The Construction Year 2023 concluded with several new and interesting rulings. Attorneys Madelene Andersson and Sophie Hellman summarize some of the most significant decisions from the past year.

Hollow Sounds and Insufficient Adhesion of Bathroom Tiles Not a Material Defect

Court of Appeal for Western Sweden, February 10, 2023, Case No. T 6794-21

The client and contractor had entered into an agreement under ABT 94 as the contract terms. After the warranty period expired, defects concerning insufficient and lack of adhesion on bathroom tiles were reported, primarily manifesting as hollow sounds. The parties had not agreed on any applicable standard for the work or specific requirements regarding the degree of adhesion. The client, through an expert, conducted invasive tests in four bathrooms where hollow sounds were detected, revealing a complete lack of adhesion between tiles and the adhesive layer. However, it was alleged that defects existed in 26 bathrooms. The client sought compensation for the cost of remediation, while the contractor presented several defenses.

The Court of Appeal determined that a lack of adhesion constitutes a defect, but insufficient adhesion does not, as no agreement on the degree of adhesion was made. Since no general conclusions could be drawn regarding all hollow sounds based on the limited destructive tests, the defect was not deemed material in terms of scope and cost of remediation. Furthermore, it was not shown that tiles had loosened or that underlying waterproofing layers had been damaged. The defect was thus not material regarding potential risks. The fact that the defects had not yet been remedied also weighed against materiality. The client was therefore not entitled to compensation.

This case highlights the importance of specifying industry regulations and/or standards in contract documents to apply them to the construction project. It also illustrates that indications of a defect's cause are insufficient to establish a defect. Additionally, significant weight is given to the expected consequences of the defect.

To avoid issues with the materiality and negligence criteria, parties may agree on how the assessment should be made, such as stipulating that a certain cost for remediation will make a defect material. It is also possible for parties to agree to exclude both materiality and negligence criteria.

Liability for Damage Caused to Third Parties

Svea Court of Appeal, April 5, 2023, Case No. T 13155-20

Under a contract for a construction project, based on AB 04, the contractor was to renovate and refurbish caverns in Skansenberget on Djurgården. The client alleged that the contractor caused damage during the project. The client’s tenant had to decontaminate items stored in an adjacent cavern to the one under construction. The client primarily argued that the contractor should be liable for damages owed to a third party resulting from the project under Chapter 5, Section 13 of AB 04.

The Court of Appeal stated that in the absence of a shared understanding between the parties about how "third party" should be interpreted, the client’s tenant should be considered a third party within the meaning of the provision. In general legal usage, a third party refers to anyone not a party to the contract. This interpretation was made despite the Construction Contracts Committee's (BKK) stated view that the provision does not cover claims against the client stemming from the client’s contractual relationship with, for example, a tenant.

According to the Court of Appeal, payment liability does not need to be established or fulfilled but must be concretized, such as through a presented compensation claim against the client. Chapter 5, Section 13 of AB 04 states that the contractor assumes the client’s liability for third-party damages unless the contractor can demonstrate that it could not reasonably have prevented or limited the damage. When the client claims indemnification for damages against a third party, they must provide strong evidence for the liability and their inability to avoid it. In this case, the client failed to justify assuming responsibility for the tenant's decontamination costs.

Secondarily, the client argued that the project was defective and that the contractor should be liable under Chapter 5, Section 11 of AB 04. The Court of Appeal concluded that the client had not proven the contractor deviated from the contractual terms or that the work was defective. Nor had the client shown that the contractor failed to meet professional standards or acted negligently.

This case underscores the importance of specifying the interpretation of the "third-party" concept in Chapter 5, Section 13 of the contract to avoid disputes. Additionally, the client must demonstrate concretized damage claims and justify their inability to escape liability before pursuing indemnification against the contractor.

No Obligation to Remedy When Defects Lack Practical Significance

Svea Court of Appeal, April 14, 2023, Case No. 3945-22

The client and contractor agreed on new culvert pipelines, with the contracted method for pipe jointing being soldering. However, the contractor used press fittings instead. The contractor sought partial payment for the contract sum and additional work, while the client counterclaimed for the cost of remedying defects and delay penalties.

The Court of Appeal found that soldering and press fitting methods were equivalent in function and lifespan. The next question was whether it was unreasonable to remedy the defect. As the defect had no significant practical impact and the cost of remediation was relatively high, the Court determined that remediation was unreasonable. The increased fire risk associated with on-site soldering was also considered. Since the client could not show the defect impacted value or that the contractor saved costs through the method, no depreciation deduction was awarded. The contractor’s investment in a press tool for the work was considered in this assessment.

However, the client’s counterclaim for delay penalties was upheld by the Court of Appeal.

This case is significant because it illustrates how practical implications of defects are weighed in decisions about remediation and depreciation deductions. Minimal practical differences argue against remediation and are evaluated in relation to costs. The contractor’s investment in permanent equipment (the press tool) is also a noteworthy factor.

The Entire Project Does Not Need to Be Approved for the Prescription Period to Start

Svea Court of Appeal, June 21, 2023, Case No. T 5717-21

The client and contractor had entered into an agreement for ongoing street maintenance and earthworks based on AB 04. The contractor filed a lawsuit for payment, while the client counterclaimed for delay penalties, citing numerous instances where the contractor had exceeded the agreed-upon response time. The contractor argued that the penalty claims were filed too late. A preliminary ruling addressed whether the claims for delay penalties had been time-barred.

According to the contractor, the parties had been using a digital portal called “Driftportalen” for the approval of ongoing maintenance work since the start of the contract period. The contractor argued that the three-month prescription period under Chapter 5, Section 3, third paragraph of AB 04 began when the client marked each item as "Approved for Invoicing" in the portal. The client, on the other hand, argued that the prescription period started only after the entire project was approved.

The Court of Appeal found that the wording of the contract did not support the client's interpretation, which required approval of all contractual work for the prescription period to begin. According to the definitions in AB 04, the term “entreprenaden” refers to “contract work, including any extra work.” Therefore, the prescription period could start with the approval of any individual piece of work.

The Court also noted that the parties had modified the agreement regarding how the work would be approved. In the AF section, it was stated that delay penalties would be calculated based on when each individual item was completed, and there had been no annual final inspection as stipulated by the contract. It was evident that both parties had intended for the work to be approved in the portal and considered as fully inspected when approved.

Since the client had not demonstrated that clear written claims for delay penalties had been made during meetings or by letter, as the client had alleged, but only through the service of the defense, the penalty claims for works approved more than three months before the service of the defense were time-barred.

This ruling clarifies two points: stating that "penalty claims may be forthcoming" or "a summary is in progress" is not enough to interrupt the prescription period under Chapter 5, Section 3, third paragraph of AB 04. Penalty claims must be clearly and explicitly made in writing. Additionally, depending on what has been agreed upon and how the parties have acted, the prescription period for specific works can start even if the entire project has not been approved.

Electronic Personnel Ledger Must Be Provided to the Client Upon Request in Construction Disputes

Supreme Court Decision, December 29, 2023, Case No. Ö 1750-20

In the context of a district court case between the client and contractor, a dispute arose over the scope of the contractor’s work. To challenge the claim that the contractor worked the days and times stated, the client filed a request for the personnel ledger from the company handling it. The contractor opposed the request, citing the registered individuals' right to personal privacy. The district court ruled that the personnel ledger must be presented in unmasked form, and the Court of Appeal upheld the decision. The case was then brought before the Supreme Court, which sought a preliminary ruling from the European Court of Justice.

The Supreme Court decided that the personnel ledger should be provided, but with masking of personal identification numbers or equivalent foreign identification numbers. The right to a fair trial and effective court protection, according to the Supreme Court, means that a party must have access to documents to prove its claim. The client thus had a legitimate interest in accessing the personnel ledger. The Court considered that the information did not involve particularly sensitive personal data.

This decision is significant for both parties and legal representatives in construction law disputes. In projects with ongoing billing, disputes often arise over the extent of claimed work time, and the Supreme Court's decision expands the client's ability to verify the contractor’s records. In the Svea Court of Appeal ruling "Nybropalatset" (March 10, 2016, Case No. T 10408-14), it was determined that the client must present specific objections for the contractor’s time records not to be used as the basis for determining the time spent if the records are comprehensive and appear complete. Going forward, it is likely that electronic personnel ledgers will be used as the basis for concrete objections from the client.

Both new and older rulings show that the construction law landscape can be complex. Fylgia Entreprenad is happy to offer expertise in all phases of a project—from contract signing and review to project support and dispute resolution. Do you have any questions about upcoming, ongoing, or completed projects? Contact us, and we’ll be happy to assist you.