Right of retention
rejected due to
late claim

According to the Swedish Sale of Goods Act the buyer shall leave the seller a message, a claim for compensation, in case of a faulty delivery, which means that the buyer in one way or another must inform the seller about the exact reason for his dissatisfaction. The buyer telling the seller in general terms why he is not satisfied with the goods is not enough.

General civil law principles state that when a particular action is taken according to an agreement, a quick reaction is needed in order for a buyer to be able to place demands on a seller because of their breach of contract or in order to cancel the agreement. A new Court of Appeal case emphasizes the importance of acting clearly and in time.

The case

A company called Lysande Elektronik developed a program, which was going to be installed on circuit boards for their customer Inspektionssystem. Inspektionssystem was dissatisfied with the delivery and withheld payment. However, no compensation claim was filed until a month after the invoice had been sent.

Also, Inspektionssystem had not commented on all the defects and faults in connection with the delivery. A dispute arose whether Inspektionssystem had the right to withhold payment.

The contractual issue

In the settling of the dispute an analysis of the agreement situation was made. The parties started their collaboration with an oral agreement. According to Lysande Elektronik another agreement with new terms, which the company met, was established after the first agreement.

Inspektionssystem, on the other hand, maintained that only one agreement had been entered into and that the goods delivered lacked important stipulated qualities, which gave them the right to withhold payment.

Word stood against word. None of the parties heard in the case was considered more trustworthy than the other. Therefore, the parties were not considered to have proved that a new agreement had been entered into, nor that a second order had been placed in addition to the oral agreement originally made by the parties.

The contractual issue is of interest since the relation between the two parties in connection with an oral and simple agreement must be assessed according to the rules of dispositive law.

Type of agreement

Since the main part of the assignment referred to the development of a program which was going to be installed on circuit boards the Court of Appeal ruled that the Sales of Goods Act was not applicable because the law does not pertain to agreements where the supplier of an item also shall perform work or some other kind of service, if the service constitutes the major part of his commitment.

Instead, the court established that a general principle within civil law would be that a buyer or a client who wants to invoke claims because of defects or faults must file a compensation claim without unreasonable delay after he has discovered the defect or the fault. The court case thereby confirms that which has been considered for some time as something of a general legal principle: the demand for a compensation claim is generally applicable and not dependent on any explicit support of the law.

Thus, the compensation claim shall be filed without any delay and be precise as to its content.

Outcome of the case

It was considered that Inspektionssystem had failed to file a compensation claim without unreasonable delay since they had not pointed out all the defects and faults in connection with the reception or the delivery and since they had failed to dispute the invoice until a month after they received it.

The holding back of the payment was therefore not considered warrantable and Inspektionssystem was obliged to pay since the compensation claim had not been filed in time. In other words, the result for Inspektionssystem was that they could not use the faulty delivery to support their withholding payment.

The most important circumstances for the outcome of the case were that Inspektionssystem had failed to file a compensation claim without unreasonable delay since the company had neither:

  • Called attention to all the defects/faults in the prototype when they received it, the function of which was to make sure that the coming delivery met the criteria agreed upon, nor
  • Called attention to the defects/faults in connection with receiving the delivery when the company discovered the defects/faults, nor
  • Disputed the invoice until a month after it was received.

Practical conclusions

The court case is interesting since it shows that the obligation to file a compensation claim is general and applicable regardless of the support of the law. As a buyer one should make sure to file a compensation claim as soon as possible after finding defects or faults and also make sure to do it in a precise way.

In other cases, like Inspektionssystem, one might lose one´s right to withhold payment because of the faul.


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