Subcontractor liable for payment for claims assigned to third parties
Subcontractor liable for payment for claims assigned to third parties
A claim for damages brought by a third party against the debtor of the second line does not constitute an impermissible jumping recourse when the claim concerns the rights of the debtor of the first degree. In addition, tort is not non-contractual even if there is no direct contractual link between a debtor and the assignee of a claim.Furthermore, a principal does not need to be paid in order for the coverage claim to be enforced. Finally, the prohibition on transfer has no effect against third parties except in exceptional circumstances.
Background
The Korvetten housing cooperative has entered into a construction contract with Länna Mark och Exploatering AB (Länna Mark) regarding the construction of new condominiums. Bogi Värme AB (Bogi Värme) is a subcontractor to Länna Mark and carries out installation work on the property. Some time after the completion of the condominiums, damage occurs that it turns out that Bogi Värme caused by carrying out the work negligently. As a result, Korvetten will have a claim for damages against Länna Mark and Länna Mark will have a corresponding claim against Bogi Värme. The claim is settled by Korvetten’s insurance company, Länsförsäkringar Uppsala (Länsförsäkringar). Länsförsäkringar then directs a recourse claim against Länna Mark, which, instead of paying, assigns its claim against Bogi Värme to the insurance company.Länsförsäkringar subsequently claims compensation from Bogi Värme. However, Bogi Värme refuses to pay, whereupon the insurance company brings an action in the District Court (TR).
District court
According to Bogi Värme, the demand for payment from Länsförsäkringar constitutes a so-called impermissible jumping recourse. Jumping recourse means that a creditor does not direct a demand for payment against his or her direct contractual partner, i.e. the debtor of the front line, but instead directs the claim directly against the posterior line. The effect is that the creditor deviates from the so-called contract chain. In addition, Bogi Värme argues that it is a question of non-contractual damages, i.e. damages not based on a contractual relationship, for purely financial damage. In order for non-contractual purely financial damage to be compensable, it is required, according to Chapter 2. Section 2 of the Tort Liability Act, that it arose under special conditions that do not exist in the case.
TR argues that the general rule in Swedish law is that contractual relationships only bind direct contractual parties and that demands for payment may therefore not be directed against the debtor of the rear line. The Court also points out that Länsförsäkringar and Bogi Värme each advocate a different interpretation of the situation. According to Bogi Värme, Länsförsäkringar for its part directs claims directly against them, which the Court finds to be prohibited under the general rule. Länsförsäkringar argues, however, that the claim relates to Länna Mark’s rights against Bogi Värme, which was subsequently transferred to the insurance company. The Court notes that it is the plaintiff’s claims and grounds that set the framework for the process in civil cases under Chapter 17. Section 3 of the Code of Judicial Procedure. Since Länsförsäkringar has chosen to base its action on the construction contract between Länna Mark and Bogi Värme, the claim thus relates to Länna Mark’s rights. It is therefore neither a case of a jumping recourse nor a claim for damages for non-contractual purely financial damage, so that the action is not dismissed on any of those grounds.
Bogi Värme also argues that the cover claim for which Länsförsäkringar is seeking payment does not exist since Länna Mark never paid for the principal claim. TR draws guidance from legal doctrine and concludes that the principal claim does not need to be paid in order for the coverage claim to be enforceable; Bogi Värme is therefore not successful with that reasoning either. Finally, Bogi Värme argues that the claim could not be assigned because the agreement with Länna Mark contains a prohibition on transfer which also covers claims for damages based on the agreement. According to the Court, the main rule under Swedish law is that a prohibition on assignment does not have effect against the assignee of a claim, but that the Supreme Court (HD) has opened up for the possibility that it may be permitted in exceptional cases. In order to see whether exceptions can be made in the individual case, a balance of interests must be struck between the free circulation and the debtor’s interest. TR does not consider that Bogi Värme has justified its interest in the claim not being assigned sufficiently clearly and therefore finds that the prohibition on assignment is ineffective. Bogi Värme thus loses the case and appeals to the Court of Appeal (HovR).
Court of Appeal
Initially, the Court of Appeal states that it shares the TR’s assessment that it is neither a case of unlawful jumping recourse nor non-contractual pure financial damage. The next question to be considered by the Court is whether the claim can be asserted even though the principal claim has not been paid. Since HovR does not find answers in law or practice, it instead seeks guidance from legal literature. According to the Court, the starting point in the literature seems to be that a cover claim can only be asserted when the principal claim has been paid. According to the HovR’s interpretation, exceptions should only be possible in certain cases. However, the court sees no reason to deviate from the general rule and therefore finds that Länsförsäkringar cannot claim the coverage claim before the main claim has been paid by Länna Mark. As a result, Bogi Värme wins the case, which is appealed to the Supreme Court by Länsförsäkringar.
The Supreme Court
The Supreme Court notes that, according to case law and legal literature, it is not required that a claim has been paid in order for it to be assigned to a party who does not have a direct contractual relationship with the debtor. Furthermore, it does not agree with the HovR’s assessment and concludes that in the given situation there is no obstacle for Länsförsäkringar to also demand payment of the claim, at least not because of the assignment itself. The next question to be examined is whether the prohibition on transfer is an obstacle for Länsförsäkringar to claim compensation.
The Supreme Court agrees with TR that claims can generally be assigned. The Court elaborates on the reasoning and states that a creditor and debtor may agree on a valid prohibition on assignment between themselves, but as a general rule this has no effect against the third party who acquires the claim. However, the Court does not rule out the possibility that there may be exceptions in which the prohibition on transfer can also be invoked against the transferee. In this case, it should be possible to make an exception, for example, if Bogi Värme has a legitimate interest in paying to Länna Mark. However, Bogi Värme has not presented any circumstances that indicate that this is the case, which is why the court finds that the prohibition on transfer has no effect on Länsförsäkringar. In conclusion, the Supreme Court agrees with the lower courts’ assessment that it is not a question of jumping recourse or non-contractual pure financial damage. The Supreme Court’s overall assessment is thus that there is no obstacle for Länsförsäkringar to assert the claim, whereupon Bogi Värme loses the case.