From signed contract to dispute: five risks that shape your position under Swedish law

A delivery arrives three weeks late. A project manager agrees on a call that the supplier can carry out extra work. Both sides carry on as normal until the invoice arrives and the buyer refuses to pay for work it says it never ordered.

Disputes like this rarely begin in a courtroom or an arbitration hearing. By the time proceedings start, each party's position is already largely fixed by the contract's wording, the records kept during the relationship and the steps taken, or not taken, when things went wrong.

This article is written from a Swedish law perspective by a practitioner in Stockholm. Where it describes Swedish legal rules, it says so. The practical recommendations may be useful in other jurisdictions too, but their legal effect there will depend on local law.

1. Unclear obligations: when the parties disagree about what was promised

If a contract does not clearly define the scope of work, the required standard, delivery times or how risk is allocated, the parties may genuinely disagree about whether there has been a breach at all. A buyer that believes it has a clear claim may end up arguing first about what the supplier actually undertook to do.

Swedish courts interpret commercial contracts by looking for the parties' common intention. They consider the wording, the context, the negotiations and how the parties behaved afterwards. Where the contract is silent, statute or general principles of contract law may fill the gap. For sales of goods, this is the Sale of Goods Act (köplagen).

Unlike English law, Swedish law has no general "parol evidence" rule, which limits reliance on evidence outside the written document. An entire agreement clause carries weight, but it does not necessarily exclude every other source of interpretation.

In practice: set out deliverables, acceptance criteria and deadlines in measurable terms. Allocate key risks expressly rather than leaving them to background law.

2. Undocumented changes: binding, but hard to prove

Swedish law generally does not require commercial contracts, or amendments to them, to be in writing. Oral agreements can be fully binding. The difficulty is proving them.

When a change is agreed in a meeting, on a call or in a brief message, the parties may later recall different terms, such as the price, the scope or whether a deadline moved. Swedish courts assess evidence freely, so emails, minutes and conduct all count. Even so, the party relying on the change will normally have to prove it.

Many contracts require changes to be made in writing. Under Swedish law, this is a strong starting point. A court may nevertheless find that the parties' later conduct set the requirement aside, or created a binding commitment despite it.

Take a hypothetical supplier that carries out additional work after oral approval and invoices it at standard hourly rates. The buyer accepts that the work was done but disputes the price. Without a record of what was agreed, the dispute turns on competing recollections.

In practice: use a simple change-order procedure that records the approver, the scope, the price and the effect on the timetable. Make sure it is used in day-to-day work, not only set out in the contract.

3. Late objections and missed time limits

Three separate mechanisms are often confused:

• Notice of defects (reklamation). Under the Sale of Goods Act, which applies to sales other than consumer sales, the buyer must notify the seller of a defect within a reasonable time after it discovered, or should have discovered, the defect. There is also an outer limit of two years from receipt of the goods, unless a guarantee or the contract provides otherwise. A buyer that misses these limits may lose the right to rely on the defect. These limits do not protect a seller that has acted with gross negligence or in bad faith.

• Contractual notice requirements. Many contracts, including standard industry terms, set their own deadlines and formats for notifying defects, delays or claims.

• Limitation periods (preskription). Under the Limitation Act, a claim is generally time-barred ten years after it arose. The period can be interrupted, for example by a written demand. Contracts between businesses often agree shorter periods.

Late notice does not automatically end a claim. The consequences depend on the contract, the type of transaction and the applicable rules. Outside sales of goods, it is less clear how far a general duty to give notice applies in commercial relationships. A party that stays silent while continuing to perform still risks being treated as having accepted the situation.

In practice: keep a register of contractual notice periods and limitation dates for key contracts. Make one person responsible for sending objections promptly and in the form the contract requires.

4. Proving the loss, not just the breach

Showing that the other side breached the contract is only half of a damages claim. The claimant must also prove the amount of its loss and that the breach caused it. Contractual limitations, such as liability caps and exclusions of indirect loss, may further reduce what can be recovered.
Under the Swedish Code of Judicial Procedure, a court may estimate damages where full proof cannot be provided, or can be provided only with difficulty. This is a safety valve, not a substitute for evidence. A claimant that could have documented its loss but did not should not expect the court to fill the gap.

Consider a hypothetical buyer that proves the components it received were defective. If it cannot separate the extra costs caused by the defects from the costs of its own production delays, its damages claim weakens considerably.

In practice: once a problem arises, record extra costs, internal time, replacement purchases and lost orders as they happen. Keep these records separate from ordinary operating costs.

5. Cost risk: winning does not mean full recovery

In the Swedish general courts, the losing party normally pays the winning party's legal costs, but only those that were reasonably necessary to protect the winner's interests. If each side succeeds in part, costs may be shared or set off. Cost recovery is restricted in small claims. A winning party may therefore recover less than it spent, while a losing party may have to bear its own costs and a large share of its opponent's.

Many commercial contracts refer disputes to arbitration, for example under the rules of the SCC Arbitration Institute. In that case, the tribunal decides how to allocate the arbitrators' fees, the institution's costs and the parties' legal costs, within the framework of the applicable rules. Arbitration is confidential and the award is normally final, with very limited grounds for challenge. It is not necessarily cheaper than litigation.

The choice of dispute resolution forum should therefore be deliberate. It should take into account the likely size of disputes, the counterparty's location, where a judgment or award may need to be enforced, and the need for confidentiality. Many disputes are resolved through negotiation or mediation and never reach a hearing.

Beyond the financial exposure, proceedings take up management time, involve internal witnesses and strain commercial relationships.

In practice: before bringing or defending a claim, assess the realistic outcome, the total cost exposure including the other side's costs, the time involved and the options for settlement.

Priorities for management

• Ownership: assign clear responsibility for administering each significant contract.
• Documentation: record changes, deviations and important communications as they happen.
• Deadlines: track notice periods and limitation dates in a system rather than relying on memory.
• Early assessment: when a disagreement arises, review the evidence, costs and settlement options before positions harden.

A dispute is decided on what can be proven, within the time limits that apply and at a cost the business can absorb. Each of these is shaped in the ordinary course of business, long before external counsel is instructed. Companies that manage their contracts with this in mind keep more of their options open if a relationship breaks down.