Buyer rights to claim for damages after breaking-off of M&A negotiations
On April 20, 2017, the Court of Milan (the Court), by means of the decision no. 4927/2017, recognized the potential buyers’ right to be compensated for the damages suffered due to a sellers’ stepping back without cause from the decision to sell part of the shares owned in an Italian target company and to enter into a shareholder agreement to amend the corporate governance rules of the same company.

The decision is based on the Italian law general rule (set forth by Section 1337 of the Italian Civil Code) that the parties’ behavior must be inspired by principles of good faith while negotiating an agreement.

According to Italian case-law, the violation of the abovementioned rule, and the relevant liability for infringing it, occurs when the following conditions are met:

(i)                there must be ongoing negotiations amongst the parties;

(ii)              negotiations have moved to a stage where a party could reasonably expect to enter into the final agreements;

(iii)             the breaking-off of the negotiations occurred without cause;

(iv)             there is no circumstance that would induce a reasonable person not to rely on the completion of the transaction.

In the case at hand, the Court of Milan deemed the abovementioned conditions to be met based on, amongst others, the following facts:

(i)                an email sent by one of the sellers whereby he expressed his satisfaction at the outcomes of the negotiations;

(ii)              a shareholders meeting of one of the sellers where the transactions contemplated by the deal were discussed;

(iii)             the resignations of the directors and statutory auditors of the target company;

(iv)             the call of the shareholders meeting of the target company to resolve upon the entering into by the target of several transaction documents;

(v)              a final conference call and exchange of emails whereby sellers confirmed all the agreements reached;

(vi)             an unexpected email sent by one of the sellers with a different and completely new proposal.

In the light of the above, the Court of Milan ordered the sellers to compensate the potential buyers for the costs and expenses borne in connection with the deal and for the damages suffered due to the loss of opportunities to enter into other transactions during the negotiation period.

The abovementioned decision is available at the following link:

http://www.giurisprudenzadelleimprese.it/wordpress/wp-content/uploads/2017/06/20170420_RG34055-2014-4.pdf

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