New investigation regarding authorities’ power to intervene in ongoing contractual relationships due to alleged threats to national security

The Swedish Protective Security Act (SFS 2018:585) is a piece of legislation which aims to protect information and activities significant for Sweden’s security against espionage, sabotage, terrorist acts, and other threats. On October 27, 2023, the Swedish Government published a committee directive to investigate potential changes to the legislation to enhance control over protected activities and increase the governmental powers to address situations posing a threat to national security. However, the proposed changes will result in legal uncertainty if enacted, as existing contracts deemed a threat to national security may be terminated in advance, and the possibility of compensation for companies suffering damages is unclear.

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New rules on how authorities may intervene in contractual relationships

Under current regulations in the Protective Security Act, a supervisory authority may instruct an operator to change an agreement if the planned procedure is unsuitable from a security protection perspective and falls within the legislation’s scope. However, this does not apply if the agreement was made before December 1, 2021, or if the activity was not sensitive at the time of the agreement. Due to recent changes in the security policy landscape, the government believes there may be a need to amend the legislation to allow state authorities to intervene in contractual relationships falling outside the scope of the current legislation.

New rules on compensation for state interventions

The issue of compensation for those negatively affected by actions taken under the Protective Security Act has been previously discussed in an adjacent government investigation. The conclusion was that compensation should not be provided to those adversely affected because security protection is a crucial public interest, and that extensive interventions leading, for example, to the termination of a contractual relationship and a right to compensation for operators would only arise in a limited number of cases.

The government now believes that it should be explored again whether compensation may be justified in cases where authorities intervene in contractual relationships not covered by the Protective Security Act at the time of the agreement, as these procedures could not have been captured before they commenced, and the contracting parties had no reason to consider security protection issues.

The ongoing legislative process

The Swedish Government has instructed the investigator to present a report by November 29, 2024. Considering the government’s current focus on issues related to Sweden’s security, it is not unlikely that the legislative process may proceed quicker than usual this time. We will monitor the upcoming steps in the legislative process.