Chile’s lack of protection for negotiating parties must end

 Chile’s lack of protection for negotiating parties must end

When discussing the culture of negotiation in Chile, we must first understand that this is a diffuse and somewhat incomplete area of our legal system. The parties to a contract or transaction may find themselves having to exchange a great deal of information or go through several procedures to reach a legal and binding agreement.

An agreement that generates rights and obligations creates so-called consent, which under Chilean law is understood to arise only once one of the parties accepts an offer made by the other. In spite of existing regulation based on the nineteenth-century Code of Commerce, the exact moment when consent is formed is still not clear. This should indicate just how complex the stage of concluding a negotiation can be, despite legal regulations and an extensive literature and jurisprudence on the subject.

How are the negotiations that allow parties to form consent and reach an agreed contract regulated in Chile today? Legislation has not expressly regulated this stage of a contractual relationship. For over a century, Chilean courts did not grant any protection to the party that had a reliable and legitimate interest in the conclusion of a contract, against an opposing party that might unilaterally and arbitrarily terminate negotiations. The standard assumption was that, since the consent of the parties involved had not been formed, there was no obligation to compensate the damages caused by the breakdown of the negotiations.

Pre-contractual liability was, however, arduously developed as a legal concept during the course of the twentieth-century, following the jurists von Ihering and Fagella. Thus, in a ruling from 1996, the Chilean courts recognised the obligation to compensate damages generated because of the negotiations prior to the execution of a contract. This precedent has since been used on several occasions by the Supreme Court, to argue that the liability arising in the stage of preliminary negotiations should be analysed, and regulated, through the statute of the aquilian or extra contractual liability, which currently offer no contractual relationship between the parties involved in negotiations.

Although there is still no clear legislation in this respect, certain definitions have been sought. Most drafts tend to agree on the existence of potential damage in the preparatory phase or preliminary negotiation prior to the conclusion of the contract. On the other hand, Chilean courts of justice, without framing it within a specific legal rule, usually define this as “that which arises from commercial equity, which obliges to compensate the damages produced by the trust in the formation of the contract”. This definition can support a more in-depth analysis. In this sense, the fact that the jurisprudence uses terms such as “equity” or “trust”, demonstrates the existence of a legal institution that permeates our legal system, especially with regard to contracts – namely, the good faith between contracting parties.

This institution of eminently ethical content has sustained the obligation to respond to damages caused in negotiations on various occasions. Therefore, during this preliminary stage the parties generate the legitimate expectation of concluding the final contract. This means that, because of the behaviors and communications they maintain, they begin to incur various expenses, for example, legal advice, administrative expenses, financial projections, and so on. If one of the parties suddenly withdraws from the preliminary negotiation process, all these costs are transformed into losses for the other party.

Therefore, under Chilean law, settling a dispute that has arisen during the negotiations stages of a contract may present certain positive and negative complications that should be considered in depth prior to initiating talks. On the upside, we find that Chilean courts have experienced an increasing acceptance of compensation for pre-contractual liability, closely linked to an assumed good faith between the contracting parties. However, this “new” liability, which is not expressly regulated by law. This means that a potential litigation will rest mainly on the different facts that arose during the negotiations, and whether these were sufficient to generate a legitimate confidence between the negotiating parties. In practice, this can be extremely difficult if both parties established non-binding points of negotiation in multiple memos and documents.

The regulation of negotiations in Chile as well as the legal protections granted at this stage, are thus a fertile field for research and doctrinal and jurisprudential development. This has also been noted by contemporary authors who wish to implement the latest world standards in this regard. In the meantime, the lack of a systematic legal regulation causes a lack of legal certainty for individuals, who wish to be supported at all times, and through suitable mechanisms, against possible damages generated by unsuccessful negotiations.

Photo by lovelypeace, Canva.come

Aubert Fernando Lathrop

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