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Swedish Supreme Court Issues Important Judgment Regarding Assessment of Contractual Limits of Liability

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On February 24th 2017, the Swedish Supreme Court issued a judgment which clarifies the principles for assessing whether contractual limits of liability shall be upheld or set aside.

For many decades, the Swedish courts have upheld the principle that contractual limits of liability shall always be set aside when the party in breach has acted in gross negligence. This has greatly influenced both negotiation and drafting of clauses regarding limits of liability in commercial contracts. Consequently, the principle has also greatly influenced the grounds invoked to obtain judgments for full compensation following breaches of contracts containing limit of liability clauses.

In its new judgment, the Swedish Supreme Court has extensively modified this principle. The judgment clarifies that assessment of limits of liability shall not primarily be based on whether a party in breach has acted grossly negligent, but instead by means of an overall assessment of whether the limit of liability can be deemed reasonable or not taking into account all relevant circumstances at hand, in accordance with section 36 of the Swedish Contracts Act. This means that the Swedish courts will be able to assess limits of liability based on more objective and nuanced circumstances than before.

In the case at hand, where Advokatfirman NorelidHolm successfully represented the defendant, the Supreme Court stated that a limit of liability in a building surveyor’s terms and conditions was not unreasonable to uphold against buyers of the surveyed property, inter alia because the services of the surveyor had originally been retained by the seller of the property and because the ratio between the fee for the service and the maximum limit of liability was substantial.

Furthermore, the Supreme Court also stated that a buyer is not deemed to have fulfilled its duty to duly examine the property in cases where the buyer merely purchases a survey protocol originally retained by the sellers of the property. This means that a property buyer must retain a building surveyor for itself rather than to rely on the seller’s survey, a conclusion which will likely have profound impact on the market for second-hand purchases of building survey protocols.