Negotiating a contract regularly requires spending money before the contract exists: design work, experts, documentation, sometimes the start of performance itself. When no contract follows, the question is who carries those costs. Serbian law answers it in Article 30 of the Law on Obligations, and the case law of recent years has given that provision its shape.

The statutory framework

Article 30 has four paragraphs, each of which carries weight.

Paragraph 1 sets the rule: negotiations preceding the conclusion of a contract are not binding and either party may break them off at any time.

Paragraph 2 covers the first head of liability: a party who negotiates without any intention of concluding a contract is liable for the loss caused by conducting the negotiations.

Paragraph 3 covers the second: a party who negotiates intending to conclude a contract, then abandons that intention without a justified reason and thereby causes loss to the other party, is also liable.

Paragraph 4 is a default rule on costs: unless agreed otherwise, each party bears its own costs of preparing for the conclusion of the contract, and joint costs are shared equally.

That fourth paragraph is easily overlooked, and it matters, because it means the cost of negotiating is not in itself recoverable loss. The Appellate Court in Kragujevac applied it exactly that way: the claimants’ legal fees incurred in preparing to sell real property were their own to bear, since they had not proved any agreement that the other party would cover them (Gž 1830/2023, 12 October 2023).

Article 30 sits alongside the principle of good faith and fair dealing (Art. 12), the prohibition on causing loss (Art. 16) and the general rules on liability (Arts. 154 and 155), including the measure of damages in Arts. 185, 189 and 190.

The Commercial Appellate Court takes as its starting point that the Law on Obligations governs three heads of liability: pre-contractual, contractual and non-contractual, subject to the general conditions in Arts. 154 and 155 (Pž. 11372/21, 15 September 2022).

Freedom to negotiate as the starting point

In Rev 2366/2018 of 17 November 2020, the Supreme Court of Cassation set out a position that has been repeated since: the parties are not bound during negotiations, their will remains free, and they may revise a decision they have already taken. The purpose of negotiating is for the parties to learn precisely what they would be undertaking and to understand the economic and legal consequences of concluding the contract. During negotiations, depending on the trust between them, the parties may take certain preparatory steps and certain costs may arise.

A rule of construction follows from that. In Prev. 1068/24 of 18 February 2025, the Supreme Court states expressly that breaking off negotiations “without a justified reason” is to be construed restrictively, precisely because of the principle in paragraph 1 that negotiations do not bind. The assessment requires examining the nature of the reasons for withdrawal and the circumstances that led to it.

When the reason for withdrawing is justified

The case law here is reasonably settled, and unfavourable to claimants.

Economic reasons. Prev. 1068/24 concerned the sale of grain silos. At the closing stage of negotiations the defendant asked for security, having formed the view that the claimant would not be able to pay the second instalment of the price. The Supreme Court held that withdrawing for economic reasons, such as doubt about the other party’s liquidity, is not in itself an unjustified reason. Requiring security for the due performance of a payment obligation is part of ordinary business practice, particularly in high-value transactions, regardless of whether the request comes at the start or at the closing stage, since a debtor’s financial position can change in the course of negotiations.

Completion time and the contractor’s standing. In Rev 2366/2018, negotiations over a joint construction project had run since 1994; the claimant had prepared the design documentation and obtained the building permit, but no contract followed, because the defendants were not satisfied with the construction company offered to them or with the completion time, and engaged a different investor. The second-instance court found the reasons unjustified on economic grounds, having regard to the length of the negotiations and the claimant’s costs. The Supreme Court of Cassation reversed that assessment: economic reasons are relevant to both parties, and the completion time and the contractor’s standing are decisive reasons, on economic grounds precisely, for the party that does not carry out the works and invests no money but contributes existing real property. Neither the length of the negotiations nor the size of the costs incurred alters that.

The other party’s own failings and the circumstances of the subject matter. In Gž 1830/2023 the defendant withdrew from the purchase of real property. The court found the reasons justified: the claimants had informed him about the property only orally, had failed to supply the documentation they were obliged to provide, the property was subject to a mortgage, and a person who had previously defrauded the defendant was involved in the transaction.

When liability does arise

Two decisions show the other side.

In Pž. 11372/21 the defendant withdrew without a justified reason, having, as the court emphasises, expressly assured the claimant throughout that the contract would be concluded. The claimant had meanwhile built an application to the defendant’s specification. The court treated the value of the application as the loss, reasoning that by accepting the quoted price as the most favourable of those submitted, the defendant had confirmed the application’s value and undertaken to pay the contractor for the work, so that value represents actual loss within the meaning of Art. 155, recoverable under Arts. 189 and 190.

In Gž4 43/2024 of 14 October 2025, the Appellate Court in Belgrade addressed a situation in which work ran in parallel with negotiations. Agreement that the claimant would be engaged to produce the graphic design was reached immediately after the first meeting, but the method of payment remained open, since the defendants would not accept a price in money. While negotiations on the payment model continued, both parties worked on developing the game. The court held that even if the defendants’ case were accepted, that only negotiations had taken place, they would be liable under Article 30, because the claimant, believing an agreement had been reached, delivered completed parts of the design and invested employees’ work, its own funds and working hours in the project.

What both decisions share is not the withdrawal itself but trust that was actively created: by express assurances in the first case, by accepting that work would proceed alongside negotiations in the second.

The burden of proof

The courts are strict here.

The burden lies with the claimant, on both possible grounds. The Appellate Court in Kragujevac puts it plainly: it must be proved either that the other party negotiated without any intention of concluding a contract, or that it negotiated intending to conclude one and then withdrew without a justified reason, and in both cases that loss resulted from those circumstances (Gž 1830/2023).

Proving the withdrawal alone is not enough. In Pž 6184/2014 of 28 January 2016, the Commercial Appellate Court found that the intention to conclude had existed, that offers had been exchanged with amendments neither side was prepared to accept, and that it was the claimant who had abandoned the intention, terminating the cooperation by email. The costs had moreover been incurred before the letter of intent was signed, at a time when the claimant had no reliable confirmation that negotiations would even begin, and were therefore undertaken at its own risk. The claimant had also failed to prove that it had paid for the ordered materials and the concept design.

Witness evidence is not sufficient. In Prev. 1068/24 the Supreme Court notes that, apart from the evidence of witnesses and of the claimant’s legal representative, the file contained no documentary evidence of any bank guarantee or of an application for a loan. That the claimant had funds in its account was not decisive, since it had itself maintained that the price was to be paid from borrowed funds.

It must also be established who actually broke off the negotiations. In the same decision the Supreme Court directs that the parties’ conduct after the request for security be examined, since the fact that no contract was signed does not mean the negotiations had ended: if the claimant remained passive, the question arises whether it was the claimant who walked away.

Failings in one’s own part of the work count against the claimant. In Rev 2366/2018, drafting the construction contract was the claimant’s obligation, so presenting a draft only at an advanced stage and the failure to agree on essential terms did not fall within the defendants’ responsibility. The claimant never produced the draft contract during the whole proceedings, thereby precluding any closer examination of whether the defendants’ reasons were justified.

The measure of damages

This is where most disputes turn.

In Prev. 1068/24 the Supreme Court holds that, where damages are claimed for an unjustified withdrawal from negotiations, the injured party is in no case entitled to lost profit. The holding rests on the general rule in Article 185(1), under which the liable party must restore the position that existed before the loss arose. The injured party’s financial position is to be restored to what it would have been had the negotiations never taken place, which is achieved by compensating the costs incurred during and in connection with the negotiations. Any profit the injured party expected to earn elsewhere falls outside the scope of liability, because transactions with third parties during negotiations are entered into at that party’s own risk, negotiations being non-binding.

The same approach appears in Gž 1830/2023, where the court rejected the contention that the defendant’s withdrawal had caused the lower price at which the property was later sold to a third party.

In practice, what is recoverable is the expenditure and investment made during the negotiations: design documentation, employees’ work, hours spent, materials. What is not recoverable is the profit from the contract that was never concluded, or a price differential realised in a transaction with a third party.

Comparison with the UNIDROIT Principles

The UNIDROIT Principles of International Commercial Contracts (2016) address the same question in Article 2.1.15. The structure is the same: a party is free to negotiate and is not liable for failure to reach an agreement; however, a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party; and it is bad faith, in particular, to enter into or continue negotiations when intending not to reach an agreement.

Four differences deserve attention.

A general clause rather than enumerated cases. UNIDROIT takes good faith as the criterion and lists the absence of intention only as an example. The Serbian provision enumerates two situations, and the courts keep to that division. Conduct such as concealing material facts, or negotiating in order to obtain information, would have to be built on Article 12 in Serbian law, which the courts as a rule do not do, although Article 12 was among the provisions applied in Rev 2366/2018.

Lost opportunity with a third party. The comment to Article 2.1.15 expressly allows recovery for the lost opportunity to conclude a contract with a third person, alongside the expenses of negotiating, and gives an example in which the loss is measured as a difference in price after the third party has acquired another property. The Supreme Court excludes this, and does so as a matter of principle, treating lost opportunity as lost profit and placing the risk on the injured party. The outcome under the UNIDROIT Principles would be broader than under Serbian practice.

Confidentiality. Article 2.1.16 provides that information given as confidential during negotiations must not be disclosed or used for the receiving party’s own purposes, whether or not a contract is subsequently concluded, and that compensation may include the benefit received by the party in breach. The Serbian Law on Obligations has no such provision; the same result can be achieved only by a confidentiality agreement or under trade secret legislation. By way of comparison, Montenegro’s Law on Obligations has written that duty into the statute.

An agreed duty to negotiate in good faith. The comment to Article 2.1.15 notes that where the parties have expressly agreed to negotiate in good faith, that is a contractual obligation, so all remedies for non-performance are available, including those reflecting the positive interest. This is the most useful practical lesson of the comparison, because it shows how the limit of the reliance interest can be passed in Serbian law too.

The Principles of European Contract Law contain a similar solution in Arts. 2:301 and 2:302.

What follows for contract practice

The case law shows that protection under Article 30 is narrow: a reason for withdrawing is readily found justified, the burden of proof is heavy, and damages are confined to actual costs. Protection is therefore built before negotiations, not after them.

The tools available include: a letter of intent stating clearly what binds and what does not, and from what point; a confidentiality agreement; an allocation of costs departing from Article 30(4) where one party is to make substantial investment; and marking drafts and correspondence “subject to contract”, so as not to create the trust on which liability later rests.

The question of starting work before the contract is signed deserves particular care. Gž4 43/2024 shows that such work can ground a claim, but also that the risk is avoided by a simple device: a written instruction to carry out preparatory work, with the fee payable if no contract follows agreed in advance.

This article is for informational purposes only and does not constitute legal advice. It reflects the legislation and case law available on the date of publication.

Sources

• Law on Obligations (Official Gazette SFRY Nos. 29/78, 39/85, 45/89 and 57/89; Official Gazette FRY No. 31/93; Official Gazette SCG No. 1/2003; Official Gazette RS No. 18/2020)
• Supreme Court, Prev. 1068/24, 18 February 2025
• Supreme Court of Cassation, Rev 2366/2018, 17 November 2020
• Appellate Court in Belgrade, Gž4 43/2024, 14 October 2025
• Appellate Court in Kragujevac, Gž 1830/2023, 12 October 2023
• Commercial Appellate Court, Pž. 11372/21, 15 September 2022
• Commercial Appellate Court, Pž 6184/2014, 28 January 2016
• UNIDROIT Principles of International Commercial Contracts (2016), Arts. 2.1.15 and 2.1.16, with commentary
• Principles of European Contract Law, Arts. 2:301 and 2:302