The right to claim deprivation interest in pollution incidents in Norway

Norwegian authorities normally respond to an oil spill or other type of pollution along the Norwegian coast by initiating a state-led operation, often involving significant costs. A recent amendment to the Norwegian Pollution Act has created a statutory legal basis for the authorities, when claiming reimbursement from the owners, to include a claim for so-called deprivation interest as from the time the relevant costs were incurred.

In a white paper published in December 2019, the Ministry of Transport proposed that a statutory deprivation interest rate of NIBOR + 4% per annum should be applied to all clean-up response costs as from the time relevant costs were incurred until the time when the usual interest on late payment (so-called "penalty ­interest") started accruing. The latter is normally 30 days after a written demand for payment.

The proposal for an unqualified right for the authorities to claim deprivation interest on reimbursement claims under section 76 of the Norwegian Pollution Act ("NPA"), would – compared to judicial precedent as developed by the courts – have represented a signifi­cant expansion of the authorities' rights to claim deprivation interest in these types of cases. Whilst the Ministry's proposal was adopted, it contained one significant amendment:, namely that the right to claim deprivation interest is not wholly unqualified as originally proposed by the Ministry.

The "incentive problem" with the original proposal

Unfortunately, there have been several accidents along the Norwegian coast in recent years involving significant oil spills and other types of pollution from vessels, resulting in expensive state-led clean-up operations. Well known examples are "Server" off Fedje in 2007 and "Full City" off Såstein in 2009, both involving significant bunker oil spills and expensive clean-up operations. A main concern with the white paper proposal was the experience from these and other cases that the public authorities were very slow in presenting proper quantified claims to owners, often having to request time-extensions to avoid time-bar. The authorities could arguably be blamed for such delay. However, under the original proposal which contained an unqualified right to claim deprivation interest of NIBOR + 4 % rate, the authorities would have no economic incentives to alter practice by presenting their reimbursement claims in a more expedient fashion.

Qualification of the right to deprivation interest

On 21 May 2021 an amended proposal was therefore enacted by the Norwegian Parliament which entered into force on the same day. The interest rate suggested by the Ministry was enacted unamended in the second paragraph of the NPA section 76. However, instead of giving the authorities an unqualified right to claim deprivation interest in all circumstances, an amended wording was adopted stating that deprivation interest "may" be calculated as from the time the expenses were incurred. This is an important qualification compared to the Ministry's original proposal as the door is left open for owners to argue that no deprivation interest shall apply if public authorities can be blamed for delaying the reimbursement claim.

The preparatory works address the point that public authorities often may be blamed for the prolonged time period before a reimbursement claim is presented, but emphasise that these types of cases are complicated and therefore deprivation interest should normally be allowed, cf. Prop. 87 L (2020–2021) p. 10. However, as also noted, if the time period is short, there is limited need to calculate deprivation interest.

In summary, although owners may still argue that public authorities are not entitled to claim deprivation interest due to prolonged delay in claiming re­imbursement, the adoption of the revisions in section 76 and the background explained in the preparatory works indicate that ­succeeding with such an argument is not straight-forward.

Read our latest articles on Shipping Offshore

  • Shipping Offshore

    2021

    Read our Shipping Offshore Update December 2021

    In this Shipping Offshore Update we seek to address the legal developments relating to the shipping and offshore markets

  • Shipping Offshore, Capital Markets

    2021

    Shipping Boom on the Norwegian stock market

    After a period of strong headwinds, the shipping industry sets course for historic annual results. High demand for goods combined with a lack of supply and a lean world fleet has driven freight rates and shipping shares through the roof.

  • Shipping Offshore, Ocean Industries, Environmental law, Sustainability

    2021

    Decarbonisation in shipping – the EU proposals

    On 14 July 2021 the European Commission published its “Fit for 55” package setting out various legislative proposals to enable the EU to reach its objective to reduce emissions by at least 55% by 2030 (as compared to 1990 levels).