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Direct Action against P&I Clubs in Norway - New Supreme Court Decision

In a recent decision, the Norwegian Supreme Court has once again clarified issues related to direct action claims against P&I Clubs. Norwegian P&I clubs provide liability cover for a significant percentage of the world's oceangoing tonnage. Norwegian P&I Clubs must expect direct action in Norway in the event that the assured is insolvent. Foreign interests should be aware of this possibility.
Container Ship Bow

Direct Action in Norway

The starting point under Norwegian insurance law is that a third party may bring a claim for compensation directly against the insurer (direct action).

This right of direct action is mandatory in the event that the assured is insolvent. This means that one may not depart from the right, if doing so would result in the detriment of the injured party.

A practical consequence of the rule enabling direct action claims, is that so-called “pay to be paid” clauses will be held to be invalid if the assured is insolvent and the third party liability claim is brought before a Norwegian Court.

Clearly, the opportunity to file a direct action claim against Norwegian P&I insurers may have significant practical consequences for anyone in dispute with insolvent debtors who have taken out P&I insurance in Norway.

New Supreme Court Decision – The MV “Mineral Libin”

There are prerequisites for succeeding with a direct action claim in Norway, such as insurance defenses, jurisdiction and time bar-issues.

The recent Supreme Court judgement published on 4 February 2020 (HR-2020-257-A) dealt with time bar issues.

The claim arose from a collision in Fangcheng, China, with the vessel MV “Mineral Libin”, which was subject to a chain of charter parties. The charterers had taken out P&I insurance with Skuld, whereas Gard was the carrier’s insurer.

The charterer became insolvent in 2010, and in July 2016, an Arbitration tribunal found the charterer responsible for the carrier’s loss. In September 2016, the carrier took legal steps in Norway to avoid time barring, and then brought a direct action claim against Skuld in February 2017. Skuld rejected the claim, arguing that the carrier had exceeded the limitation period.

The Supreme Court rejected Skuld’s argument that the direct action claim was time barred. The Supreme Court applied the Norwegian Limitation Act, and the question to address was when the carrier received “sufficient knowledge” about the direct action claim.

In the assessment of when the carrier received such knowledge, The Supreme Court referenced other cases, stating inter alia that it is a question of when the carrier “had sufficiently certain information to have reason to bring a claim against … [the debtors] with outlooks of a positive result” (our translation). The court did not give closer guidelines as to the application of this norm by specifying its contents. After close and rigorous assessments of the particular circumstances of the case, the Supreme Court found that the carrier had reached a level of sufficient knowledge about the direct action claim at the latest on 18 November 2015 – when the Master of the vessel gave his statement prior to the arbitration case.

As legal steps were taken in September 2016, less than 1 year later, there was no need for the Supreme Court to discuss whether the limitation period relevant to the direct action claim was 1 year or 3 years after the carrier received sufficient knowledge about the direct action claim.

For more details regarding the background of the MV “Mineral Libin” decision in the Appeal Court, see the article published by Simonsen Vogt Wiig in May 2019.

Our recommendations on time bar issues

The MV “Mineral Libin” case shows that time barring of direct action claims may depend on specific assessments of the particular facts of the case. The term “sufficient knowledge” may cause uncertainties – and thereby time and cost consuming disputes related to the time bar issue alone.

Simonsen Vogt Wiig recommends clients to seek to reach agreements for time extension with the P&I insurers in direct action cases. If this is not possible, we recommend taking necessary legal steps before the limitation period is exceeded.

Even if the P&I insurer disputes the underlying claim or the insolvency-requirement, there is always the risk that the P&I Club later invokes time bar as a ground of defence.

More cases on Direct Action in the Supreme Court in 2020

The Supreme Court has permitted another direct action claim against a Norwegian P&I Club, regarding jurisdiction and the interpretation of the Lugano Convention art 11 “where such direct actions are permitted“, case No. 19-151103SIV-HRET.

This case is not yet scheduled, but we assume that the case will be heard within a few months from now. Meanwhile, see our article about the Court of Appeal decision that is the subject of the next Supreme Court decision on direct action.