Highlights from the Supreme Court in 2024

“Four Gardens” (Supreme Court case T 5171-23) – a question of permissibility of dividends and the scope of a so-called 18:4 statement

Background

In 2007, Victoriahem formed a wholly-owned subsidiary, Four Gardens AB, which was intended to provide residents of certain tenant-owner associations with services such as spas, restaurants and cinemas. Four Gardens reported a loss in the 2008–2017 period and Victoriahem contributed capital on an annual basis. In February 2018, the Annual General Meeting of Four Gardens adopted a resolution to pay out a dividend of 8.4 MSEK. The unrestricted equity amounted to 8.6 MSEK at that time. The Board of Directors had stated in the administration report in the annual report that the dividend was justifiable in view of the requirements that the nature, scope and risks of the business imposed on the amount of equity and in view of the company’s consolidation requirements, liquidity and position in general. Victoriahem subsequently sold all shares in Four Gardens to a third party, which continued to carry on the business. Four Gardens was declared bankrupt in May 2022. The bankrupt’s estate brought an action for the dividend to be refunded.

The question in the case

The case raises questions concerning what is referred to as the precautionary rule in Chapter 17, section 3, second paragraph of the Swedish Companies Act and the Board of Directors’ obligation to prepare a reasoned statement pursuant to Chapter 18, section 4 of the Act.

The HD’s assessment

The Supreme Court initially stated that a transfer of value, e.g. a dividend, may only be carried out if it appears to be justifiable according to the precautionary rule. If a transfer of value has taken place in breach of the precautionary rule, the amount must be refunded if the recipient was dealing in bad faith with regard to whether the transfer of value was unjustifiable.

According to the Supreme Court, one of the aims of the precautionary rule is to protect the company’s creditors against acts by the company to worsen its financial position. The Supreme Court considered that the creditors’ interests in this regard can essentially be satisfied by the Board of Directors’ taking the company’s consolidation and liquidity needs into consideration.

Furthermore, as the Supreme Court stated, the precautionary rule must be presumed to fulfil the purpose of preventing the company from transferring values to the owners to an extent such that operational risks assumed by the company must essentially be covered by others if those risks materialise. However, the Supreme Court argued, the assessment of whether the value transfer is justifiable cannot normally be restricted to the next financial year, but should include the next few foreseeable years. A retrospective assessment of the justifiability must be carried out on the basis of the information that was available to the company at the time of the transfer of value.

With regard, then, to the significance of the Board of Directors’ statement in accordance with Chapter 18, section 4 of the Swedish Companies Act, the Supreme Court pointed to the stipulation whereby, when a dividend is proposed, the Board of Directors must prepare a reasoned statement on the justifiability of the proposal in accordance with the precautionary rule. How extensive and detailed that statement must be may nevertheless be assessed in each individual case. In the case of any doubt, the Board of Directors must carefully explain the reasons if it considers that there is still scope for a dividend.

The Supreme Court stated that the Board of Directors’ statement in accordance with Chapter 18, section 4 of the Swedish Companies Act is intended to improve the shareholders’ ability to make informed decisions on dividends, though other stakeholders are indirectly protected by providing them with an opportunity to investigate retrospectively, on the basis of the statement, whether the Board of Directors has acted with the necessary caution. Therefore, according to the Supreme Court, the regulation may not be disregarded even if all shareholders give their consent. The creditors are provided with indirect protection. However, with regard to the contents of the statement, the Supreme Court considered that a united group of shareholders can decide on the scope of the information that the Board of Directors needs to issue.

According to the Supreme Court, this means the following in the case in question: There was nothing that called for particular caution as far as the dividend was concerned. According to the company’s forecasts, Four Gardens would become financially self-supporting after 2017. Furthermore, the Board of Directors of Four Gardens was considered to have issued a statement in accordance with Chapter 18, section 4, though it contained no more detailed justification. However, Victoriahem, as the sole shareholder, was entitled to refrain from requiring more detailed justification. No refund of the dividend would therefore take place.

Takeaways:

When assessing whether a transfer of value, e.g. a dividend, is justifiable in accordance with the precautionary rule, it must also be possible to take future forecast revenues into consideration. The fact that the company has not been financially self-supporting up to and including the moment of the transfer of value does not necessarily make the transfer of value unjustifiable.

The Board of Directors is required to prepare a reasoned statement in accordance with Chapter 18, section 4 of the Swedish Companies Act but, if all shareholders consent, there is no requirement as to what it must contain. However, the shareholders are taking a risk if they rely on a statement that is too briefly worded in cases where the scope for dividends is doubtful, since the shareholders will then find it more difficult to claim that they were dealing in good faith with regard to whether the transfer of value was unlawful in the event of a future claim for a refund in accordance with the relevant rules of the Swedish Companies Act.

“Penalties for delay” – question concerning penalties for delay in consumer credit agreements (NJA 2024 p. 86)

Background

The Consumer Ombudsman (KO) brought an action against a bank, claiming that a contractual term regarding a penalty for delay in the bank’s consumer credit agreement was contrary to mandatory provisions of the Debt Recovery Costs Act and was therefore unfair under the Consumer Contracts Act. The KO also argued that the fee was unreasonable and that it upset the balance between the parties’ rights and obligations.

The KO therefore requested that the bank be prohibited from using contractual terms that require consumers to pay a penalty for delay in the case of late payment of principal, interest or fees. The KO also asked the Supreme Court to increase the amount of the fine in the event of non-compliance with the prohibition.

The question in the case

The case concerned whether or not a contractual term regarding a penalty for delay was unreasonable.

The HD’s assessment

The Supreme Court stated that the penalty for delay is not included in the scope of applicability of the Debt Recovery Costs Act and is therefore not in breach of its mandatory rules. Therefore, in accordance with the Consumer Contracts Act, the contractual term on a penalty for delay is not unreasonable on that basis. The KO’s second ground, that the contractual term was unreasonable because it upset the balance between the parties, was not examined by the Supreme Court.

 
Takeaways:

The Supreme Court’s ruling clarifies that penalties for delay of the type in question are not included in the mandatory rules under the Debt Recovery Costs Act. That means that contractual terms regarding such fees are not automatically unreasonable under the Consumer Contracts Act.

“Hökerum’s loan receivable” – a question of i) contractual interpretation of a promissory note and ii) the significance of recovery in bankruptcy for a third party’s discharged debts (Supreme Court case no. T 5438-23)”

Background

Two companies (“the UE companies”) had reduced the debts that the companies had with another company (Hökerum) in exchange for Hökerum reducing the debts that Hökerum had with the EU companies’ representatives by a corresponding amount. The EU companies were subsequently declared bankrupt. In the bankruptcy, the UE companies’ reductions of the debts with Hökerum were recovered, being classified a gift from the UE companies.

Prior to the bankruptcy, representatives of the UE companies, on the one hand, and Hökerum, on the other, had entered into loan agreements, referred to as promissory notes. Under the agreements, the representatives received a loan from Hökerum. The representatives handed over mortgage deeds as security.

Hökerum and the representatives drew up a new promissory note after the representatives had paid some instalments of the loans and the UE companies’ debts had been reduced. The new promissory note was drawn up after the UE companies had been declared bankrupt but before the UE‑companies’ reduced debts with Hökerum had been recovered. The new promissory note stated that it had been drawn up due to changes in the terms of the loan and that it replaced the previous promissory notes and indicated a new loan amount. Furthermore, the new promissory note stated that the representatives pledged as security the mortgage deeds that had already been pledged and that were therefore in the possession of Hökerum.

After the representatives had paid the amount indicated in the latest promissory note, they brought an action demanding that Hökerum be ordered to issue the mortgage deeds to them. The mortgage deeds should be returned because the representatives had paid the debt in full.

Hökerum contested the demand and, in response, demanded that the representatives pay what Hökerum had returned to the bankruptcy estate of the UE companies as a result of the recovery. According to Hökerum, the representatives had also provided the security for previous loans. The latest promissory note did not mean that the previous loans were replaced.

The question in the case

The case was primarily about whether – and if so under what conditions – a recovery has any significance for a debt relationship between a creditor and a bankrupt’s representative.

The HD’s assessment

The Supreme Court reasoned as follows. If a bankrupt paid a third-party debt directly to the creditor and that payment has been recovered, recovery from the creditor means, as a general rule, that the debt between the creditor and the third party is not considered to have been discharged. The same should apply if a legal act in the form of a remission of a debt is recovered and the remission has resulted in a discharge of debt in favour of a third party. It also normally means that security provided for the debt continues to apply. The Supreme Court was admittedly open to the possibility that exceptions to this main rule could occur, but did not consider that any such exceptions existed in this case. The recovery could have been aimed directly at the representatives, who were also dealing in bad faith with regard to the circumstances surrounding the recovery.

With regard to the question of whether the new promissory note excluded the representatives from being liable for payment of an amount corresponding to the amount that had been recovered, the Supreme Court determined this through an interpretation of the agreement. According to the Supreme Court, it was not clear, either from any common aim of the parties or from the wording of the new promissory note, that it should fully replace the debt relationship that arose through the previous loans. Nor did the purpose of the new promissory note provide any support for such a view. The purpose of the new promissory note was rather to consolidate the remaining debt and adjust the terms.

Consequently, the Supreme Court established that the surety in the form of the mortgage deeds continued to be valid in accordance with the previous promissory note and that the representatives should pay what Hökerum had paid to the bankruptcy estate as a result of the recovery.

Takeaways:

Guarantee liability applies until the debt for which the guarantor assumed liability has been duly paid. If a payment is reversed and the debt remains, the original guarantee liability remains. Exceptions to this main rule may occur, but in order for an agreement between the parties to prevent the original guarantee liability from remaining, it would need be explicitly stated in the agreement. The fact that a new agreement has been drawn up is not sufficient in itself.

“Two powers of attorney” – a question of whether a power of attorney was revoked in the prescribed manner by means of the issue by the principal of a new power of attorney with restricted powers and whether the powers under the previous power of attorney could be asserted by a third party (Supreme Court case no. T 5880-23)

Background

Familjeakademin (the company) brought an action on payment liability against the state through the Chancellor of Justice. The parties reached a settlement whereby the state would pay SEK 250,000 to the company. The settlement was confirmed by the district court. The company was represented in the case by a counsel who had submitted to the court a power of attorney issued in 2013 by the company’s representative at that time.

Prior to the signing of the settlement agreement, the state asked the counsel to submit a new power of attorney signed by an authorised signatory. The company had new representatives at that time. The wording of the new power of attorney was identical to that of the previous power, with the exception that the new power of attorney did not grant the counsel “a right to receive and issue receipts for funds, documents and other property”. The government then instructed the Swedish Legal, Financial and Administrative Services Agency to pay the settlement amount into the law firm’s client funds account.

The company considered that the payment to the counsel did not have the effect of fully discharging the debt because the power of attorney had not been issued by a representative who still had powers and also because it had been revoked by the company. In any event, the state should have understood that the company’s intention was to replace the first power of attorney with the second and for payment to be made directly to the company. The company therefore brought an action aimed at establishing the state’s payment liability for the amount of the settlement.

The question in the case

The question the Supreme Court had to consider was what is required to prevent a third party – in this case the state – from asserting a power of attorney against the principal – in this case the company.

The HD’s assessment

The Supreme Court stated

• that the fact that the signatory of the first power of attorney resigned as a representative did not mean that the first power of attorney had ceased to be effective,

• that the new power of attorney did not state that the previous power of attorney would not be valid, and

• that the company had not informed the state that the first power of attorney was not valid.

Due to these circumstances, the Supreme Court found that the first power of attorney granted had not been revoked by the company. Nevertheless, the powers under the previous power of attorney could not be asserted by the state since the state should have understood that the company intended to restrict the powers of the power of attorney by means of the new power of attorney. The conclusion was therefore that the state was still liable for payment of the amount of the settlement. The payment to the counsel did not discharge the state from the debt.

Takeaways:

The court case shows the importance of clarity and precision when dealing with powers of attorney. When a new power of attorney amending or restricting previous powers is issued, it is crucial for all parties involved, including third parties – in this case the state – to be aware of those changes. The Supreme Court’s ruling emphasises the importance of clearly communicating and documenting those changes in order to avoid misunderstandings and legal disputes. It also highlights the fact that third parties are responsible for carefully checking and understanding the powers of attorney being relied on by third parties in transactions.

“The furniture warehouse in Boden” – a question concerning sudden, unforeseen damage in accordance with the terms and conditions of business insurance (NJA 2024 p. 52)

Background

The roof of a furniture warehouse in Boden collapsed, which led to the complete destruction of the shop section and the goods it contained. The property owner had a combined business insurance policy. The dispute related to whether the property owner was entitled to compensation under the insurance policy. The property owner was of the opinion that the collapse was due to defective construction and that it involved sudden, unforeseen damage which would be compensated by the all-risk element in the insurance terms, whereas the insurance company was of the opinion that the collapse was caused by snow load on the roof and that the damage was excluded from the all-risk element. The insurance company was also of the opinion that it was not a question of sudden, unforeseen damage.

The question in the case

The question in the case consisted of what should be considered to be sudden, unforeseen damage in accordance with the insurance terms.

The HD’s assessment

Initially, the Supreme Court emphasised, as it had done in other recent judgments, the importance of interpreting insurance terms on the basis of their wording, classification and purpose. In the event of any lack of clarity, other factors such as the purpose and reasonableness of the insurance term may be taken into consideration. In particular, the Supreme Court pointed out that the policyholder has the burden of proof when it comes to establishing that terms governing the scope of the insurance contract are applicable, whereas the insurance company has the burden of proof when it comes to exclusions. Finally, the Supreme Court pointed out that insurance law, as opposed to tort law, uses what is referred to as “huvudorsaksläran” [the doctrine of the main cause] to decide which cause is the main cause and thus determines which insurance will cover the damage. The investigation in the case showed that defective building construction was the main cause of the collapse.

The insurance company argued that what was stated in the basic element could not be covered by the all-risk element. The Supreme Court found that, on the contrary, the insurance terms indicated the opposite. The all-risk element contained an express exclusion for damage by wind, which also existed in the basic element under “storm wind”. Without that exclusion in the all-risk element, damage by wind below storm category could be compensated. There was no corresponding exclusion in the all-risk element for snow load. The all-risk element was therefore applicable to the damage.

The Supreme Court then examined the question of whether the damage was sudden and unforeseen in accordance with the all-risk element. According to the Supreme Court, in order for damage to be “sudden”, the course of events itself leading to the damage must be sudden. It must therefore not be possible for the course of events to be prevented. The collapse of the roof and the damage were considered to be immediate. As regards foreseeability, it is sufficient for it not to have been possible to foresee it in any reasonable sense and therefore there is no absolute requirement for anyone to have been able to foresee the damage. The investigation showed that no-one at the property owner had been aware of the defective construction: It had not been visible to the naked eye, work had been carried out by an external contractor as a turnkey contractor (i.e. with responsibility for both function and execution) and inspections had been carried out without any observations being recorded. Overall, it was therefore not possible for the property owner to have foreseen the damage.

The Supreme Court therefore upheld the Court of Appeal’s ruling and confirmed that the damage was covered by the all-risk element of the insurance.

Takeaways:

Contracts, and particularly insurance contracts, must be interpreted systematically and the interpretation must provide sensible, reasonable regulation. “Sudden” refers to the course of events itself leading to the damage, not to any underlying causes of the course of events (defective construction). When assessing foreseeability, it is what is foreseeable at the time of the damage that is relevant, not an examination of a subsequent opinion on what should have been foreseeable.

“The chilled beam” – a question of whether a tenant of non-residential premises has an obligation to complain in the event of a deficiency in the right of use (Supreme Court case no. Ö 873-24)

Background

What is known as a “chilled beam” (part of the ventilation system) had become detached from the roof of shop premises, which caused water damage, including to the tenant’s goods and stocks, resulting in a loss of income for the tenant. The tenant’s insurer paid insurance compensation to the tenant and filed a claim for recourse against the landlord based on the landlord’s liability in accordance with the rules in Chapter 12 of the Swedish Code of Land Laws. The landlord objected that the tenant had not complained within a reasonable time and that the right to damages had therefore lapsed.

The question in the case

The case concerned the question of whether a tenant of non-residential premises has a duty to complain in the event of a deficiency in the right of use.

The HD’s assessment

The Supreme Court stated that there is a general principle of obligation to complain in the event of a breach of contract, but that does not mean that it is a rule relating to a duty to complain that is applicable to all cases. According to the Supreme Court, it is necessary to take the relevant area of law into consideration.

Specifically, lease agreements relating to real property, including lease of non-residential premises, are subject to a specially adapted, detailed regulatory system that expresses the balancing of interests between landlord and tenant. Therefore, according to the Supreme Court, there is reason to be cautious when it comes to allowing the rules to be supplemented by general principles of law. Putting forward the argument that the characteristics of the lease agreement and the formulation of the legislation indicate that there is no requirement for a tenant to complain in order to uphold their right to damages in the event of a deficiency in the right of use, the Supreme Court found that an obligation to complain for the tenant in the event of deficiencies in the right of use must not apply.

Takeaways:

There is no obligation for a tenant of non-residential premises to complain in the case of a deficiency in the right of use. This is therefore a takeaway from the ruling for landlords, tenants and their insurers.

“Frölunda Café” – Recovery in bankruptcy. Compensation of value in accordance with Chapter 4, section 14 of the Bankruptcy Act has been determined on the basis of the value at the time of the ruling on the recovery case and not on the value at the time of the legal act of recovery (NJA 2024 p. 150)

Background

Frölunda Café AB was a franchisee of Le Croissant i Sverige AB and carried on a café business in premises sublet by Le Croissant.

Through a judgment in mid-March 2018, Frölunda Café was ordered to pay Le Croissant almost SEK 600,000 in overdue rent and court costs. After the judgment, the parties reached a settlement whereby Le Croissant acquired the business carried on by Frölunda Café in the premises.

The business included the franchise and lease agreements with Le Croissant as well as stocks and inventories. The agreement stated that Le Croissant had claims against Frölunda Café of just over 1 MSEK and that Frölunda Café had a smaller counterclaim. The agreement regulated the parties’ claims against each other and the contractual relationship ended. Frölunda Café was declared bankrupt shortly thereafter.

The bankruptcy estate brought an action for recovery against Le Croissant, arguing that the settlement agreement constituted a payment of a debt that, in accordance with the Bankruptcy Act, should be returned to the bankruptcy estate and that Le Croissant should pay the value of what Le Croissant had taken over under the agreement. Le Croissant contested the action.

Both the district court and the court of appeal found that the settlement agreement included payment of a debt that, in accordance with the Bankruptcy Act, should be returned. Because the property that had been taken over under the settlement agreement was no longer in its possession, both the district court and the court of appeal found that Le Croissant should pay the bankruptcy estate compensation for the value of the property.

The question in the case

The question the Supreme Court had to decide on was whether the compensation for the value of the property must be determined on the basis of its value at the time of the settlement agreement or its value at the time of the recovery order.

The HD’s assessment

The Supreme Court initially stated that the main rule in recovery in bankruptcy is that property issued by the debtor must be returned to the bankruptcy estate. In some situations, instead of returning the property, the respondent subject to a recovery order must pay compensation for its value. This is the case if the property is not in its possession. Furthermore, the Supreme Court stated that the respondent subject to a recovery order may be permitted to pay compensation instead of returning the property if returning the property would cause significant inconvenience. The compensation of value refers to compensation for the property that cannot or must not be returned and must be determined at a monetary amount corresponding to the value of the property.

Furthermore, with reference to the fact that the main rule is precisely that the property in question must be returned, the Supreme Court stated that in previous case law it had stated that it is logical for the compensation – wherever possible – to be determined at the value at the time of the recovery order. That means that the bankruptcy estate – in the same way as in a return of the property itself – benefits from any increase in the price of the property in question but is disadvantaged in the event of any fall in the price.

However, in certain situations there is scope for applying a value date other than the date of the recovery order. The Supreme Court stated that, according to its previous case law, if the value of shares, for example, has fallen due to action by the respondent subject to the recovery order with regard to the substance of the limited liability company, it may mean that the shares are no longer considered to constitute equivalent, returnable property and that compensation must be paid according to a value at a moment prior to the recovery order. The Supreme Court stated that the preparatory materials state that if the property has been lost and a claim for compensation has taken its place, the compensation must be calculated according to the value at the time of the loss.

Against this background, the Supreme Court established that, as a starting point, the compensation of value must be determined on the basis of the value at the time of the recovery order.

In the case in question, the Supreme Court stated that the investigation did not give any indication that anything had occurred in connection with the settlement that would have caused the property to be lost or that Le Croissant had, at that time, taken any action regarding the property that justified basing the amount of the compensation of value on the value at the time of the settlement. Nor had anything else come to light that would give any reason for this.

In the case in question, the amount of the compensation of value would therefore be based on the value of the property at the time of the ruling in the recovery case. Because the parties had agreed that the property had no value at that time, Le Croissant would not pay any compensation to the bankrupt’s estate.

 
Takeaways:

If it is a question of claiming compensation for value in the case of recovery in bankruptcy, the starting point is that the compensation must consist of the value of the property at the time of the ruling on the recovery case. It is therefore important, even before the application for a summons, for the bankruptcy estate to carry out an assessment of possible changes in value of the property over the duration of the recovery case. This is in order to decide on the amount to be claimed and also to carry out an assessment of whether it is worth bringing an action for recovery at all.

It is also important for a respondent subject to a recovery order to carry out an adequate assessment of changes in value of the property. If the value of the property is expected to rise up to the date of the judgment, the risk exposure is significantly greater than if the value is expected to fall or disappear altogether.

“The industry statement” – a question of whether a statement on industry practice constitutes a legal opinion or evidence (Supreme Court case no. T 5269-23)

Background

A dispute arose between a buyer and a seller of timber. Questions arose in the case as to when the purchaser should have examined the goods and whether the complaint had been issued within a reasonable time after the purchaser noticed or should have noticed the defects. The question of whether the seller should be allowed to cite a statement on industry practice from Svenskt Trä [the Swedish Timber Association] also arose in the Supreme Court. The statement contained assertions of a certain pattern of behaviour in the timber industry and its legal consequences.

The purchaser objected on the grounds that the statement constituted new evidence that had not previously been cited and should therefore not be admitted in the Supreme Court. The purchaser also pointed out that the document had been submitted to the court of appeal during the main proceedings and was then cited as a legal opinion.

The seller claimed that the statement did not constitute evidence, but was a legal opinion on good business practice.

The question in the case

The Supreme Court had to decide whether the statement constituted evidence and whether the seller should be permitted to cite it.

The HD’s assessment

The Supreme Court classified the statement from the Swedish Timber Association as evidence because it contained assertions of industry practice that could thus serve as evidence of the state of affairs.

The Supreme Court stated that, in accordance with the rules of the Code of Judicial Procedure, new evidence may not be cited in the Supreme Court if it was not presented in a lower court, unless there is a valid excuse. In the court of appeal, the seller had not cited the statement as evidence, which led to a lack of clarity concerning the classification of the statement. The Supreme Court also noted that the court of appeal should have resolved this lack of clarity. However, since the court of appeal had not attached any importance to the statement as evidence, the Supreme Court considered that the judgment of the court of appeal had not been influenced by it.

Finally, the Supreme Court stated that the seller had not put forward a valid excuse for having failed to cite the statement as evidence in the lower courts and the statement could therefore not be cited as evidence in the Supreme Court.

Takeaways:

Questions that are not clearly regulated in agreements commonly arise in disputes concerning agreements, which is why industry practice may be necessary in order to supplement or interpret agreements. It is therefore important to bear in mind that industry practice generally constitutes a circumstance of the case on which evidence must be presented and may thus not be introduced at a late stage of ongoing court proceedings in the form of a legal opinion. It is for the court to decide whether a particular document cited must be classified as a legal opinion or as evidence. As a party, you should therefore be alert to documents cited at a late stage of the proceedings and draw the court’s attention to any lack of clarity concerning the legal nature of a document.

“The structure” – liability for damages in tax advice, particularly the question of the importance of the client’s risk-taking and risk awareness (NJA 2024 p. 445)

Background

Two private individuals (“the Clients”) owned a company (“the Company”) and engaged a well-known firm of accountants for tax advice (“the Tax Advisor”). A structure was established whereby the Company paid licence fees to an English company, which in turn transferred funds to accounts in Luxembourg belonging to the Clients via endowment insurance policies.  The Swedish Tax Agency subsequently rejected the arrangement and decided that the funds should be taxed as salary, which led to taxes and fees being levied on the Clients. The Swedish Tax Agency’s decision entails significant financial consequences for the Clients, who considered that they had acted in good faith, relying on the advice they had received from the Tax Advisor.

The Clients requested that the Supreme Court order the Tax Advisor to pay damages corresponding to the taxes and fees that had been imposed on them. The Clients considered that the Tax Advisor had caused them damage through negligent advice and that the Tax Advisor had failed to inform them of the risks associated with the structure. The Clients were of the opinion that they had relied on the Tax Advisor’s expertise and that they had not been sufficiently well informed of the potential tax consequences of the proposed arrangement. They considered that the Tax Advisor had an obligation to ensure that they were fully aware of the risks and that the advice should have been more thorough and comprehensive.

The Tax Advisor filed an objection stating that the advice in question, taking the Clients’ own actions and risk-taking into consideration, had not been negligent.

The question in the case

The question in the Supreme Court concerned the circumstances under which a tax advisor can be liable for damages for its advice and, in that case, what the significance of the clients’ own risk-taking and risk awareness may be.

The HD’s assessment

The Supreme Court initially stated that an adviser is liable vis-à-vis its client on the basis of contractual law for damage caused by the advice. With reference to the Supreme Court’s previous case law, the court stated that when the assignment raises legal issues, the adviser is liable for ensuring that the advice it provides is sufficiently well founded. That means that the assessment of prudence must primarily focus on the advisor’s methods and on whether the advisor has taken sufficient care in its analysis. According to the Supreme Court, the decisive factor is not whether the adviser’s statement stands up to subsequent examination, but whether the adviser has based its assessments on a professional investigation of the legal situation.

The Supreme Court also stated that the Supreme Court has dealt in its own case law with how a client’s risk-taking and risk awareness should be taken into consideration when it comes to assessing an advisor’s prudence. If advice is sought on what measures the client has to choose from, there is rarely any risk-taking, according to the Supreme Court, but it may be the case that the client gives the adviser instructions or otherwise acts in such a way that it is clear that the client is prepared to take risks.

However, according to the Supreme Court, the way in which the adviser’s contractual liability must be weighed against a client’s risk-taking and risk awareness needs to be assessed on a case-by-case basis.

In the case in question, the Supreme Court found that, on the one hand, it must have been clear to the Tax Advisor that the untaxed funds that were transferred abroad would be taxed as income from employment if the true circumstances became known to the Swedish Tax Agency. That in itself means that the advice provided by the Tax Advisor suffered from major deficiencies.

On the other hand, the Supreme Court also found that the Clients must have understood that there were significant risks associated with the arrangement, since funds were transferred out of their companies without being taxed and they themselves were provided with significant untaxed amounts.

Despite the fact that there were major deficiencies in the Tax Advisor’s advice, the Supreme Court found in an overall assessment that the Clients’ own risk awareness and risk-taking meant that the deficient advice did not form the basis for damages.

Takeaways:

The Supreme Court’s ruling stresses how important it is for clients to be made aware of the risks associated with tax planning and how their own appetite for risk can affect the assessment of an advisor’s liability. Even if the advice suffers from major deficiencies, the client’s awareness of the risks may mean that no liability for damages is considered to exist.

For advisors, it is therefore important to document and communicate potential risks and consequences of the advice given in order to avoid misunderstandings and legal disputes. For those who hire advisers, it is important to not just rely on the advice provided, but also to carry out their own assessment and evaluation of the risk and, if necessary, seek further advice.

“Final cleaning” – a question concerning when an injured party is entitled to claim compensation from a person causing damage for a payment as a consequence of damage that was made under a settlement with a third party (Supreme Court case no. T 1247-23)

Background

A seller of a property engaged a cleaning company for final cleaning before the purchasers took possession. After taking possession, the purchasers discovered water damage by the threshold between a bathroom and an adjoining room. The purchasers claimed compensation for the water damage from the seller. After some discussion, the parties agreed on a settlement whereby the seller would compensate the purchasers for the damage.

The seller then filed a claim against the cleaning company for an amount corresponding to the amount paid under the settlement agreement. The seller was of the opinion that the damage had occurred during the final cleaning and she considered that the extent of the damage corresponded to the amount she had paid the purchasers.

The cleaning company contested the claim, stating that any damages should have been calculated on the basis of the cost of repair and that there had been no investigation showing that the amount claimed corresponded to the financial damage.

The question in the case

The Supreme Court granted leave to appeal to assess the question of the conditions under which an injured party can obtain compensation from a person causing damage for a payment made under a settlement agreement with a third party.

The HD’s assessment

As a main rule, the injured party has the burden of proof with regard to both the existence and the extent of damage as well as the causal link on which the claim for damages is based. When compensation under a settlement agreement is passed on, the Supreme Court stated that the person who made the payment is required to show that an obligation to pay damages exists and that the amount is reasonable. The Supreme Court also noted that an injured party has a general obligation to limit its damage.

In the case in question, the seller was able to show that the damage had occurred during the final cleaning and the seller was therefore liable for it vis-à-vis the purchasers. Furthermore, an investigation had shown that the costs of repairing the damage were probably higher than the amount paid under the settlement agreement.

In that situation, the Supreme Court was of the opinion that the claim filed by the purchasers against the seller could not be required to be examined in court. On the contrary, in view of the seller’s duty to limit its damage, it was reasonable to voluntarily pay a lower amount in order to avoid court proceedings.

To sum up, the Supreme Court reached the conclusion that the seller was entitled to compensation from the cleaning company for the compensation the seller had voluntarily paid to the purchasers since the cleaning company had caused the damage and the amount was lower than the probable outcome in proceedings before a court.

Takeaways:

It is possible to pass on a claim for damages that has been compensated by means of a settlement agreement. However, it is important for the liability for damages itself to have been investigated and for an investigation to be carried out to show that the compensation under the settlement is proportionate to the compensation obligation that could have been applicable in proceedings before a court.