In advance of the new year, it may be of interest to see what lessons can be learned from rulings by the Supreme Court (HD) in 2023. Lindahl’s dispute resolution team has therefore summarised a few of last year’s most interesting cases. At the end of each section there is an indication of any practical take-aways.
-
Insurance law
“Mösseberg II” – a question, inter alia, concerning a right of direct claim and the effect of a previous judgment relating to the same event (NJA 2023 p. 680)
A fire broke out during ongoing renovation work on a cultural building at the Mössebergs Kurort hotel. There was SEK 25 million’s worth of damage. The property owner’s insurance company paid for the restoration of the building after the fire and then brought an action under a right of recourse against the construction company that carried out the renovation work. Nevertheless, the action was withdrawn. The construction company brought an action against its insurance company claiming payment from the insurance company of approximately SEK 10 million from the construction company’s liability insurance (cf. Mösseberg I NJA 2016 p. 737). According to the earlier judgment, the construction company was not entitled to compensation under its liability insurance because the company had not proved any damage as a result of the fire. The judgment gained legal force and the construction company subsequently went bankrupt.
The property owner’s insurance company (“the Direct Claimant”) subsequently brought an action involving a direct claim against the construction company’s insurance company (“the Liability Insurer”), claiming payment of SEK 10 million from the insurance company. In the case with which we are concerned, the HD had to examine the significance of an earlier judgment in relation to an action brought by the Direct Claimant against the Liability Insurer relating to the same event, as well as questions of interpretation of conditions for exclusion from the insurance in the event of gross negligence and conscious risk-taking on the part of the insured.
The HD noted that the main rule regarding the right of direct claim in the event of the insured’s bankruptcy is that the injured party has the same right to insurance compensation as the right granted to the insured in the insurance contract. It is possible to make an exception to this general rule if laws or insurance terms and conditions stipulate otherwise. Any loss of the right to file a claim for the insured thus also affects an injured party filing a direct claim.
The HD came to the conclusion that the importance of the earlier judgment in the situation when the insured had gone bankrupt is limited to what is referred to as the probative value of the judgment. The HD was therefore not bound by the legal force of the earlier judgment. The Direct Claimant could therefore file a direct claim against the Liability Insurer. However, the earlier judgment had probative value in the assessment of whether the construction company had caused an insurance claim intentionally or due to gross negligence.
When interpreting the insurance condition in question and when assessing whether the construction company caused the insurance claim through gross negligence or conscious risk-taking, the HD concluded that the construction company had been grossly negligent in the performance of its renovation work on the cultural building. The exclusion condition relating to gross negligence was therefore applicable and the insurance was therefore not valid. The Direct Claimant was therefore not entitled to its direct claim from the Liability Insurance.
Take-aways: One take-away from the judgment in question is that there are now additional exceptions to the general rule that the injured party must have the same right to insurance compensation as the insured. In addition to exceptions in law and in terms and conditions of insurance policies, the injured party is also not deprived of its right to insurance compensation if the insured’s loss of rights is due to earlier litigation involving it. According to the HD’s judgment, an earlier judgment only has probative value in the case of a direct claim against the insured’s liability insurer. In addition, exclusion conditions in the liability insurance may also apply in relation to the injured party in the case of a direct claim for compensation.
“The damage to the cultural building” – a question concerning what is required in order for conditions concerning a set period stipulated in the insurance contract to be activated (NJA 2023 p. 193)
A contractor carried out work on a cultural building. Damage to the cultural building occurred in connection with the performance of the work. When the contractor invoiced for work carried out, the clients sent a letter in which the clients contested liability for payment. The grounds specified for contesting liability were that the work carried out was defective and that the construction contract was delayed. Furthermore, the clients stated that the contractor had damaged the cultural building when carrying out the contract work, that the clients intended to engage another contractor to complete the construction contract and that the clients intended to file a claim for damages regarding the costs of repairing the damage and the financial damage caused to the clients in general. The contractor received the client’s letter contesting liability on 16 September 2015.
In December 2015, the clients applied for a summons against the contractor and, under a default judgment of May 2016, the contractor was required to pay damages to the clients corresponding to the damage caused. However, no compensation was ever paid. In November 2016, the contractor was declared bankrupt, after which the clients presented their claim directly to the contractor’s insurer. The insurer claimed that no notice of a claim for insurance compensation had been given to the insurance company within the period stated in the terms and conditions of the contractor’s insurance. According to the terms and conditions of the insurance, the claim must be made within one year of the date on which the insured contractor received a claim for damages from the clients. Because the insurance company denied the clients a right to compensation, the clients brought an action against the insurance company requesting that the insurance company be required to pay the insurance compensation claimed.
The question in the case was therefore whether the client’s letter contesting liability was considered to include a claim for damages within the meaning of the insurance contract. Initially, the HD noted that, according to the wording of the insurance condition, claims for damages must be filed in a way that is clear to the insured in order for the one-year period to begin. That does not mean that the amount of the claim against the insured must be determined. Nevertheless, the filing of the claim should include an express request for the insured causing the damage to pay compensation or accept liability. Since the client’s letter had primarily been drawn up to contest liability for payment for work carried out and contained no express request for the company to either accept liability or pay compensation, the HD found that the letter did not include a claim for damages within the meaning of the specific insurance condition. The claim was therefore not subject to statute of limitation and the insurance company was therefore required to pay insurance compensation to the clients as requested.
Take-aways: Although the HD stated in its ruling that it is not possible to establish “any principle applying once and for all on how specific a notification in an insurance context must be”, the ruling will probably serve as a guide when interpreting claims for damages of other kinds. It is therefore important for the injured party to be clear when formulating a claim for damages. Furthermore, it is important for the person causing the damage who receives a claim for damages to report the claim to its insurer without delay.
“Pandemic business interruption insurance” – a question concerning interpretation of terms and conditions in an insurance contract (NJA 2023 p. 630)
A nightclub had taken out a combined insurance policy that included pandemic business interruption insurance. The damage covered by the pandemic business interruption insurance was described in the contractual terms and conditions as “interruptions occurring due to intervention by a public authority pursuant to the Swedish Communicable Diseases Act [...] to prevent the spread of contagious disease among humans.” The pandemic business interruption insurance was valid in the event of intervention by a public authority at the insurance location. Furthermore, the terms and conditions of the insurance stated that the policyholder was required to prove the period during which business could not be carried on in accordance with the public authority’s decision.
After Covid-19 was confirmed in Sweden, the Public Health Agency of Sweden issued a number of regulations applying to businesses including restaurants and bars. The regulations prohibited service at the bar, required patrons to be able to maintain a distance of at least one metre from one another and also limited the number of patrons in the same party (initially a maximum of eight and subsequently a maximum of four).
The nightclub closed its operations in spring 2020 and claimed compensation for the interruption under the pandemic business interruption insurance. Since the insurance company contested the claim, the nightclub asked the court to declare that the insurance company was required to pay insurance compensation for the interruption.
The way in which the expression “myndighets ingripande” [intervention by a public authority] should be understood was the crucial issue in the case. The nightclub argued that it should also include general regulations of the kind issued by the Public Health Agency of Sweden. However, the insurance company argued that the expression meant only a decision by a public authority aimed directly at a policyholder.
The HD noted that, as a starting point, an insurance condition must be interpreted on the basis of its wording. According to the HD, the expression “intervention by a public authority” suggested that it must be a question of an individual decision, though from a purely linguistic point of view that does not exclude the possibility that the insurance condition may be applicable to interruptions as a consequence of general regulations issued by authorities. The HD therefore sought guidance in the formulation of the insurance terms and conditions in general. The HD came to the conclusion that the formulation favoured the insurance company’s interpretation: in other words, the insurance policy was valid in the event of intervention at the insurance location and the policyholder was required to prove the period during which the business could not be carried on in accordance with a decision by the public authority. On these grounds, the HD found that the insurance policy did not apply to general regulations issued by public authorities. The nightclub’s action was therefore unsuccessful.
Take-aways: Regulations on intervention by a public authority exist in various agreements, not only in insurance contracts or relating to epidemics/pandemics. A party to the contract that wishes to protect itself against the consequences of certain unforeseen events should ensure that the matter is clearly governed in the contract. For example, when it comes to intervention by public authorities, it should be specified whether that also includes more general regulations issued by a public authority or public body.
-
Arbitration law
“Husqvarna’s arbitration agreement” – a question concerning whether an arbitration clause in a framework agreement constituted a procedural impediment in a dispute concerning a call-off agreement subsequently entered into, including a question concerning whether an arbitration clause in standard terms and conditions constituted a procedural impediment (NJA 2023 p. 437)
One company (the seller) delivered filler caps to another company (the purchaser) in 2020. There was a framework agreement between the companies from 2007 governing future call-off orders for deliveries. The purchaser had entered into similar agreements with other companies in the seller’s group. The purchaser’s purchase orders from 2014, which related to the deliveries of filler caps in 2020, included a reference to the purchaser’s general terms and conditions.
The seller brought an action for payment for the deliveries. The purchaser entered an objection claiming the existence of procedural impediments in accordance with the arbitration clauses in the framework agreement, the agreements with the group companies and the purchaser’s general terms and conditions. The seller, in turn, entered an objection stating, inter alia, that it was not a party to the group companies’ agreements, that the framework agreement had ceased to apply and that the seller had no reason to pay attention to the reference to the general terms and conditions.
The HD stated that the question of whether an arbitration agreement had been entered into should be assessed in accordance with general principles of contract law, including applicable arbitration clauses in standard agreements. As a starting point, the other party must be made aware of the standard agreement before the agreement is entered into. A clear reference to a standard agreement that may be accessed by the other party may be sufficient for it to be bound by it, even if the other party has not read the standard agreement. More stringent requirements may be imposed if an arbitration clause is unexpected, surprising or particularly burdensome. This is not usually the case in commercial relationships.
The HD also ruled on the material scope of an arbitration agreement – whether arbitration clauses in a framework agreement can cover call-off agreements that only arise subsequently pursuant to the framework agreement. Under the Arbitration Act, an arbitration agreement may cover future disputes, but only with regard to a legal relationship that is specified in the arbitration agreement. The legal relationship must be individualised and the arbitration agreement must be specified. The agreement cannot relate to all future disputes between the parties since the parties must be able to foresee the consequences of the arbitration agreement.
However, a generous interpretation of the term “legal relationship” is consistent with international law and practice. The description of the contractual relationship in the framework agreement may be sufficiently specific in order for an arbitration agreement regarding future disputes, concerning both the framework agreement and subsequent call-off agreements, to be regarded as relating to a particular legal relationship. The fact that the call-off agreements do not exist when the arbitration agreement is entered into is no obstacle. The arbitration clause in the framework agreement can also become binding by filling in and becoming party to the call-off agreement.
In the case with which we are concerned, the HD found that the seller was not bound by the group companies’ agreements since the seller was not a party to them. Nevertheless, the framework agreement (which, according to the HD, had not ceased) and its arbitration clause were considered binding for purchase orders and orders placed by the purchaser through the framework agreement, including the orders from 2014 and the deliveries in 2020. The purchase orders also contained a clear reference to the purchaser’s general terms and conditions, which contained an arbitration clause. The orders gave a URL where the terms and conditions were available for the seller to read. Because the dispute was covered by arbitration clauses in both the framework agreement and the general terms and conditions, and therefore would be heard by an arbitral tribunal, the seller’s action was dismissed.
Take-aways: Arbitration clauses in framework agreements can be binding on subsequent call-offs under the framework agreement and can be a good way of governing dispute resolution between the parties. References to general terms and conditions and arbitration clauses in them can also be binding between the parties if the reference is sufficiently clear and the general terms and conditions are available for the other party to read.
-
Right of tenancy
“The apartment in Jämö” – a question concerning the primary tenant’s liability when the subtenant remains in the residential apartment after the primary tenant’s rental period (HD case no. Ö 5554-22).
A private individual (hereinafter referred to as “A”) rented a residential apartment and, in turn, sublet the apartment. The subtenant (hereinafter referred to as “B”). A terminated the rental agreement with the landlord. The day after the end of the rental period, it was discovered that B was still living in the apartment and had changed the locks on the door. The landlord brought an action against A and asked A to vacate the apartment and claimed compensation for damage. A few months after the action was brought, the landlord was able to repossess the apartment after it had been abandoned by B. The landlord then withdrew the request to vacate the apartment and specified the amount of damages claimed.
The question at the HD concerned A’s liability vis-à-vis the landlord for B’s continued occupation of the apartment.
The HD noted that the nature of Chapter 12 of the Swedish Code of Land Laws is largely that of protective legislation in favour of the tenant and no notice of termination is needed if the landlord and the tenant have agreed that the rental agreement will cease at a particular time and that the primary tenant is required to vacate the apartment when the rental period has expired. If that does not take place, the primary tenant is guilty of breach of contract. Chapter 12 of the Swedish Code of Land Laws has no provisions governing whether the tenant will have an obligation to pay the landlord compensation in such a situation. The HD came to the conclusion that, according to general principles of liability for damages due to breach of contract, a primary tenant who remained in the apartment after the end of the rental period can be held liable for any damage caused to the landlord due to the primary tenant’s continued occupation of the apartment.
The question was what significance this could have in the situation in which it is a subtenant who has remained in the apartment after the end of the rental period. The HD noted that, in this situation, the primary tenant continues to have his or her contractual liability in the rental agreement with the landlord and is thus liable for fulfilling his or her obligations towards the landlord. The HD therefore found that the primary tenant was the one to have committed breach of contract vis-à-vis the landlord when the subtenant remained in the apartment after the end of the rental period. The primary tenant could therefore be held liable for the damage suffered by the landlord caused by the subtenant’s failure to vacate the apartment at the end of the rental period. However, in order not to lose all or part of the damages, the landlord must make sure to limit its damage by bringing an action for eviction against the primary tenant as soon as possible. In certain situations, for example if the primary tenant cannot be reached, the landlord could instead bring an action for eviction directly against the subtenant.
Take-aways: A primary tenant is liable vis-à-vis the landlord for his or her subtenant. If the subtenant fails to vacate the property when the rental period has expired, the landlord can claim damages from the primary tenant based on the subtenant’s continued occupation of the property. The case in question related to rental of a residential property. However, the same reasoning could probably also be applied to rental of non-residential premises.
-
Tort law
The “PFAS case” – a question concerning whether a higher risk of a future physical impairment can constitute a personal injury under tort law and whether elevated levels of PFAS in the blood can in themselves constitute personal injury within the meaning of tort law (HD case no. T 486-23)
The drinking water from the Brantafors waterworks in the Municipality of Ronneby has contained extremely high levels of PFAS as a result of the firefighting foam previously used in fire drills at Blekinge Wing. The pollutants in the water have led to elevated blood levels of PFAS among residents in the area. The elevated levels of PFAS in the residents’ blood have led to a greater risk of them suffering future diseases.
In view of this, more than 150 residents brought an action against the municipal water company and asked the court to establish that the water company was required to compensate them for personal injury under the tort rule in the Swedish Product Liability Act. The residents based their action on the fact that the water supplied to them by the water company had a safety defect because it was contaminated by PFAS and that the water company had thereby caused them personal injury. The water company contested the residents’ claim.
The question at the HD was whether the residents had suffered personal injuries within the meaning of the Swedish Product Liability Act due to the elevated levels of PFAS in their blood. In other words, the case concerned the question of whether tortious liability existed in itself.
The HD stated at the outset that because neither the Swedish Product Liability Act nor the underlying directive specified in detail what is meant by “personal injury”, the term “personal injury” in the Swedish Product Liability Act – like the term “property damage” – should have the same meaning as in the Swedish Tort Liability Act.
The HD then noted that “personal injury” within the meaning of tort law includes both physical and mental impairment. The HD also reasoned that a change to or in the body is required and that the change is objectively a deterioration in order for it to be a question of a physical impairment. However, the case raised the question of whether it is also possible to establish liability for damages as early as when there is a greater risk of such a state arising in the future. However, the HD found that a higher risk of physical impairment occurring in the future cannot, in principle, be considered to constitute personal injury within the meaning of tort law.
Nevertheless, in the case with which we are concerned, the HD considered that each of the residents had already suffered an impairment in the form of the extremely high levels of PFAS in their blood, since it showed notable physical deterioration. The HD thus found that the residents had suffered personal injury within the meaning of tort law. According to the HD, the conditions for establishing that the water company was liable for payment of compensation to the residents for those personal injuries existed.
Take-aways: A mere higher risk of a future physical impairment cannot constitute personal injury under tort law. However, elevated levels of a substance in the blood can show a significant physical deterioration that can in itself constitute a physical impairment that does constitute a personal injury within the meaning of tort law.
-
Company law
“Foxhouse Holding” – a question concerning how the provisions of the Swedish Companies Act that govern the scope for dividends must be applied in cases where an event giving rise to damages has occurred but no action for damages has yet been brought, as well as the conditions for filing a claim for a performatory judgment concerning deficient cover liability against a board member in the same proceedings as an action on repayment liability against the recipient of the dividend (HD case no. T 8042-21)
In June 2014, Foxoil International AB (“the bankrupt company”) transferred its subsidiary and the trademarks used in the subsidiary’s business to a Finnish group. The bankrupt company resolved to pay out dividends in May 2015 and June 2016 to its owner Foxhouse Holding AB (“the Holding Company”). In November 2016, a German agent and dealer of the bankrupt company entered a demand for arbitration against the bankrupt company. The German company claimed that the transfer of the trademarks in June 2014 constituted a breach of contract that entitled the German company to damages. Arbitration was announced in May 2018. In the arbitration award, the bankrupt company was ordered to pay damages to the German company. The bankrupt company was declared bankrupt shortly after that.
The bankrupt’s estate subsequently brought an action against the owner of the bankrupt company, the Holding Company, and requested that the dividends from the bankrupt company in 2015 and 2016 be refunded in accordance with the rules of the Swedish Companies Act on unlawful transfer of value because the dividends had been paid out in breach of both the amount limit and the precautionary principle. Alternatively, the dividends should be returned to the bankrupt company because they constituted improper transactions in accordance with Chapter 4, section 5 of the Swedish Bankruptcy Act or could have been equated with gifts in accordance with Chapter 4, section 6 of the Swedish Bankruptcy Act. It was also requested that the board of directors of the bankrupt company be jointly and severally ordered to pay any shortfall that could arise in connection with the Holding Company’s refund. This was in accordance with the rules on deficient cover liability in the Swedish Companies Act. Lindahl acted as representative for the Holding Company.
The HD’s judgment begins with an account of the amount limit in the Swedish Companies Act, which means that no dividend or other transfer of value may take place unless full coverage for the company’s restricted equity exists after the transfer. An assessment of the company’s scope for dividends must be carried out with regard to what an accurate balance sheet would have looked like at the time. A dividend paid out in breach of the amount limit must be refunded by the recipient if the company shows that the recipient realised or should have realised that the dividend was paid out in breach of the Swedish Companies Act.
The HD noted that an obligation to report what are referred to as “provisions in its balance sheet” exists if (1) the company has an unsettled legal obligation and (2) it is probable that an outflow of resources will be required in order to settle the obligation. An objective assessment must be carried out at the time of the resolution approving the dividend as to whether it is probable that an outflow of resources will be required in order to settle the existing legal obligation. “Probable” means that it must be more probable than not that the company will need to settle the obligation. In the event that a provision must be made, the size of the provision may affect the size of the distributable amount according to the amount limit.
The HD then examined whether the bankrupt company had an obligation to make a provision in its balance sheet in connection with each resolution approving a dividend, in other words whether it was probable that an outflow of the company’s resources would be required. The probability assessment includes not only an assessment of whether the claim is sufficiently well-founded in legal terms, but also whether the injured party will actually claim damages. The length of time elapsed without a claim being filed and how the injured party has acted may therefore also be significant in the probability assessment.
In assessing whether, objectively speaking, it was probable at the time of the resolution approving the dividend in 2015 that the bankrupt company would need to settle the liability for damages, the HD concluded that the legal situation after the transaction was complex and that, based on more practical considerations, it was entirely possible that no liability for damages would follow. The 2015 dividend was therefore permitted. However, the situation was different at the time of the resolution approving the dividend in 2016. At that time, the German company had informed the bankrupt company of its intention to enter a demand for arbitration in the event that no settlement could be reached. The bankrupt company should therefore have made a provision in its balance sheet for the obligation with the German company. A correct provision would have meant that there would have been no non-restricted equity in accordance with the amount limit. Since the board of directors of the Holding Company was the same as the board of directors of the bankrupt company, the court found that the Holding Company had acted in bad faith with regard to the permissibility of the dividend and therefore the dividend in 2016 should be repaid by the Holding Company. Given that the board of directors of the bankrupt company should have realised the circumstances that made the dividend illegal, the HD also found that the board of directors had deficient cover liability for the dividend in 2016 if the dividend cannot be repaid by the Holding Company.
The HD noted (through a comparison with a simple guarantee) that an action for deficient cover can be brought at the same time as an action for refund and that there is no requirement for it to be alleged or proved that the person required to carry out the refund lacks the ability to carry it out in order for it to be successful.
Take-aways: Latent obligations must also be taken into consideration and evaluated when assessing the permissibility of a dividend. The decisive factor in determining whether or not a provision must be made is whether, objectively speaking, it can be judged to be probable, in other words more probable than not, that the latent obligation will need to be settled by the company. This is important for company representatives to know and to take into consideration in resolutions approving dividends and it is also important for auditors who issue an opinion on proposed dividends. Furthermore, it has now been established that an action for deficient cover can be brought in the same proceedings as an action for refund, which is mainly important for the litigating counsel to know.
“Well Dressed” – a question concerning application of the provisions on co-liability in the Swedish Companies Act – in particular a question concerning determination of the net realisable value of stock in a balance sheet for liquidation purposes (HD case no. T 7701-22)
On 31 August 2018, a limited company whose business was the sale of so-called “quality clothing” (hereinafter referred to as “the Fashion Company”) was declared bankrupt. A balance sheet for liquidation purposes had been drawn up a few weeks before the bankruptcy ruling. Two suppliers had delivered clothes to the Fashion Company in January and February 2018 without being paid. The suppliers’ invoices fell due for payment in March 2018 and were not fully covered in the bankruptcy. The suppliers brought an action against the members of the board of directors of the Fashion Company for the remaining amount. The suppliers mainly maintained that, as early as spring 2017, there were reasons to presume that the Company’s equity was less than half the registered share capital, that the board members nevertheless failed to draw up a balance sheet for liquidation purposes and were therefore personally liable for payment of the Fashion Company’s obligations during the period thereafter.
Chapter 25, sections 13–17 of the Swedish Companies Act contains provisions that require the board of directors of a limited company to act in a particular way when there is reason to presume that the company’s equity is less than half the registered share capital. If the board of directors fails to take the action specified in the Act, that may, in accordance with section 18, result in the members of the board of directors being jointly and severally liable for the obligations arising for the company during the period for which the failure to take the action lasts – the so-called “co-liability period”.
It may be a question of co-liability for board members if the board of directors has failed to immediately draw up and have the company’s auditor examine a balance sheet for liquidation purposes when there was reason to presume that the company’s equity was less than half the registered share capital. However, in such a situation, a member of the board of directors can avoid liability by showing that he or she was not negligent.
The decisive factor in the question of whether a critical capital shortfall had arisen in 2017, which should therefore have led the board of directors to draw up a balance sheet for liquidation purposes, was the value at which the stock of the Fashion Company could legitimately have been recognised in a balance sheet for liquidation purposes.
The HD noted that a balance sheet for liquidation purposes must, as a starting point, be drawn up in accordance with the Swedish Annual Accounts Act and in accordance with generally-accepted accounting principles. The HD pointed out that, in accordance with Chapter 25, section 14 of the Swedish Companies Act, certain deviations from the principles applying in accordance with the Annual Accounts Act are permitted when calculating the size of the equity and that adjustments in accordance with the provision can lead to a situation whereby the balance sheet for liquidation purposes shows a higher figure for equity than would otherwise have been the case. The HD pointed out that the board of directors’ obligation to draw up a balance sheet for liquidation purposes due to a suspected capital deficiency only applies if there is reason to presume that the balance sheet for liquidation purposes would reveal the existence of a critical capital deficiency in the company. No balance sheet for liquidation purposes need be drawn up in situations where, although it is true that the visible equity according to the ordinary accounts (such as the annual report) shows a capital deficiency, it is clear that there are surplus values in the company of the kind that may be taken into consideration in accordance with Chapter 25, section 14 of the Swedish Companies Act. One such adjustment that may be made in a balance sheet for liquidation purposes is to report the company’s assets at their net realisable value (instead of book value).
The HD noted that the term “net realisable value” in Chapter 25, section 14 of the Companies Act would be considered to have the same meaning as in other accounting contexts. Based on the Swedish Accounting Standards Board’s general guidelines, the HD specified the following method for determining the net realisable value. According to the HD, the specific market conditions that may be considered to apply to the goods must be taken into consideration when carrying out the valuation. The supporting data must also be based on realistic assumptions and expectations regarding the price at which the goods can be expected to be sold. As an example, the HD stated that the assessment may be based on sales and stock statistics as well as sales plans. A deduction for the costs that are directly attributable to the sales transaction, such as shipping costs, must be made from the sales value. Fixed or joint costs for the company, such as storage costs and salaries, must not be taken into consideration when determining the value.
The ruling also raised questions about the burden of proof and the standard of proof. It is of interest in this context that the HD pointed out that in cases where valuations contradict one another, e.g. with regard to the assets’ net realisable value, the courts must examine whether the valuation is founded on real conditions and can be defended on the basis of established valuation principles and should therefore accept values within a relatively broad range.
In the case with which we are concerned, the HD upheld the suppliers’ action. The HD stated that the suppliers had specific support for their position regarding the sales value of the stock, including with reference to previous actual sales values and price increases on the company's clothes. The investigation cited by the board members in support of the fact that the sales value amounted to double the acquisition value (i.e. a increase of 100%) was considered by the HD to be a significantly more uncertain basis for estimating this value and the HD considered that the conditions for co-liability had also been met in other respects.
Take-aways: The board of directors’ obligation to draw up a balance sheet for liquidation purposes due to a suspected capital deficiency only applies if there is reason to presume that the balance sheet for liquidation purposes would show a critical capital deficiency at the company. It is therefore not necessary for one to be drawn up in situations where, although it is true that the visible equity according to the ordinary accounts (such as the annual report) shows a capital deficiency, it is clear that there are surplus values in the company of the kind that may be taken into consideration in accordance with Chapter 25, section 14 of the Swedish Companies Act. In accordance with the aforesaid provision, assets, for example, may be recognised at their net realisable value. As a starting point, net realisable value must be determined using the method set out by the HD in the case.
A court must be able to accept values within a relatively broad range when it comes to assessing the net realisable value of current assets and adjustments for surplus values in accordance with Chapter 25, section 14 of the Swedish Companies Act in general. The courts’ assessment must primarily relate to whether the valuation is founded on real circumstances and can be defended on the basis of established valuation principles.
The case specifically concerned current assets. According to the preparatory materials for Chapter 25, section 14 of the Swedish Companies Act, “assets” means not only the assets that must be reported in the public accounts (e.g. the annual report) according to generally-accepted accounting principles, but also other resources that are of demonstrable value to the company. According to the legislator, the use of the term “net realisable value” was not intended to prevent an asset or liability from being recognised at an estimated net realisable value in the absence of any observable net realisable value. In other words, the extent to which the ruling applies in the case of other assets, such as human capital, is unclear.
-
Right of claim
"The estate agent’s client funds account" – a question concerning a repayment obligation (NJA 2023 p. 339)
An estate agent acted as an intermediary for a seller with regard to two properties. In accordance with the purchase agreement, the purchaser paid the deposit into the agent’s client funds account. During the period between the purchase and the taking of possession of the properties, the purchaser cancelled the agreement and demanded that the purchase be reversed. The notice of cancellation was sent to the seller with a copy to the estate agent. The purchaser failed to cancel the payment order at its bank by mistake and consequently the final payment was transferred to the agent’s client funds account.
The purchaser asked the estate agent to repay both the deposit and the final payment. In support of its action, the purchaser cited the principle of condictio indebiti, whereby the recipient of a payment made without a legal basis is, as a general rule, required to repay it. The estate agent raised the objection that there was no obligation to repay the amount because the estate agent was required to render accounts and had received the payments in accordance with a payment instruction.
The HD found that the estate agent was not required to repay the amount. It is true that the estate agent had received the message that the purchaser was asking for the purchase to be reversed. However, that did not mean that the estate agent should understand that the order to receive the funds was being cancelled – a purchaser may have reason to want to make a final payment even if a dispute exists, for the sake of safety for example. Therefore, when the estate agent received the payments, there was reason to consider that the agent received them with an obligation to render accounts. Thus, at the time of the payment, there was a legal basis for the estate agent to receive the final payment. The fact that the payment order was not cancelled due to a mistake is therefore irrelevant.
Note that the HD’s ruling has no bearing on the seller’s right to compensate the purchaser should it prove that the purchaser had a right to cancel the purchase agreement.
Take-aways: The court case sets out clear, narrow limits for when repayment can arise. No obligation to repay exists if there are grounds for the recipient of the payment to perceive that there is a legal basis for the payment. For anyone who wishes to cancel a purchase, it may therefore be wise not only to review the payment instructions issued, but also to be clear about how the message is conveyed to the payment recipient. This is particularly true if there is an intermediary. Similarly, intermediaries with an obligation to render accounts may benefit from the court case when it comes to how they deal with funds they have received that are in dispute between the principal and its counterparty.
