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Implied notice of termination by conduct – Swedish Supreme Court split

Implied notice of termination by conduct – Swedish Supreme Court split

Claude D Zacharias[1]

 0. Introduction

0.1 The Supreme Court of Sweden has in the reported case NJA[2] 2015, p. 188 once again found reason to deviate from the statutory reasoning enunciated by the legislator. Reasons of expediency have again been applied as an overall principle when applying a statute. This judgment is of great interest as it also relates to a business contractual relationship. The formalistic approach adopted by the majority of the court on how the facts in support of the action were formulated represents a warning to all practising lawyers, although the dissenting opinions expressed in the Supreme Court on this particular point do raise doubts about the true scope of the judgment. Moreover, the judgment not only includes a number of other ambiguities but also a fascinating explanation of the requirement for written form prescribed by Chapter 8, Section 8 of the Land Code (Jordbalken – JB).

1. Background

1.1 According to a written agreement drawn up in March 2006, entitled a ‘lease agreement’, the property owner let ten parking spaces on its land to EMAB. The term of the agreement was one year. It may already be mentioned here that leasing land for parking on open land, as was the case here, really constitutes a lease of land for the purpose of facilities.[3] A quarterly charge of SEK 12,750 was payable for the grant. It was stated in the conditions that notice of termination had to be given in writing at least three months before the expiry of the term of the agreement and that the agreement would be extended by one year unless notice terminating the agreement was given on time.

1.2 A supplementary agreement was entered into in December 2006. It was stated in that agreement that SYAB was the new landlord and therefore also took over the former property owner’s position in the tenancy agreement. The extension period for the agreement was amended to three months. The agreement was otherwise to apply on the same conditions. SYAB in its turn leased the property to a subsidiary, although the author disregards this in the following because it is of no material importance to the case or to this article.

1.3 It was observed from the investigation into the case and also, at least in part, uncontested in the case that EMAB did not receive any rent notices after the first quarter of 2007 and that EMAB had stopped using the parking spaces at that time and that nor was any demand for payment presented.

1.4 However SYAB issued proceedings against EMAB in June 2010 and requested compensation for unpaid charges for the period from 1 April 2008 up to 30 June 2010. EMAB contested the application and, as far as is of interest to this article, it is sufficient to mention the primary ground invoked for the agreement having ceased to apply from 1 April 2007, namely that notice terminating the agreement had been given verbally or in any event effected implicitly through the conduct of SYAB.

2. Requirement for written form

2.1 According to the agreement, notice of termination was required to be in writing. It is also prescribed by Chapter 8, Section 8, first paragraph JB that notice terminating a lease of land must be given in writing unless a written acknowledgment of the notice of termination is provided. The judgment of the Supreme Court only focusses on the first paragraph of this provision and it might therefore be considered that this report ought to be restricted to that part of the provision. However, the author considers that there is reason to examine both the first and second paragraphs of the provision for the following reasons:

Notice of termination must be given in writing unless a written acknowledgement of the notice of termination is provided. However, notice of termination must always be given in writing in those cases referred to in Chapter 11, Sections 6 and 6 a. Notice of termination may be served on the party authorised to receive a lease charge on behalf of the landowner.
Written notice of termination is to be served on the party who is sought for the notice of termination. Notice may not be served under Sections 34–38 and 48 of the Service of Documents Act (2010:1932).

2.2 The entire provision, including subsequent provisions, is actually a formalistic rule contained in the Land Code relating to the mode of notice of termination and how such notice is to be served on the recipient, which also applies to other situations lying outside the area of leases, e.g. under Chapter 12, Section 8 JB. Within tenancy law, simple errors in the formal details at the time of the notice of termination have consequently meant just that, that is to say that such notice of termination is consequently deemed invalid because it is formally defective, except where the error involves something that may be categorised more as a mere mistake in statement and the recipient realised (or perhaps even ought to have realised) this to be case.[4] There is already here cause to draw the attention of the reader to the statutory wording constituting ‘abstract legal facts’, which a party does not need to invoke. It is the ‘concrete legal facts’ that are to be attributed decisive importance instead; it is the duty of the court to be aware of and properly apply the statute and applicable statutory provision.

2.3 There was a contractual provision between the parties requiring written form. There is also under the Code an express requirement for written form on the part of the party giving notice, or alternatively on the part of the party given notice if the party giving notice does not do so in writing. So far the rules appear clear and precise in both respects. The issue is thus whether there is reason, in the face of such clarity, to disregard the requirement for written form and if so why.

2.4 EMAB’s action was formulated in the case as SYAB having given notice terminating the agreement through conduct, i.e. implied notice. The issue in the case was consequently first what significance the contractual requirement for written form agreed between the parties thus had in the event of implied notice of termination by conduct and secondly what the Code’s requirement for written form means in this context.

3. Judgments of the lower courts

3.1 The City Court and Court of Appeal reached different conclusions. In brief, the City Court attributed greater weight to how the Parties acted and the concrete legal facts of the case. The City Court discussed the issue of the disappearance of the parking signs, the tenant not having used the spaces, the property owner having used the spaces, the property owner not having sent out rent notices nor having demanded payment before instituting proceedings in the case and also the parties, primarily EMAB, having conducted themselves in line with these circumstances. The City Court therefore found that there had been an implied notice of termination by conduct. Consequently no significance was attributed to either the requirement for written form contained in the agreement between the parties or the clear rules on form contained in Chapter 8, Section 8 JB.

3.2 The Court of Appeal for its part considered, somewhat surprisingly in the opinion of the author, that the circumstances in the case were ambiguous or unclear or not proven. The Court of Appeal therefore did not consider there to have been any implied notice of termination by conduct and consequently granted SYAB's action, thereby amending the judgment of the City Court.

4. Judgment of the Supreme Court

Contractual requirement for written form

4.1 With reference to the parties' agreement, the Supreme Court observes the following, which may be deemed to have constituted established practice for many years:

There is basically no impediment to parties verbally contracting to deviate from a contractual requirement for written form. A verbal agreement [author's italics] concerning something that according to the agreement is required to be in writing must normally be deemed to entail such kind of a deviation.

4.2 An implied agreement should not be confused with express or tacit agreements. A tacit agreement reflects an intention that has not been expressed in the form of, for example, a written document. An implied agreement may instead be characterised more as an agreement confirmed by conduct. The author would like to advance the view that even if implicit acquiescence would usually concern something ongoing, it can hardly exclude spontaneous conduct. The minority at the Supreme Court touches on this and I will revert to this issue towards the end of the article. The Supreme Court states the following as regards the phenomenon of an implied agreement by conduct and its legal consequence:

However if both parties fall into line [author's italics] with a state of affairs that deviates from what was agreed, then this should result in there being a binding agreement through conduct despite non-compliance with the requirement for written form.

4.3 The converse would then be acceptance through passivity or failure to act. The author wishes to emphasise now that the distinction between an agreement by conduct and one through passivity may be subtle and it is therefore difficult to make any clear demarcation between them.

Unilateral legal acts of in the nature of directives

4.4 The Supreme Court then deliberated upon those situations where a contractual requirement for written form cannot easily be disregarded even following a verbal agreement. The Supreme Court mentioned here unilateral legal acts in the nature of a directive The Supreme Court states:

The situation differs when like here the matter involves unilateral acts in the nature of a directive – for example, such acts include declarations of revocation as well as notices of termination. Here the point of departure is that a contractual requirement for written form applies as long as the other party has not accepted the directive becoming effective despite the absence of written form. However, as a rule, the terminating party cannot (e.g. if they change their mind) claim the ineffectiveness of a verbal notice of termination owing to the lack of written form.

4.5 The Supreme Court consequently requires a clear active act, e.g. an express verbal agreement or written agreement in order to deviate from the requirement for written form when attributing validity to unilateral legal acts in the nature of a directive. This also means that the party choosing to give a verbal notice of termination cannot change their mind unilaterally and claim that the notice of termination does not satisfy the requirement for written form if the other party has accepted the situation – as you make your bed, so you must lie in it. However, please note that we are still referring here to a contractual requirement for written form and not an implied notice by conduct.

Notice of termination by conduct

4.6 As regards notice of termination by conduct (implied notice), the Supreme Court makes the same assessment despite the requirement for written form carrying greater weight – 'being attributed certain relevance' – which may be traced to the difficulties in proving not only a particular act but also the subsequent acquiescence to the situation. The Supreme Court even considered that “... nor in such cases can the terminating party generally release themselves from being bound by the notice of termination because the requirement for written form has not been observed”, as long as the other party has accepted the situation.

4.7 The Supreme Court expresses itself indirectly by laying down that – in the event that there was implied notice of termination by conduct – there were no circumstances applicable to the present case whereby [SYAB's] objection regarding non-compliance with the contractual requirement for written form could succeed”. This sentence virtually suggests that there may well have been implied notice of termination by conduct and that EMAB had accepted and subsequently fallen into line with this, and also that this would in its turn provide sufficient cause to ignore in any event the contractual requirement for written form.

The statutory requirement for written form

4.8 With reference to the statutory requirement for written form, the Supreme Court states the following in respect of Chapter 8, Section 8 JB:

This provision covers various forms of land lease, of which some often relate to leases of great social importance to the lessee and considerable financial importance to both parties. A notice of termination of a land lease agreement is therefore often such an important and far-reaching measure that the both parties have an interest in being able to observe that such a legal act has been taken and when it occurred. These factors lie behind the requirement for written form prescribed by the Code (cf. NJA II 1908 p. 106).

4.9 Naturally the author has no objections to this, although the present case involves a commercial contract and outdoor land leased for parking – there is no indication of any relevant social considerations here such as those that would apply in a case concerning, for instance, leases of land for agricultural or housing purposes (cf. Chapters 9 and 10 JB).

4.10 The Supreme Court emphasized, with reference to NJA 1992, p. 829, that also as regards a statutory requirement for written form, a party that issues a directive may not as a rule invoke non-compliance with the requirement for written form to their own advantage. However, the Supreme Court then adopted a special approach, which is difficult to understand, as regards the rules for land leases considering “the special protective interests that may typically arise in a leasehold relationship…”. Here the Supreme Court considers that both parties should “be allowed to invoke the existence of a deficiency in form, regardless of to which of them the inadequacy is referable” (cf. Knut Rodhe, Obligationsrätt [Law of Obligations], 1956, p. 721). Consequently the majority at the Supreme Court concluded that the inadequacies in formal details (i.e. the lack of a written notice of termination or a written confirmation) means that no proper notice of termination had ever been given. The issue of implied notice of termination as a circumstance in support of the action was thus irrelevant. Indeed the Supreme Court states that a deviation may also be made from the statutory requirement for written form, but only then, as can be understood from the reasons for judgment, through an express or tacit agreement.[5] The Supreme Court summaries that stated above as follows:

The requirement for written form contained in Section 8, first paragraph [JB] does not prevent the parties to a leasehold agreement from being able to terminate the agreement without notice of termination, through an express or tacit agreement.

5. Importance of how a party formulates their action

5.1 However, the Supreme Court did not stop at its conclusion in the main issue but presented further reasoning concerning the formulation EMAB’s action. The reason for this can be found in the difference of opinion between the Justices of the Supreme Administrative Court. Here the majority of the Supreme Court adopts a surprisingly formalistic position – form over substance – and states as regards the absence of any concrete legal fact being invoked concerning the existence of an express or tacit agreement:

However, as [EMAB] has pleaded its action, no such agreement has been invoked; the implied notice of termination by conduct invoked relates instead to a notice of termination on the part of [SYAB] […]

6. Conclusions

Requirement to be in writing

6.1 First of all, a deviation may be made from a contractual requirement for written form if the parties agree in one way or another to do so or subsequently by their conduct fall into line with this. However, as regards directives, the party that actively gives – as in the present case – the notice of termination cannot change their mind if the other party accepts the notice of termination despite inadequacies in formal details. This conversely means in other cases that a party may ‘change their mind’ about acts that are not in the nature of a directive. Even if the Supreme Court does not consider this, the ‘right of withdrawal’ also basically appears to be timeless. In the case of a statutory requirement for written form, the situation remarkably appears to be the same, except in cases where social considerations suggest otherwise.

Social considerations

6.2 Sweden is probably one of the leaders as regards consumer law and social policy considerations. The author is also of the opinion that Sweden has gone too far and that social considerations now partially rebound on those for whom such protection was intended. For example, professional inspectors and tradesmen are reluctant to undertake assignments from consumers. Those who do so may not necessarily be the best, which in its turn enhances the risks of deficiencies, etc. The Supreme Court states as a reason for its liberal position in relation to the form for notice of termination that the various forms of land leases constitute an example of cases where social considerations preclude a deviation from the requirement for written form provided one of the parties opposes an assertion by the other that a there is valid notice despite the absence of writing. The author is of the opinion that the only good thing about to be said of this position is that the rule applies both ways.

6.3 The author questions the reasoning of the Supreme Court. Firstly, the requirement for written form is a statutory requirement – either as regards the notice of termination itself or as regards the confirmation of the notice of termination – (an exception applies to leases of land for building where the notice of termination itself must be in writing).[6] Secondly there is absolutely no need to take account of social considerations as regards a lease of land for facilities made between two commercial enterprises and which furthermore relates to parking!. Other forms of leases for facilities include the use of property for storage areas, quay berths or football pitches.

6.4 Certainly the above examples of leases to use property for facilities involve significant economic considerations, but social considerations would surely constitute more the exception than the rule, with the possible exception of football pitches. Therefore, it could hardly have been the intention of the legislator to in this way treat all forms of leases of land alike, in the manner that the Supreme Court has done in its judgment. Moreover, this ‘legislating’ by the Supreme Court's appears even more doubtful considering the inadequacies in its substantive reasoning.

Formulation of the action

6.5 Many years have passed since the author completed his legal training. However, some students may learn from the ‘moots’ currently used by the more modern courts. As far as the author understands, it is only if one gets a place on the civil law of procedure[7] course that this excellent model for the law of procedure becomes fully available. Reference is made to concrete legal facts as being the circumstances in support of the action, which also go under the title of ‘material grounds of action’. The actual legal rules or requisites of such provisions belong to the ‘abstract legal facts’. The latter do not necessarily need to be referred to by a representative; jura novit curia applies here. This means that to the extent that a party delivers the facts that enable the application of a particular legal rule or legal principle, then the court is itself at liberty to apply the rule or principle. What were the concrete legal facts referred to by EMAB? The lower courts have clarified these as follows:

  1. The signage for the parking had been replaced. The author does not consider, in contrast to the Court of Appeal, that the time at which this was done is of critical importance.
  2. SYAB had not issued rent notices to EMAB for a very long time, or demanded payment in any other way.
  3. The parking – as understood by the author – was used by SYAB.
  4. The parties – quite clearly EMAB – had also fallen into line with this situation (i.e. that the agreement had implicitly ceased to apply between the parties).

6.6 If the requirement for written form is not now deemed absolute, and when quite clearly in this case there were no social considerations to take into account, one must question the majority’s formalism as regards the formulation of the action. The circumstance that EMAB chose to gather the facts in support of its action, its concrete legal facts, under the designation ‘implied notice of termination by conduct’ cannot be deemed to preclude the application of another legal rule or legal principle as long as the circumstances justify adopting such a course. Just as little as a heading in an agreement constitutes such an impediment, nor should a party’s choice of collective term (probably adopted or confirmed following the substantive procedural guidance of the City Court) have the effect of precluding the application of another legal principle such as, for example, those concerning ‘tacit agreements’. The minority of the Supreme Court expressed the matter like this:

It may as such be said that the term [an act implied by conduct] is not in this case entirely appropriate. This is true as regards, among other things, the fact referred to by [EMAB] that [SYAB] stopped issuing rent notices (lease charges), which also meant that [SYAB] did not react to the lack of rent payments. This constitutes a phase that extended over time and was not a spontaneous act. However, a critical factor is whether the factual circumstances referred to may mean that the agreement should be deemed to have ceased […]. The situation referred to here shows that [SYAB’s] intention with regard to its action in relation to [EMAB] was that the contractual relationship with [EMAB] should cease in order to facilitate the parking spaces being only used by [SYAB] instead […]

6.7 Thus the minority considered, taking account of the concrete legal facts referred to in the case, that the principle of ‘tacit agreement’ was proven even though it was invoked under another designation. It is unfortunate when the Supreme Court disagrees so much on a question such as this, and it cannot be appealing for a representative to have to try to explain the situation for their client; is it even even possible to do so?

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[1] Advocate and owner of AB Zacharias Advokatbyrå [Zacharias Law Offices Limited]. Translated by James Hurst (Authorised Translator), ELT - English Law Translations.

[2] Translator’s note: NJA - Nytt juridiskt arkiv - a renowned Swedish law report series.

[3] Cf. Chapter 8, Section 1 JB

[4] Cf., for example, NJA 1975 p. 129 and NJA 1978, p. 383

[5] Cf. NJA 2013 p. 632; the party seeking to invoke a tacit agreement, e.g. an intention in conflict with an agreement, has the burden of proof for showing such agreement. This means that the circumstances adduced in support of the assertion of a tacit agreement are to be interpreted as part of the other circumstances.

[6] Cf. Chapter 8, Section 8, 6th paragraph JB and Chapter 11 Section 6 JB.

[7] On the law programme at Stockholm University

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