An extract from The Professional Negligence Law Review, 2nd Edition

Introduction

i Legal framework

Negligent acts or omissions conducted by a professional may give rise to various sanctions, including criminal charges and disciplinary actions, but this article mainly addresses the remedy of damages.

To establish professional liability, the aggrieved party essentially needs to establish that it has incurred financial loss (including the quantum of the loss) because of the professional's breach of his or her duty of care (negligence), that the breach was the cause of the loss (causation) and that the cause was adequate (to a certain extent foreseeable and within reasonable remoteness). Only the negligence test will be briefly described in this Section although all the requirements are indeed interesting and complex.

The standard of negligence is fairly high under Swedish law; a substantial breach of the professional's duty of care is typically required, although an adviser is also under a fairly strict standard of care regarding his or her obligation to inform a client of risks associated with matters on which advice is provided.

Many professions are subject to statutory regulation: inter alia, financial advice to consumers, insurance brokering, real estate brokering and auditing. These statutes typically stipulate general principles and rules that the relevant professionals must adhere to. These principles are in turn set out in more detail in various sources, many of which are traditionally considered 'soft law'. Examples of these sources include recommendations from business organisations, agreements between such organisations and authorities, guidelines provided by relevant authorities and precedents set by courts and by non-judicial policymakers (e.g., disciplinary committees). Where a professional has acted in breach of the norms intended to safeguard the interests of a client, there is generally a presumption for negligence.

Also, a test similar to the common law Learned Hand formula is commonly applied for establishing negligence. This test is of particular use and importance where there has been no breach of a relevant norm. In essence, the following four factors are assessed in this test:

  1. the probability that loss will be incurred;
  2. the gravity of the loss;
  3. the foreseeability of the loss; and
  4. the options for preventing the loss.

In a situation where there has been a high probability of major loss and the risk for the loss has been simple to foresee and could have easily been avoided, the professional would probably be considered negligent.

A professional's liability is often limited through limitation of liability clauses or monetary caps in the parties' agreement or through caveats made. Contractual limitations of liability are generally upheld by Swedish courts and arbitral tribunals. Exceptions are, however, possible where a provision is deemed unconscionable in accordance with Section 36 of the Swedish Contracts Act, having regard to the contents of the agreement, the circumstances prevailing when the agreement was entered into, subsequent circumstances and other circumstances in general.

Where the party in breach is an individual who has provided his or her services under employment, any claim would typically be directed against the employer under the Swedish legal principle on the principal's liability.

Defences to professional liability claims are in general the same as those to any liability claim (i.e., objections as to negligence, the existence and quantum of loss, causation and adequacy, contributory negligence or the aggrieved party's failure to mitigate its loss). It is typically the aggrieved party that has the burden of proof for the circumstances resulting in liability, although it can fall to the party in breach under certain conditions; for instance, when the professional has omitted to document the advice rendered.

ii Limitation and prescription

The general statutory time limitation for monetary claims is 10 years. This applies for most claims relating to professional negligence, with the result that no claim may be brought after 10 years from its 'occurrence' (a point in time that can be complex to establish but is typically when the alleged negligent act was committed) unless the period of limitation is interrupted prior thereto. The period of limitation is interrupted by any of the following events: (1) the debtor offers payment, makes payment of interest or principal amount, or otherwise acknowledges the claim of the creditor; (2) the debtor receives from the creditor a demand in writing or other written reminder in respect of the debt; or (3) the creditor commences legal proceedings or otherwise pleads the claim against the debtor in any court, before the Swedish Enforcement Authority, in arbitration proceedings, bankruptcy or insolvent liquidation proceedings, or in negotiations in respect of judicial composition in an insolvency procedure.

An exception is made where the professional is deemed a trustee. A trustee may be defined as anyone who is tasked by a principal to perform a legal act on the principal's behalf or represent the principal in relation to authorities. Claims against a trustee must be made by commencing legal proceedings within a year. However, as most professionals that provide advice are not deemed trustees, this exception to the 10-year main rule is, in practice, of limited significance.

In addition to the above, a claim may be time-barred or precluded if the aggrieved party has failed to provide the professional with a valid notice of its claim in due time. A valid notice requires that the aggrieved party make clear to the professional that the services provided were deficient (i.e., not of an acceptable standard) and that the professional is or will be held liable. Certain aspects of the time-bar issue are currently uncertain under Swedish law, but clarifications may be expected from the Swedish Supreme Court during 2019 (see Section IV).

iii Dispute fora and resolution

Professional liability claims may be subject to litigation and arbitration. Litigation is governed by the Swedish Code of Judicial Procedure and as a general rule the domicile of the defendant decides which court is competent in a particular case. A company (and similar entities) is domiciled where it has its registered office.

Arbitration is the favoured method of dispute resolution where the subject matter has been agreed upon, and many professionals provide for arbitration in their standard terms and conditions. Arbitration clauses are upheld by Swedish courts unless deemed unconscionable in accordance with Section 36 of the Contracts Act, which essentially never applies in commercial contexts. Arbitration is most commonly conducted under institutionalised arbitration rules, primarily the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce and secondarily the Rules of Arbitration of the International Chamber of Commerce.

Alternative dispute resolution (ADR) proceedings such as mediation are also available. ADR has gained some popularity over the past decade but is not frequently applied.

iv Remedies and loss

Several remedies are available to the claimant if professional liability applies. The claimant may, under certain conditions, demand that the professional perform the agreed service adequately or demand a reduction in price. For practical reasons, however, damages are virtually exclusive as the means of remedy. As a starting point and in the absence of an agreement on how to calculate damages, the aggrieved party is entitled to its actual loss incurred and nothing more. The 'doctrine of difference' is the primary tool in calculating the amount of damages that the aggrieved party is entitled to. According to this principle, the liable party is obliged to pay damages in the amount that puts the aggrieved party in the hypothetical position where it would have been had the negligent act not been performed (i.e., the aggrieved party is entitled to full financial compensation, including loss of profit). In other words, the aim of the calculation is to put the aggrieved party in the situation that it would have been in had the professional provided the services in accordance with the agreement or standard of care.

A professional's liability to pay damages is limited to the immediately aggrieved party; a professional can as a general rule (with a few exceptions, such as real property valuations and professional advice rendered in bad faith) not be liable to pay damages to a third party, (i.e., anyone who incurs financial loss as a result of the aggrieved party's loss). In addition, the compensation to the aggrieved parties may be reduced with reference to, for example, contributory negligence or failure to mitigate loss.