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Nature of claims
Common causes of action
What are the most common causes of action brought against banks and other financial services providers by their customers?
Disputes between institutional customers and banks or other financial services are, in many cases, resolved through arbitration. Most cases before the courts are brought by private customers against banks and financial institutions for the misselling of financial products. Most of those private customers consist of consumers, and most financial products in these cases consist of credit loans and investment products.
In our assessment, most claims brought by customers involve misleading prospectuses and negligent advice. In recent years, a number of claims have been brought against insurance intermediaries regarding allegedly negligent advice given by the insurance intermediaries on investment matters. Such claims are normally based on the defendant’s breach of general advisory principles.
In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?
There are a number of acts governing duties owed by financial institutions regarding the misselling of financial products. Among them, the following are the most prominent:
- the Sale of Goods Act (1990:931);
- the Financial Instruments Trading Act (1991:980);
- the Consumer Credit Act (1992:830);
- the Marketing Practices Act (1995:450);
- the Consumer Financial Advisory Act (2003:862);
- the Insurance Intermediary Act (2005:405);
- the Swedish Companies Act (2005:551); and
- the Securities Market Act (2007:528).
The above-mentioned acts impose duties on financial institutions that are owed to both customers and regulators. However, these duties are separate. Whether or not a financial institution adheres to duties owed towards the regulator may be taken into consideration when deciding if the institution has been negligent or not (see question 3) and, to a certain degree, these regulations overlap. Therefore, in some cases, the financial institutions might owe a customer and the regulator the same duties, although such duties follow from different regulations.
Statutory liability regime
In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?
In general, Swedish law lacks statutory regulations regulating liability because of factual errors in prospectuses, listing particulars and periodic financial disclosures. In non-contractual relations, a party may be held liable for pure financial loss incurred through a criminal offence. In addition, case law over the past decades has extended the criteria where a party may be held liable for pure financial loss.
In addition to these general principles, certain regulations apply to companies and their representatives in relation to issues of shares and other securities.
According to the Swedish Companies Act, the company, its board members, managing director, shareholders and auditor have certain duties in relation to the mandatory publishing of a prospectus when the company issues new shares. The company’s board members, managing directors, shareholders and auditor may be held liable if an untrue or misleading prospectus is published. Liability may also follow from a company’s negligence to publish a prospectus, when it was required to do so.
Regarding liability because of untrue periodic financial disclosures, such a case has been ruled on by the Supreme Court. In that case, a claimant, equivalent to a shareholder, sought damages from the company’s auditor on a non-contractual basis. The court found that the annual report was untrue and that the auditor had breached auditing standards in its review. However, in order for the claimant to be entitled to payment for damages, it had to be shown that the claimant had relied on the annual report and that, if the annual report had been true, the claimant would not have entered into the agreement would have entered into the agreement on more favourable terms. The court found that, even in the case that the annual report had correctly described the state of the company’s finances, the claimant would have entered into the agreement on the same terms. Therefore, the claimant was not entitled to damages.
Duty of good faith
Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?
A duty of good faith or, as Swedish terminology would label it, a duty of loyalty, has been recognised by the courts in general. For instance, it is held that a contracting party must normally loyally cooperate in the completion of an agreement. Furthermore, a contracting party must assist the opposing party in mitigating any damages the opposing party has incurred, or any incurring risks. The duty of loyalty may also include a duty to disclose information. As an example, in one case the Supreme Court ruled that a creditor was not entitled to payment from a guarantor when the creditor had neglected to inform the guarantor about the debtor’s insolvency, therefore hampering the guarantor’s right of recourse.
Furthermore, a duty exists to mitigate one’s damages, even though those damages have been caused by the opposing party, as well as a duty to maintain any property kept for an opposing party. This list of duties is not exhaustive and will not be elaborated on further.
In addition to these general principles there are, within the financial advisory sector, certain statutory duties of loyalty. Within investment advisory, the duty of good faith focuses on the adviser’s duty to recommend investments that comply with the customer’s needs and are understandable by the customer without taking into account irrelevant factors (such as which investment would provide the best commission for the adviser). The adviser must also carry out market orders on behalf of the customer as efficiently as possible.
It should also be noted that there exists a duty of good faith in pre-contractual negotiations, although this duty is weaker than the duty of loyalty explained above.
In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?
The common law concept of fiduciary duties is not recognised as a general concept in Swedish law. However, in some cases, a party may have a duty of loyalty to its counterpart. Therefore, although a financial institution does not automatically stand in a fiduciary relationship with its customers, it may very well hold a duty of loyalty to its customers.
In the relationship between a principal and a commission agent, some facets of fiduciary duties are included. This includes that a commission agent, under the relevant legislation, is obliged to act in the interest of his or her principal.
How are standard form master agreements for particular financial transactions treated?
While standard form master agreements for particular financial transactions, such as the International Swaps and Derivatives Association (ISDA) Master Agreement, are commonly used in Sweden, they are normally governed by English law with disputes to be resolved by English courts when entered into by Swedish parties. Therefore, disputes in relation to such agreements are sparse or non-existent in Swedish courts.
Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?
A financial institution’s liability generally stems from the financial institution’s role as an adviser to a customer, or from the financial institution’s responsibility in relation to prospectuses, listing particulars or periodic financial disclosures by themselves.
Financial institutions may not, in principle, limit their statutory duties and liabilities towards consumers.
When it comes to contractual relationships with commercial customers, the situation is different. The starting point of Swedish contractual law is that a party may freely limit its liability. As such, a financial institution may limit its contractual liability. The foregoing is limited by what is held as a general principle of Swedish law; namely, that a party may not contractually limit its liability to the extent caused by gross negligence or intent. If a party still seeks to exclude liability for such matters, it is unlikely that it would be upheld if tried by a court or arbitral tribunal, as they may, in accordance with statutory regulations, mitigate any contractual clause that is deemed unfair to a party considering the circumstances regarding the contract.
In a commercial relationship, the financial institution may also effectively limit its liability by defining a narrow scope of its duty of good faith.
Freedom to contact
What other restrictions apply to the freedom of financial institutions to contract?
General contractual restrictions apply to financial institutions’ freedom to contract.
The Swedish legal system does not differentiate between penalty clauses and clauses including liquidated damages. Depending on, inter alia, the amount of the liquidated damages, the case at hand and the equality of the parties a court may, in accordance with statutory regulations, mitigate a liquidated damages clause (or any other contractual clause that is deemed unreasonable).
The concept of contractual estoppel is not recognised in the Swedish legal system. While contractual estoppels are not prohibited, they only hold evidentiary value and do not estop a claim to the contrary.
What remedies are available in financial services litigation?
Remedies available in financial services litigation do not differ from remedies available in litigation in general. Therefore, a claimant may, for instance, seek an order to pay damages, rescission of a contract or injunctive relief.
Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?
Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?
There are neither specialist courts nor specialist judges for financial services disputes. Such disputes are either solved in ordinary courts or, in commercial situations, often through arbitration.
Do any specific procedural rules apply to financial services litigation?
No specific procedural rules apply to financial services litigation.
May parties agree to submit financial services disputes to arbitration?
Yes. Parties may agree to submit financial services disputes to arbitration. Arbitration is, in many instances, the preferred method of dispute resolution between commercial parties in Sweden (see question 11). It should be noted that if one of the parties is considered a consumer, an agreement to arbitrate made before the actual dispute arose is void if the consumer party objects to the agreement.
Out of court settlements
Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?
Parties are not required (by law or by order of the court) to seek to settle out of court or refer financial services disputes for alternative dispute resolution. However, when a case is pending in court, the courts have an express duty to assist the parties in seeking to settle the matter. Settlement discussions may, with the consent of the parties, be held in private between the judge and each of the parties. In such discussions the judge is normally quite cautious to avoid any concerns about his or her impartiality. From time to time, however, the judge is more active and instead recuses him or herself from the case if it is not settled.
Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?
There are no legal requirements for specific pre-action communications (in financial services litigation or otherwise). However, an advokat (member of the Swedish bar association) must, normally, notify the other party before commencing legal action.
A claimant, in financial services litigation or otherwise, who wishes to claim damages, may consider applying for a payment order from the Swedish Enforcement Agency. Such an order is only made if the respondent does not dispute the claim, and it is normally not a viable option to initiate this summary procedure if the claimant knows (or has reason to suspect) that the respondent will not accept the claimant’s claim. If the respondent disputes the claim, the claimant may refer the case to court.
A consumer or a group of consumers may consider submitting a claim to the National Board for Consumer Disputes. The Board’s recommendations are not formally binding, although companies not following the Board’s decisions are included in a public blacklist. As a result, most companies comply with the Board’s decisions.
The Board’s proceedings are in writing only; therefore, not all cases are suited for the Board’s review. For example, when a group of consumer investors applied to the Board to try their claim against one of Sweden’s largest banks, the application was dismissed as it could be assumed that oral hearings were a necessary part of the investigation.
Unilateral jurisdiction clauses
Does your jurisdiction recognise unilateral jurisdiction clauses?
There are no statutory regulations against such a clause; therefore, general contractual principles apply. Depending on the case at hand and whether the parties are of equal merit or not, a court may mitigate such a clause. No clear case law from the superior courts settling the extent to which such clauses are acceptable exists.
What are the general disclosure obligations for litigants in your jurisdiction? Are banking secrecy, blocking statute or similar regimes applied in your jurisdiction? How does this affect financial services litigation?
The right to obtain documents through disclosure or discovery is relatively limited in Sweden (see question 18). There is no general obligation for a party to disclose information to another party and the other party cannot rely on a discovery process to build its case.
However, in court proceedings, a party may obtain a court order for the other party or a third party to produce documents held by it, if those documents are:
- identified (if not individually then as a narrowly defined category of documents); and
- of at least some evidentiary value in the case at hand.
In a dispute between a customer and a financial institution the (credit) file of the customer would, according to case law, normally be a sufficiently narrow category of documents carrying an evidentiary value.
In this context, the burden of proof generally lies with the claimant. When a customer makes a claim regarding negligent advice, the burden of proof may, in some circumstances, shift to the financial institution if the institution does not supply the court with the documentation it is required to keep because of statutory regulations. The possibility of a shift of the burden of proof is greater if the customer is a consumer.
Must financial institutions disclose confidential client documents during court proceedings? What procedural devices can be used to protect such documents?
Generally, there is no obligation for financial institutions to disclose confidential client documents during court proceedings, although failure to do so may, in certain circumstances, change the burden of proof as noted in question 17. There is no general obligation to disclose all documents that may be of relevance to the opposing party (see question 17), but upon request there is a more limited obligation. A valid defence to a request for production of documents may be that the requested documents contain trade secrets; in such a case, the documents must only be disclosed if, after an assessment, exceptional reasons exist.
If an order for the production of documents is made, the court may decide that the documents shall be kept under seal and not become part of the public records.
Disclosure of personal data
May private parties request disclosure of personal data held by financial services institutions?
Under Regulation (EU) No. 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC, a financial institution (like any other company) must, at the request of a private person, provide the person with all the information the financial institution keeps on record about that person.
In addition, and more specifically for financial institutions, a financial institution must, upon request from a customer, supply the customer with proof that a (requested) transaction has been carried out in accordance with the financial institution’s guidelines, and copies of any loan agreement entered into by the financial institution and the customer.
What data governance issues are of particular importance to financial disputes in your jurisdiction? What case management techniques have evolved to deal with data issues?
As the right to disclosure is relatively limited, we cannot see that any particular data governance issues have arisen with respect to financial disputes.
A request for document production may concern electronic documents and other forms of data stored electronically. Case law is still relatively sparse on how (in what format, among other things) a court may order a party to produce ‘documents’, and it is unclear to what extent a request for production may, for instance, identify documents or categories of documents through metadata or certain search strings or if a party may be required to perform certain operations (such as optical character recognition) to identify documents that include certain information. There have been a few decisions from courts that address these issues but it is likely that the next few years will see an increase.
Interaction with regulatory regime
What powers do regulatory authorities have to bring court proceedings in your jurisdiction? In particular, what remedies may they seek?
The regulations on the financial market are supervised by the Financial Supervisory Authority (FSA). The FSA has a number of remedies at its disposal. For instance, the FSA may order a financial institution to supply documents and order employees to submit to hearings. The FSA may set a conditional fine for such orders. Furthermore, the FSA may revoke a financial institution’s licence to conduct business in financial service as well as order prohibitory injunctions. The FSA may also penalise a company that does not apply for approval of a required prospectus in time. Last, the FSA may fine or apply for the liquidation of a company.
As the FSA’s means of ordering remedies are quite extensive, there is generally no need for the FSA to bring court proceedings, although one exception is when the FSA applies for the liquidation of a company. Instead, financial institutions will have to appeal such orders from the FSA by appealing the decision in the administrative court systems.
Disclosure restrictions on communications
Are communications between financial institutions and regulators and other regulatory materials subject to any disclosure restrictions or claims of privilege?
As a starting point, all documents submitted to, or sent from, Swedish governmental agencies (such as the FSA) are public. Therefore, freedom of information would be the starting point when making this analysis in Sweden. Having said that, the disclosure of such communications is often restricted. When a request for disclosure is made, it falls on the government body to which the request was made to decide whether disclosure of the information should be restricted under the relevant legislation or not. In general, information regarding a company’s business operations is normally deemed confidential and will not be disclosed.
As for information the FSA keeps in accordance with its supervisory role concerning financial institutions’ business practices, such information is not to be disclosed when it can be assumed that disclosure would harm the financial institution.
May private parties bring court proceedings against financial institutions directly for breaches of regulations?
Private parties (be they individuals or companies) may bring court proceedings against financial institution and therefore seek, inter alia, damages. However, financial institutions are not liable to customers solely on the basis of breaches of regulations. Instead, a financial institution may be liable on the basis of, inter alia, negligent advice. When a court considers whether a financial institution has been negligent in relation to its customer, a failure by the financial institution to follow applicable regulations that are of relevance in relation to the customer may in many cases be of relevance.
In a claim by a private party against a financial institution, must the institution disclose complaints made against it by other private parties?
In court proceedings, a financial institution is not required to disclose complaints made against it by other private parties. A private party may seek an order for disclosure (see question 18), but it is quite likely that the financial institution would be able to defend itself against such claim based on the confidential nature of its other customer relations. Also, the FSA may order a financial institution to disclose such information to it (see question 21).
Where a financial institution has agreed with a regulator to conduct a business review or redress exercise, may private parties directly enforce the terms of that review or exercise?
Such reviews and exercises are not a remedy that is possible for the FSA to decide upon.
Changes to the landscape
Have changes to the regulatory landscape following the financial crisis impacted financial services litigation?
Although the regulatory landscape has changed significantly since the financial crisis in Sweden, it is difficult to say that these changes have had a specific or noteworthy effect (increase or decrease in the number of cases) on financial services litigation within the country.
Is there an independent complaints procedure that customers can use to complain about financial services firms without bringing court claims?
Consumers may refer complaints against businesses to the National Board for Consumer Disputes (ARN). ARN is a public authority whose main task is to impartially try disputes between consumers and businesses. ARN submits recommendations on how disputes should be resolved; the recommendations are not binding for the parties.
Claims referred to ARN are filed by the consumer. Before the complaint is filed with ARN, the business must have rejected the complaint in part or in whole (or not answered at all). Matters relating to banking and financial services, which may include issues of negligent advice, must exceed 2,000 kronor.
ARN does not try disputes that have been submitted to court for trial and disputes where the business has entered bankruptcy. Furthermore, ARN’s recommendations do not affect subsequent court action. Documentation relating to a matter tried by ARN, including ARN’s recommendations, may, however, be brought as evidence in court.
Recovery of assets
Is there an extrajudicial process for private individuals to recover lost assets from insolvent financial services firms? What is the limit of compensation that can be awarded without bringing court claims?
The Swedish government provides a deposit insurance (ie, a state-provided guarantee of deposits in all types of accounts at banks, credit market companies and investment firms with a licence to accept deposits). Financial institutions belonging to the deposit insurance scheme pay fees to the Swedish National Debt Office which are then placed in a fund.
If an institution goes bankrupt or after a decision made by Sweden’s financial supervisory authority, the insurance provides compensation up to 950,000 kronor per depositor in Sweden. The provisions regarding the deposit insurance are set forth in the Deposit Insurance Act (1995:1571).
Updates & Trends
UPDATE & TRENDS
Updates & Trends
Updates and trends
In recent years, consumer rights in financial services agreements have been a focal point and consumers have increasingly brought cases against banks and other financial institutions concerning, primarily, negligent advice and asset management.
As a result of Directive 2014/65/EU on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II), the Swedish legislator has, among other things, tightened the financial regulations concerning commission and product control in relation to financial advisers. However, it is too early to tell if these amendments will increase financial advisers’ liability to their clients.
Further, under MiFID II, EU member states shall set up extra-judicial mechanisms for consumer complaints. The Swedish legislator has considered ARN sufficient in this regard (see question 27).
Generally speaking, financial services litigation in Sweden has been relatively limited.