In pre-contractual negotiations, the parties concerned will have several obligations
Before concluding a contract, negotiations are normally conducted. It is important to note that this is not just an exchange of information or thoughts, but that negotiations impose specific obligations for the persons.
Parties who are negotiating pre-contractual contracts or otherwise are preparing for the conclusion of a contract must reasonably consider each other’s interests and rights. The rights to be considered can primarily arise from legislation but may also result from already concluded contracts. Interests are more difficult to define and therefore it may be debatable what to consider as interests. An interest could be what is important to the person, and which is in touch with the planned contract. At the same time, it is important to keep in mind that the legislator distinguishes rights and interests, i.e. interests cannot be furnished through rights which are protected primarily by law.
The above mentioned as a consideration must be reasonable. Depending on the situation(s), reasonableness can be evaluated differently. As a general principle, what is considered reasonable in a debt relationship, would be in a similar situation considered same as the parties who acted in good faith. While determining what and to what extent is reasonable in a particular situation, it should be kept in mind that while assessing reasonableness the nature of the debt relationship and the purpose of the transaction, the customs and practices of the activity or profession concerned, as well as other circumstances must be taken into account. Therefore, there is no definitive list of criteria to be considered while assessing reasonableness.
When parties provide each other with information while preparing to conclude a contract, it is an obligation to provide true information. Probably, this obligation must be understood in a way that the information must also be clear and not misleading.
The party negotiating in pre-contractual circumstances or otherwise preparing to conclude the contract must inform the other party of any circumstances in which the other party has a recognizable substantial interest in the purpose of the contract. Therefore, the notification of those facts do not depend on whether the other party itself asks for something in the circumstances concerned and the obligated party must himself feel the circumstances in which the other party can have a recognizable substantial interest.
The case-law, for example, has found that neighbours disruptive behaviour which goes beyond the normally accepted rules of common life may be a factor where the buyer who wants to purchase it as a dwelling has a recognizable substantial interest of what the seller has to inform the buyer during pre-contractual negotiations without the buyer having to ask about it. If the seller has violated this obligation, the buyer may claim damages, and this may also give the buyer grounds to decline the transaction due to error or fraud.
The Law of Obligations Act also states that if the persons who engage in precontractual negotiations do not reach an agreement, no legal consequences arise for the persons from the negotiations. However, such provision is partly misleading, since certain obligations, i.e. legal consequences, still remain. And, when a person who participated in pre-contractual negotiations has been made aware of facts which cannot be disclosed, then the person may not disclose those facts to other persons, regardless of whether contract was concluded or not, or use them in bad faith for the persons own benefit.
As a follow-up to the above-mentioned, the will of the legislator stays somewhat unclear regarding the facts that have been made aware to the person, what is not subject to be disclosed and what cannot be used in bad faith for their own benefit. Therefore, these may be circumstances which may or may not be disclosed to other persons and may not be used inappropriately for their own benefit. As far as it is known, there is no legislation which would define these circumstances in question. In the interests of greater clarity and in order to avoid possible disputes, it would be better if the party disclosing the facts explicitly and in writing stated that these are facts which cannot be disclosed to anyone and which cannot be exploited in bad faith by the party who has become aware of the facts. At the same time, let us note that circumstances can be used in good faith for their own benefit, i.e. then it would be lawful behaviour. Drawing a line between the use of good faith and bad faith circumstances can be problematic – the final assessment depends on the specific situation, the nature of the circumstances, the purpose of exploitation, etc.
In conclusion, it is important to bear in mind that a person may not negotiate in bad faith, especially without the will to conclude a contract, or discontinue them in bad faith. Particularly, it could be the case where one person tries to obtain information from the other, which may constitute commercial confidentiality, and which may then be intended to be exploited for the person’s own economic activity.
If you have any questions about the above, feel free to contact with the writer of this article.
Attorney-at-law Raini Nõu / LEADELL Pilv Law Office