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Avoiding Liability for Ceasing Negotiations – Recommendations Following the Auchan Case
21 December 2017
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In late November 2017, the Commercial (Arbitrazh) Court of the Moscow District upheld the decisions of lower courts to award lost profits against Auchan in favour of a potential lessor due to unfair (abrupt) cessation of negotiations for a warehouse lease agreement.
Following the court findings in the Auchan case as well as other cases, this client update discusses certain practical tips that would help to mitigate the risk of the cessation of negotiations being deemed unfair and the risk of recovery of related losses. In particular, it is advisable that the counterparty be informed in advance that the signing of the contract is subject to conditions precedent and that certain circumstances may prevent the signing of the contract.
In general, a party should carefully consider any acts and statements (e.g., confirmation of consent in principle to the deal) that may create reasonable expectations of the counterparty with respect to further conduct of such party during negotiations.
Parties should be aware that the fewer outstanding issues remain and the closer the parties approach the signing of the contract, the fewer reasons the counterparty has to expect that the other party would refuse to make a contract, unless the parties expressly agreed otherwise.
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