<i>Culpa in Contrahendo</i> and Due Diligence in M&amp;A Transactions

Abstract In the context of mergers &amp; acquisitions (M&amp;A) the seller and the buyer are engaging in a process called due diligence, during which information regarding the acquired company is disclosed. Usually this takes place through the creation of a data room by the seller and the uploading of documents there. A critical question here is how this process interacts with the seller’s duty of disclosure, namely the duty to disclose to the buyer material facts and issues related to the subject matter of the negotiated contract. Recently, this matter was addressed by the Federal Supreme Court of Germany (BGH). In its judgment the BGH takes the view that the extent to which the seller is performing his duty of disclosure through due diligence must be assessed by taking account of the individual facts of each case. This paper is analyzing the BGH’s judgment and provides a critical approach on certain positions adopted by the court. Finally, it examines some open issues that were not addressed by the BGH and proposes their solution in light of the BGH’s judgment.