On 10 December 2019, the Swedish Supreme Court (Högsta domstolen) in case no. T 396-19 granted leave to appeal on the issue of when an obligation to pay legal costs shall be deemed to have arisen. The question of leave to appeal regarding the remainder of the case has been deferred.
Pursuant to judgments rendered in 2014, two companies were ordered to pay principal amounts and legal costs, together with interest, to another company (the counterparty) in a total amount of SEK 6.8 million. The counterparty subsequently brought an action against the companies’ former representative, requesting that the court hold the former board member personally liable for the companies' debts. The Supreme Court has now granted leave to appeal on the specific question of when the obligation to pay legal costs arose for the former board member who was personally liable at the time of the judgment.
It is undisputed that the two companies, now in bankruptcy, were liable under the judgments of the district court. The issue is whether the former board member is personally liable, given that the judgment in one case was delivered during the liability period, and a settlement in the other case was reached during the same period.
The counterparty's argument is that the companies' obligation to pay the SEK 6.8 million arose when the district court delivered its judgment and when the settlement was concluded—i.e., during the period of extended liability for the former board member.
Regarding the timing of the obligation to pay legal costs, there are two possible interpretations concerning the former board member’s personal liability: (1) the obligation arose when the court rendered its decision; or (2) the obligations arose progressively as legal costs accrued.
The Court of Appeal held that the obligations arose when the legal acts were carried out—specifically, when the properties were sold—and not at the time of the district court's judgment. Thus, the obligations to pay principal amounts and related interest arose before the liability period, and the former board member was not liable for those claims.
As for the legal costs, the Court of Appeal held that these obligations arose as the costs were incurred. It found that SEK 50,000 of the total SEK 200,000 in legal costs must have accrued during the liability period—between 8 January 2014 (the point of actual financial deficiency) and the district court's judgment in March that same year. Therefore, the former board member was personally liable for obligations incurred by the company during the period of inaction, which lasted until the bankruptcy decision in September that year.
The counterparty was ordered to reimburse the former board member’s legal costs: SEK 300,359 plus interest for the district court proceedings, and SEK 68,750 plus interest for the court of appeal proceedings.
The Court of Appeal noted that an interpretation where the obligation (i.e., personal liability for legal costs) arises only upon the court’s decision could lead to unpredictable consequences—for example, a board could potentially evade liability by filing for liquidation immediately before a judgment is rendered.
Regarding whether a settlement constitutes an entirely new legal basis for the claim it addresses, the Court of Appeal stated that, according to the wording of Chapter 17, Sections 1 and 6 of the Swedish Code of Judicial Procedure, a confirmed settlement encompasses the matter in dispute. However, this does not preclude the possibility that a settlement may, in certain cases, result in a new obligation—for example, where the creditor accepts renewed risk exposure.
Nonetheless, the court held that holding a former representative personally liable due to a restructuring of claims during the liability period would extend the scope of liability too far. Accordingly, the counterparty’s request for personal liability in this respect was rejected.