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08 August 2018
In a landmark decision(1) the Supreme Court has set aside a Court of Appeal decision which concluded that the Norwegian courts have jurisdiction under the Lugano Convention in a direct action concerning a ship collision in the Singapore Strait.
The proceedings 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 Assuranceforeningen Gard – the protection and indemnity (P&I) insurers of the Stolt Commitment – 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. The question for the Supreme Court 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 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 were domiciled. In other words, the proceedings were a classic example of forum shopping.
In a five-to-one majority, the Supreme Court found that the Court of Appeal had been wrong to establish jurisdiction for the direct action on the basis of Article 2(1) of the Lugano Convention (which provides that a defendant must generally be sued in the courts of its domicile). The majority's reasoning was that matters relating to insurance are exclusively governed by the jurisdiction rules in Section 3 of the Lugano Convention. The main rule in Article 2(1), which is found in Section 1, could therefore not be applied. The majority concluded that jurisdiction is exclusively governed by Article 11(2), which is the jurisdiction provision in Section 3 for direct actions.
It is a requirement for jurisdiction under Article 11(2) that direct action is permitted pursuant to the applicable national law. A choice of law must therefore be made pursuant to Norwegian choice of law rules.
A majority of three judges found that the Court of Appeal had erred in law when considering the choice of law under Article 11(2) and in holding that Section 7-6(5) of the Norwegian Insurance Contract Act is a choice of law rule. The majority found that it was outside the Supreme Court's competency to consider whether the decision could be upheld on a different legal basis and set aside the Court of Appeal's decision. The majority commented that when the Court of Appeal considers the choice of law further, it must consider whether the choice of law follows from another firm rule or, alternatively, from the Irma-Mignon formulae (ie, the test of closest connection). The majority stated that in both instances, the legislature's assumptions as expressed in the preparatory works to the Insurance Contract Act should be given considerable weight.
A majority of four judges did not consider jurisdiction against the Stolt companies, since this depends on there being jurisdiction for the direct action under Article 11(2).
Notably, a minority of two judges found that – assuming that Norwegian law applies – Article 11(2) requires the court to have jurisdiction that the assured is insolvent. This is because the pay-to-be-paid clause in the P&I rules prevents direct action under Norwegian law unless the assured is insolvent. The minority found that, under Article 11(2), the requirement of insolvency in Section 7-8(2) of the Insurance Contract Act is transformed from a substantive requirement to a requirement for jurisdiction.
A minority of one judge found that, if there was jurisdiction for the direct action under Article 11(2), the relevant basis for a joinder of an assured would be Article 11(3). He further commented that Article 11(3) provides the basis for a joinder if this is permitted under Section 7-6(3) of the Insurance Contract Act, which grants a right of joinder only to the insurer being sued in the direct action, not to the third-party claimant.
This decision provides welcome clarification to liability insurers across Europe, as it sets out that Section 3 of the Lugano Convention:
Thus, third-party claimants cannot rely on Article 2(1) in a direct action and can establish jurisdiction only on the basis of Article 11(2).
The choice of law rules to be applied under Article 11(2) have not been finally determined. However, if Norwegian law applies, the assured's insolvency is likely to be a requirement for jurisdiction for a direct action pursuant to Article 11(2).
The third-party claimant's right to join an assured in the direct action has not been finally determined either, but if Norwegian law applies, it seems unlikely that there will be any such right pursuant to Article 11(3).
For further information on this topic please contact Herman Steen, Kaare Andreas Shetelig or Sindre T Myklebust at Wikborg Rein by telephone (+47 22 82 75 00) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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