems such as the pre-contractual duty of disclosure, or negotiating in good faith with regard to the duties of the parties, without explicitly classifying the legal consequences of their breach as contractual or tortious. Such an openness of the final CFR would not sacrifice the uniform application of law since Art 12(1) Rome II would in general lead to a parallelism between contractual and non-contractual claims. However, c.i.c. cases that are clearly non-contractual (bodily harm, lettuce-leaf cases) cannot be considered as being a part of European contract law from a functional and comparative point of view.
Hans Stoll, ‘Tatbestände und Funktionen der Haftung für Culpa in Contrahendo’ in Festschrift Ernst von Caemmerer (1978) 435; Tomasz Giaro, ‘Culpa in contrahendo’ in Ulrich Falk and Heinz Mohnhaupt (eds), Das Bürgerliche Gesetzbuch und seine Richter (2000) 113; Johannes Hager, ‘Die culpa in contrahendo in den UNIDROIT-Prinzipien und den Prinzipien des Europäischen Vertragsrechts aus der Sicht des deutschen Bürgerlichen Rechts’ in Jürgen Basedow (ed), Europäische Vertragsrechtsvereinheitlichung und deutsches Recht (2000) 67; Joachim Dietrich, ‘Classifying Precontractual Liability’ (2001) 21 Legal Studies 153; Paula Giliker, ‘A Role for Tort in Pre-contractual Negotiations?’ (2003) 52 ICLQ 969; Jan Dirk Harke, ‘Irrtum und culpa in contrahendo in den Grundregeln des Europäischen Vertragsrechts’ (2006) 14 ZEuP 326; Thomas Wilhelmsson and Christian Twigg-Flesner, ‘Pre-contractual Information Duties in the Acquis Communautaire’  ERCL 441; Volker Emmerich, ‘§ 311’ in Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol 2 (5th edn, 2007) nn 50 ff; Rabih Monzer, ‘Les effets de la mondialisation sur la responsabilité précontractuelle’  Revue internationale de droit comparé 523; Alan Schwartz and Robert E Scott, ‘Precontractual Liability and Preliminary Agreements’ (2007) 120 Harvard LR 661.