Norwegian Court of Appeal strikes another blow against forum shopping in direct action case
In a recent decision, the Court of Appeal held that Norwegian courts do not have jurisdiction under the Lugano Convention in a direct action concerning a ship collision in the Singapore Strait. The decision follows the Supreme Court's decision last year which set aside the Court of Appeal's previous decision which had found that there was jurisdiction.
The proceedings in question arose out of a collision between the "Stolt Commitment" and the "Thorco Cloud" in Indonesian territorial waters in the Singapore Strait on 16 December 2015. Following the collision, the owners and bareboat charterers of the "Thorco Cloud" brought a direct action in Norway against the P&I insurers of the "Stolt Commitment", Assuranceforeningen Gard, and sought to join the owners and bareboat charterers of the "Stolt Commitment" in the direct action.
As both vessels were owned and bareboat chartered by non-Norwegian companies, the only factor connecting the dispute to Norway was the domicile of the P&I insurers of the "Stolt Commitment". The question was whether this was sufficient nexus to establish jurisdiction for the direct action and, if so, whether the direct action could act as an anchor providing jurisdiction for the claims against the Stolt companies which themselves had no connection to Norway.
It was clear that the Thorco companies' objective was to benefit from the higher global limitation of liability limits in Norway compared to the limits in the Netherlands, where the Stolt companies are domiciled. In other words, the proceedings were classic ''forum shopping''.
In May 2018 the Norwegian Supreme Court set aside the Court of Appeal's first decision which had concluded that Norwegian courts have jurisdiction, and remitted the matter back to the Court of Appeal.(HR-2018-869-A, see article published in June 2018)
Court of Appeal decision
The Court of Appeal has now handed down its new decision where it rejected jurisdiction both for the direct action against Gard as well as the joinder of the Stolt companies.
The Court of Appeal found that jurisdiction for the direct action could not be established on the basis of the Lugano Convention Article 2 No. 1, which provides that a defendant shall as a main rule be sued in the courts of its domicile.
In its reasoning the Court of Appeal referred to the Supreme Court's decision, where it was held that Section 3 of the Lugano Convention provides an exhaustive regulation of jurisdiction in matters relating to insurance. Section 3 contains, amongst other, Article 11 No. 2 which is a jurisdiction rule specifically designed for direct actions. The Supreme Court had held that since Article 2 No. 1 is not contained in Section 3, but in the general provisions in Section 1, Article 2 No. 1 cannot be applied in direct actions.
In the Court of Appeal the Thorco interests had argued that Article 2 No. 1 should nevertheless be applied in circumstances where the requirements for jurisdiction under Article 11 No. 2 had not been satisfied. The Court of Appeal held that it followed from the Supreme Court's decision that Article 2 No. 1 could not be applied because Section 3 is an exhaustive regulation irrespective of whether the requirements for jurisdiction in Article 11 No. 2 are satisfied or not.
The Court of Appeal therefore concluded that jurisdiction was exclusively governed by Article 11 No. 2.
It is a requirement for jurisdiction under Article 11 No. 2 that direct action is "permitted" pursuant to the applicable national law. A choice of law therefore had to be made on the basis of Norwegian choice of law rules.
When assessing the choice of law, the Court of Appeal found that Article 18 of the Rome II Regulation on the law applicable to non-contractual obligations could not be applied since Norway is not bound by the Regulation. The court emphasised that it would be a task for the legislator and not the courts to consider whether Rome II Article 18 should be incorporated into Norwegian law. The Court of Appeal instead applied the test of closest connection (the so-called Irma-Mignon-formulae) and on that basis concluded that Norwegian law was applicable.
Since Norwegian law was applied, the Court of Appeal concluded that it was a requirement under Article 11 No. 2 for the courts to have jurisdiction that the assured was insolvent. The reason is that the pay-to-be-paid clause in the P&I rules prevents direct actions under Norwegian law unless the assured is insolvent, see the Insurance Contract Act section 7-8 (2), ref. section 1-3 (2).
It was furthermore found that the claimants' pretensions of insolvency were not sufficient to establish jurisdiction and that the court was required to assess the issue of insolvency in order to decide on jurisdiction. This is in accordance with the opinions by the two Supreme Court justices who addressed this issue in the Supreme Court decision.
The Court of Appeal applied a relatively thorough test when considering whether the bareboat charterers of the "Stolt Commitment" were insolvent. It concluded that there was no insolvency and consequently that there was no jurisdiction for the direct action.
A minority of one of the Court of Appeal justices was of the opinion that it was not necessary for the court to review whether the assured was insolvent in order to decide whether there was jurisdiction under Article 11 No. 2.
The Court of Appeal furthermore held that there was no jurisdiction for the action against the owners and bareboat charterers of the "Stolt Commitment", since there could be no jurisdiction for that action in circumstances where there was no jurisdiction for the direct action against Gard.
The decision is well reasoned and has a clear basis in both European and Norwegian legal sources. It also provides a uniform, cost efficient and commercial-minded interpretation of the Lugano Convention's jurisdiction provisions.
It clarifies that Section 3 of the Lugano Convention is a self-contained and exclusive code governing matters related to insurance, allowing no recourse to the general rules in Section 1 or the special rules in Section 2 unless specifically provided in Section 3.
Thus, third party claimants cannot rely on Article 2 No. 1 in a direct action, and the only possible basis on which jurisdiction may be established is Article 11 No. 2.
The decision has also clarified that there is no jurisdiction under the Lugano Convention for a direct action in Norway against a Norwegian P&I club when the assured is not insolvent.
When considering jurisdiction under Article 11 No. 2, the requirement of insolvency is thus transformed from a substantive requirement to a requirement for jurisdiction.
For the courts to reject jurisdiction when there is no insolvency on the part of the assured, is cost-efficient and sensible since it avoids the unnecessary time and costs of proceeding with the matter on the merits when there are no prospects of the direct action succeeding.
Rejecting jurisdiction in a direct action in such circumstances is also effectively preventing the direct action from acting as an anchor for jurisdiction for the claim against the member when the claim has no relevant connection to Norway.
In cases where there is jurisdiction for a direct action against the P&I insurer, on the basis of the decisions from the Court of Appeal and the Supreme Court, it seems likely that the claimant will have no right to procedurally join the member.
Wikborg Rein is assisting Gard and the Stolt companies in this matter and Herman Steen and Kaare A. Shetelig appeared before the Court of Appeal.