Recent ruling from the Supreme Court regarding claims against previous intermediaries

| Insight

The Norwegian Supreme Court issued a ruling on the 27 November 2018 in a case about a construction contract, whereby the court provided a certain clarification in relation to the opportunity to file claims against previous intermediaries based on non-statutory law.

Claims against previous intermediaries

In a contractual relationship, claims usually have to be directed towards the contracting party, whom then will have to direct a claim to their intermediaries in the sales chain. However, if the contracting party is insolvent or for other reasons are not able to fulfill its contractual obligations, one might wish to file a claim directly towards the contracting party’s intermediaries in the sales chain. Certain types of contracts have provisions setting out the opportunity to direct such claims.

In addition, the court has in some cases allowed such claims, based on non-statutory law. In general, such rulings have been based on case-specific reasoning in connection with the given area of law. Consequently, there is no general non-statutory rule allowing claims against previous intermediaries.

Facts of the case

The question presented for the Supreme Court was whether or not a contractor was allowed to file a claim directly against the suppliers of the contracting party. A contractor and an architect entered into a contract regarding consultancy services in connection to a rehabilitation project in Oslo. The contract was made on a standard format, NS 8402, a standard where claims against previous intermediaries are not regulated.

Thereafter, the architect entered into an oral agreement with two additional suppliers. The suppliers were also invited as site managers within their respective fields, being electricity and sanitation. The agreement to act as site managers was also made orally.

The architect was taken under bankrupcty proceedings on the 11 April 2014. None of the claims filed in the bankruptcy estate was paid.

The entrepreneur claimed that the architect and his suppliers were liable for breach of contract when carrying out their counselling services. Given that the architect was under bankruptcy proceedings, the entrepreneur directed his claims against the two other suppliers. The suppliers generally contested the grounds of the claims, while they also denied that claims could be made towards them, as they were not part of a contract with the entrepreneur.

The majority’s grounds for the judgement

The question before the Supreme Court was whether or not the entrepreneur could direct his claims towards the suppliers, based on non-statutory law.

The majority started by giving a thorough study developing trends in the field of construction and contract law from 1976 up until 2018. The majority called attention to a slight development towards accepting claims against previous intermediaries. However, the majority also pointed out that there were relatively few cases, over a long period of time, from different areas of law and the reasoning in each case depended heavily on the specific circumstances in each case which gave room for claims against previous intermediaries.

The majority also found that there were not sufficient evidence to develop a general non-statutory rule regarding claims against previous intermediaries in contractual relationships, especially since there are a comprehensive set of standard-form contracts to choose from, including contracts where claims against previous intermediaries are accurately governed. The majority interpreted this as an indication that the industry needed to govern the opportunity for claims against previous intermediaries through contractual provision.

The majority consequently concluded that claims could not be directed towards the suppliers, based on inter alia that professional parties are responsible themselves for regulating such an opportunity.

The majority also compared the situation to an earlier Supreme Court case, cf. Rt-1998-656, where a claim against a previous intermediary was accepted because the intermediary were in a «special position».

Contrary to the situation in that case, the suppliers were not in such position towards the entrepreneur. All contracting parties acted in accordance with the contract chain, i.e. the invoice cascade was followed in accordance with the underlying contracts. Up until the opening of bankruptcy, the entrepreneur directed all claims towards the contracting party, not the suppliers. This supported the majority’s decision not to allow the entrepreneur to direct claims against the suppliers.

The majority also emphasized that allowing claims against the suppliers in this case would constitute a supplementing of the contract, imposing obligations onto someone that is not part of the contract and which, at the time of agreement being concluded, could not be included on the back of legislation. Imposing obligations onto someone who is not a contracting party, required a higher threshold compared to cases were supplementing of the contract only imposed consequences for the contracting parties. It is worth noting that such reflections might also be relevant when considering claims against previous intermediaries in contractual relationships in other areas of law.

An aspect in favour of allowing claims against previous intermediaries was that a negation could potentially give the suppliers a random advantage in a situation where the suppliers were in fact liable for the claim, but was free from such due to the bankruptcy of the contracting party. However, the majority found that this did not change the underlying reasoning that professional parties are ultimately responsible for the choice of clauses, and in this case, the choice of a standard form contract not regulating claims against previous intermediaries.

Short comments regarding the minority’s ground for the judgement

The decision of the Supreme Court was given with dissenting opinion. The minority found that the entrepreneur could in fact file the claims against the suppliers.

The minority of judges based such a conclusion on a broad assessment of the pro’s and con’s. The minority did not deem it decisive that the parties’ choice of contract did not mention claims against previous intermediaries, due to the fact that the parties chose the contact based on the payment mechanism set out therein.  Furthermore, the minority found that when a subject matter is not mentioned in the agreement, such as the case were here, the court must look to the legislation. The minority supported the majority’s understanding that there had been a slight development towards accepting claims against previous intermediaries. In considering the pro’s and con’s of accepting claims against previous intermediaries, the minority noted that such need for directing such claims were most prominent in situations where the contracting party is bankrupt or under liquidation. In addition, the minority pointed to the fact that the technical matter of settlement and the consideration of litigation costs were also in favour of allowing claims to be filed directly towards the suppliers. It was noted that a decision to determine whether services rendered are faulty or liability inducing would be best determined in cases where the previous intermediaries – which are claimed to be the responsible ones – are directly participating.

Summary

Despite being a dissenting decision, it is clear that the applicable law is found in the grounds given by the majority of judges. However, even though the majority gave a detailed review of the relevant legislation and case law and concluded that claims against previous intermediaries may not be made, it seems evident that the question does give rise to some uncertainty. It is worth noting that some construction contracts involving professional parties, such as «NS 8407», does allow the principal on certain terms pursuant to section 47 to direct their claim against previous intermediaries which are not mentioned in the contract itself.