Direct Action Claims in Norway – Norwegian courts maintain legal venue for claims against Owners that are joined in legal action against Norwegian P&I Clubs

| Insight

Since 2016, an interesting court battle has taken place in Norway related to the right of direct action, i.e. claims for damages brought directly against the P& I Club. The latest in this ongoing case is a court decision from the Appeal Court dated 23 December 2020, which confirms that in case of a direct action claim against a Norwegian P&I Club, the Owners will have legal venue in Norway, regardless of whether the Owners or the claim have any other connection to Norway than the P&I cover with the Norwegian P&I Club.

The ongoing court action, often referred to as the «Stolt Commitment Case», was commenced in the aftermath of a collision between MV «Thorco Cloud» and MV «Stolt Commitment» outside Singapore in 2015. MV «Stolt Commitment» was owned by a Dutch company, and was flying Cayman Island flag. The vessel had P&I cover with Gard, and the owners of MV «Thorco Cloud» and its managers commenced direct action proceedings against Gard before the courts in Norway. The Owners of MV «Stolt Commitment» were joined as co-defendants in the proceedings. The Thorco companies were domiciled in the Marshall Islands and Germany.

Despite long standing legal practice of the «pay to be paid» clause being set aside and direct action claims being allowed in case of alleged insolvency of the entered member, Gard for some reason chose this matter as a test case. Consequently, Gard and its member have over the last four years been challenging almost all aspects of this matter, including the right of direct action against Gard before the Norwegian courts and whether its member would have legal venue before the Norwegian courts and could be joined in the proceedings against Gard.

Various questions have been heard by both the Appeal Court and the Supreme Court, before it was finally decided in November 2020 that the direct action claim can be brought against Gard before the Norwegian courts, where Gard is domiciled. This question is no longer subject to any appeal. From a practitioner’s point of view, I think it is fair to say that this question has been decided in line with what have generally been deemed to be the legal position under Norwegian law.

However, it should be acknowledged that the court proceedings before the Supreme Court have clarified a couple of issues that did not have any prior clear legal authority. This relates in particular to the question of governing law and the question of insolvency. The latter is probably the most interesting clarification we can take away from the Stolt Commitment proceedings.

The insolvency question relates to whether the courts should rely on the submission by the claimants with respect to the insolvency of the Owners, or if this should be viewed as a procedural question the courts need to decide on in order to allow the direction action proceedings to proceed.  In one of the earlier decisions from the Appeal Court, the court took the view that the question of insolvency was a procedural question, but this position was later overturned by the Supreme Court. This means that the legal position remains that the courts will rely on the submission by the claimants with respect to the insolvency, unless the submission is clearly wrong based on the evidence available at the commencement of the proceedings.

Having lost on all accounts, the only remaining question that is still being challenged by Gard and its member, and is currently pending before the courts, is this; Can the Owners of MV «Stolt Commitment», which is a Dutch company, be sued before the Norwegian courts as a co-defendant in the proceedings brought against Gard?

There is little doubt that the possibility of including the Owners of the vessel in the direct action proceedings have been an important part of the direct action scheme in Norway. The possibility of including the owners in a court action against the P&I Club, without full disclosure on the question of insolvency at the time of commencement of proceedings, has provided the claimants with the possibility of establishing legal venue for substantial proceedings in Norway against the Owners.

To my knowledge, there has until now not been any real uncertainty with respect of this question under Norwegian law. The common take on this question has been that under Norwegian law, the direct action claim against the P&I club will normally provide legal venue for claiming against the Owners as well. However, in the «Stolt Commitment» case, this question has been put to the test.

The legal position taken by Gard and its members appears to be an attempt of escaping the liability scheme established by the 1996 Protocol to the 1976 LLMC. As Norway ratified the 1996 Protocol quite early on, Norway has for a number of years been a favourable jurisdiction for claimants who wanted to invoke the higher limitation amounts, a liability scheme adopted by an increasing number of states over the last years. The Appeal Court has also acknowledged this as a valid reason for Norwegian jurisdiction, and there should be nothing dubious in seeking to invoke a liability scheme that is being ratified by the majority of maritime jurisdictions.

On 23 December 2020, the Appeal Court handed down its decision with respect to this question. The decision was unanimous and clear: The Owners of MV «Stolt Commitment» were deemed to have legal venue in Norway as a result of the direct action proceedings against Gard, and may therefore be sued for damages in Norway.

As all defendants are domiciled within the EEA area (the EU states plus Iceland, Norway and Lichenstein), the legal basis for the question of legal venue is found in the Lugano Convention (equivalent to the Brussels regulation within the EU). The Appeal Court took the view that despite the claim against Gard is an insurance claim, the claim against the Owners is a claim in tort. Therefore, the legal basis for joining the Owners in the proceedings was based on Article 6 No. 1 of the Lugano Convention, and not Article 11 No. 3. Article 6 No. reads as follows:

«A person domiciled in a State bound by this Convention may also be sued: 1. where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings».

The Court therefore had to consider whether the claim against the Owners was sufficiently connected with the claim against Gard, and that it therefore was «expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.» The Appeal Court found that there clearly was sufficient connection between the two claims, and that it would be efficient to join the claims in one court proceeding.

Gard, on behalf of the Owners of MV «Stolt Commitment», argued that the allegation of the Owners being insolvent was not correct, and that the key requirement for a direct action claim against Gard was not present. The argument appears to have been that the claim against Gard was a «bogus» claim, made in order for legal venue to be found against the Owners in a jurisdiction where the higher limitation amounts would apply.

Despite several rounds in the Norwegian courtrooms, the Stolt Commitment proceedings have not changed the concept of direct action proceedings in Norway. Legal action may still be brought against Norwegian P&I Clubs if their member is likely to be insolvent, and such proceedings may include the Owners as well. That having said, it should be noted that the decision from the Appeal Court dated 23 December 2020 has been appealed to the Supreme Court, and the last piece in the Stolt Commitment Puzzle is therefore yet to be laid.