THE BOTTOM LINE
- Breaking off advanced negotiations can be costly. The Dutch Supreme Court confirms that a party walking away from a near-final deal can be forced to compensate the other side for costs incurred (e.g., legal fees, due diligence expenses).
- Liability for lost profits is now exceptionally rare. Winning damages for the profits you would have made if the deal had closed is now reserved for the most extreme cases where walking away is proven to be “unacceptable.”
- Clear exit clauses are more critical than ever. Your freedom to negotiate and ultimately walk away depends heavily on how well you manage expectations. Using clear “subject to” clauses (e.g., subject to board approval) is your best defence.
THE DETAILS
This landmark ruling from the Dutch Supreme Court provides much-needed clarity on the financial risks of terminating late-stage business negotiations. The case centered on a large corporation that abruptly ended talks to acquire a tech startup, just as contracts were being finalized. The startup sued, arguing it had a legitimate expectation the deal would close and had incurred significant costs while turning down other opportunities. The core legal question was not if the withdrawing party could be liable, but for how much.
The Court’s reasoning carefully balances two competing interests: the freedom to negotiate (and walk away) versus the duty to act fairly towards a negotiating partner. It affirmed the long-standing principle that a party can be liable for the other’s direct costs if they created a “justified reliance” that a deal was imminent and then broke it off without good reason. This means that if your conduct leads a counterparty to reasonably believe a contract is a certainty, you can be on the hook for their expenses if you suddenly change course.
Crucially, however, the Supreme Court set an extremely high bar for claims related to lost profits (known as “positive contract interest”). To be liable for the full value of the failed deal, the withdrawal must be deemed “unacceptable according to the standards of reasonableness and fairness.” This is a significant clarification. It means that simply having a strong and justified hope that a contract will be concluded is no longer enough. The Court has effectively moved to protect the freedom of contract, ensuring that only in the most exceptional circumstances will a court force a party to pay for the profits of a deal that never materialized. For business leaders, the message is clear: manage expectations carefully, but know that the ultimate risk of a failed deal largely remains with each party.
SOURCE
Hoge Raad der Nederlanden (Supreme Court of the Netherlands)
