Company should have filed damages claim before hearing outcome of related proceedings.

A recent Finnish Supreme Court judgment KKO:2017:3 highlights the need for companies to have proper dispute management policies in place to prevent expiry of valid claims. If not followed, the Act on the Expiry of Debts (728/2003) can effectively deprive parties of the right to claim damages or other remedy before courts.

Under the Finnish Act on the Expiry of Debts, section 7 (1) (3), contractual damages expire within three years from the moment when the creditor noticed or should have noticed the grounds for liability. In its judgment of 26 January 2017, the Finnish Supreme Court interpreted this provision in a case where the limitation period for damages claims had been interrupted only after a Court of Appeal judgment in related proceedings.

The facts of the case are as follows: Company M owned Lahdenväylä, a piece of real estate. While Company M had planned to sell the real estate on the market, it could not complete the sale because Company W refused to return contracts of pledge. The property, which stood as security for Company M's debt, ended up being attached and sold under the Enforcement Code at a public auction, at a lower price. Company M initiated two sets of proceedings after the sale on 19 January 2006.

First, on 27 January 2006, Company M filed an action for contested enforcement. Company M sought confirmation that Company W did not have a right of lien on the Lahdenväylä property. The District Court ruled accordingly in its judgment of 2 June 2006. The Court of Appeal confirmed this finding by judgment of 15 January 2008. Accordingly, Company W was not entitled to withhold the contracts of pledge.

Second, on 17 January 2011, some three years after the Court of Appeal judgment, Company M filed a damages claim. Company M claimed damages from Company W because the negotiated real estate deal was never realized, as Company W had illegally withheld the Lahdenväylä contracts of pledge. This, in turn, had caused the property to be sold at auction at a lower price. Company M claimed the difference between the market price and the actual sale price from Company W.

Under Finnish law, the three-year limitation period can be interrupted by notice. A new period begins when the notice is given. In this case, it was undisputed that filing the damages claim was the first and only action by Company M to interrupt the limitation period. The key issue was whether the limitation period commenced only once the Court of Appeal judgment was final and binding. The Supreme Court found that this was not the case.

According to the Supreme Court, Company M was sufficiently informed of the grounds for liability at the latest when it filed the action for contested enforcement in January 2006. Irrespective of the legal uncertainty related to the right of lien, Company M had a sufficient understanding of the relevant facts and circumstances. These included the damage, Company W's actions causing the damage, and the facts supporting the finding that Company W did not have the right of lien. The Supreme Court found that final resolution of the right of lien issue had no bearing on the moment when the limitation period started. The outcome: Company M's damages claim was time-barred, and the Company had no right to claim damages.