Legal Alert – Supreme Court Revises Its Stance on the Final Settlement of Accounts in Building Contracts (YSE 98) – Debt Collection Affected
In its recent ruling, the Supreme Court has re-examined the final settlement of accounts provided under the General Conditions for Building Contracts (YSE 98). The new ruling would allow a contracting party to initiate proceedings for debt collection in certain situations even before the completion of the final settlement.
Under section 73 of YSE 98, the contractor shall within two weeks of the handover inspection provide the client with an itemised final account of all the matters between the contracting parties that required clarification. The account and the client’s response shall be discussed at the final settlement meeting to be held within a month after the contractor has provided the itemised final account. The parties must present their claims no later than at the final settlement meeting at the risk of forfeiting any claim not presented.
Summary of the ruling
In previous case law concerning this YSE 98 term (KKO 1995:81), an action in court has been considered premature if the final settlement of accounts has not been performed, even though the contract terms do not expressly preclude court proceedings before the final settlement of accounts. The courts have therefore dismissed any case brought up as premature on the merits if the parties have not performed or at least attempted to perform the final settlement of accounts.
In the current ruling (KKO 2017:14), the Supreme Court has revised its earlier interpretation. The Supreme Court considered that the possibility to initiate legal action for the collection of an overdue debt is a fundamental starting point in the Finnish legal system. The contractor would be severely disadvantaged especially in long-term construction contracts if it had to wait for the final settlement of accounts before initiating debt collection litigation for an overdue debt based on the contract. A limitation as significant as this on a party’s right to initiate legal proceedings should therefore be agreed upon expressly in the wording of the general terms.
Implications to your company
The Supreme Court went to rather great lengths to justify issuing a new ruling on this matter. The Supreme Court noted that the facts of this case differed from the previous ruling in the nature of the claim and in the time at which it was made. Based on the reasoning, it would seem that the Supreme Court did not necessarily want to change its stance altogether, but instead only interpret the general terms in a situation where the claim presented by the contractor was overdue and unaffected by future circumstances during the term of the construction contract. However, two dissenting justices seemed to consider this ruling to apply to a significant number of situations during the term of a construction contract and considered the claim premature in line with earlier case law.
This ruling can be seen to provide contractors with the possibility of initiating legal proceedings before the final settlement of accounts has been performed. We would nevertheless advise both contractors and clients to carefully assess the situation at hand before initiating debt collection measures before the final settlement of accounts.
Borenius’ lawyers are available to assist in addressing any questions you may have regarding this client alert. Please feel free to contact any of the Borenius attorneys listed in this alert or those with whom you usually work.