Unfair Contract Terms Directive, Article 3 Unfair Contract Terms Directive, ANNEX I

A standard term in a contract for inspections of a building providing for limitation of liability to a specific amount is not to be considered as unfair, as long as the consumer’s right for a remedy does not become a mere formality.

The plaintiffs bought a house in 2010 for 9 million SEK. Before selling the house to the plaintiffs, the seller agreed with the defendant that the defendant would provide a package of services related to inspecting the house and controlling that it was without defects. In October 2010 an agent of the defendant inspected the building. When the house was sold to the plaintiffs, they took over the agreement between the seller and the defendant. In the general terms of the contract, there was a term stating that the liability of the trader was limited to a maximum amount of 15 times the price base amount which in this case was equal to SEK 636.000. The term, as many of the terms of the above contract, was a standard term developed and provided by the Swedish Building Engineers’ Association.

After discovering a number of defects in the building the plaintiffs filed a claim demanding 1,9 million SEK from the defendant for damages based on the fact that the inspector acted negligently. They also claimed that the liability limitation term of the contract should not apply due to the inspector’s gross negligence or, alternatively, because of the general circumstances.

The court of first instance found that the inspector had acted in gross negligence and therefore the term limiting the liability of the defendant would not be taken into consideration. The Court of Appeal found, however, that the term should apply since the negligence was not gross and additionally the Court did not find any other reason in order to apply 36 § Contracts Act. 36 § Contracts Act states that if a term is unfair with regards to the agreement’s content and other circumstances the term can be either adjusted or be left out.

Is a term valid when it limits the liability of one of the parties to a specific amount?

The Supreme Court, after confirming that the relationship between the parties is a consumer relationship, stated that the services provided by the trader are not regulated under the Consumer Services Act (1985:716). Since the Consumer Services Act does not apply, the Court examined what general contract law principles - as these principles are also expressed in consumer protection laws - may apply in this case.

Inasmuch as the Consumer Services Act does not apply, there is no obligatory provision stating that in case of an agreement for inspections, like the ones in question, the trader may not limit her liability. However, the fact that one of the parties is a consumer must be taken into consideration.

The question became thus whether 36 § Contracts Act may apply. If 36 § Contracts Act applies then a term is either unfair in itself, or otherwise, it may be unfair in combination with other factors.

In order to assess whether the term was unfair in itself, the Court examined 3 § Act (1994:1512) on contract conditions in consumer relationships, which implemented Directive 93/13/EEC. According to this provision, if a term is unfair with regards to the price and other circumstances the Patent and Market Court has the power to prohibit the trader from using this term in the future. In the Directive’s Annex, there are terms that are unfair in themselves. Such terms give the possibility to the trader to either exclude or limit the rights of the consumer in case the trader breaches partially or in whole the agreement. If a trader limits her liability through a contractual term in such a way that consumers’ fundamental rights become a mere formality with no practical meaning then this term is regarded as unfair in itself.

According to the agreement in question, the liability is limited to 15 times the price base amount. Therefore, the right to a remedy which is provided to the consumer is far from being just a formality without practical meaning. Based on these facts, the term providing for the limitation cannot be regarded as being unfair in itself.

Lastly even after assessing all relevant circumstances (such as that the plaintiffs could not protect themselves from a risk for increased costs, that it was actually the seller that had initially ordered the inspection for his own interests, as well as that the plaintiffs did not do what they could have done in order to avoid or at least minimize their risks according to ch 4 para 19 Land Code) there is no reason to regard the term as unfair.

URL: http://www.hogstadomstolen.se/Domstolar/hogstadomstolen/Avgoranden/2017/2017-02-24%20T%203034-15%20Dom.pdf

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The court ruled that there are no sufficient reasons to adjust or disregard a term that limits the liability of the defendant to the amount in question.