Marine Insurance | The Norwegian Supreme Court clarifies the rules on jurisdiction in direct actions against marine insurers

The Supreme Court ruling (3-2) adds a chapter to the ongoing procedural law saga that is the Stolt Commitment-case. The new ruling clarifies the scope of article 11 no. 2 of the Lugano Convention on jurisdiction for direct action claims against marine insurers, but leaves further questions to be answered.


In its ruling on 24 June 2020 in HR-2020-1328-A (Stolt Commitment II) the Norwegian Supreme Court held (dissent 3-2) that Norwegian courts have jurisdiction over direct actions against Norwegian marine insurers on the basis of such direct actions being generally permitted under Norwegian insurance law, cf. article 11 no. 2 of the Lugano Convention. In doing so, the Supreme Court overturned the ruling of the Agder Court of Appeal which had held that jurisdiction pursuant to article 11 no. 2 of the Lugano Convention requires a direct action to be specifically permitted (i.e. in the specific case) in order for Norwegian courts to have jurisdiction.

The question of whether article 11 no. 2 concerns generally or specifically permitted direct actions, has been left unanswered since it was first raised by the Supreme Court’s decision in the Leros Strength (HR-2001-507) and this new decision provides a much needed answer.

The decision is of wide-reaching interest as article 11 no. 2 of the Lugano Convention is identical to article 13 no. 2 of the Brüssels I Regulation. Further, the decision provides for yet another round in the Court of Appeal concerning the possibility of joining the insured shipowner to the direct action proceedings.

The facts of the case

The chemical tanker “Stolt Commitment” and the cargo vessel “Thorco Cloud” collided in Indonesian territorial waters in the Singapore Strait on 16 December 2015, resulting in the sinking of Thorco Cloud and six crew fatalities. Stolt Commitment suffered limited damages and was put back into service after repairs.

Both vessels were owned by non-Norwegian companies, and on bareboat-charters to non-Norwegian entities. Thorco Cloud was insured by Standard Club Europe Ltd., as P&I insurer, and Mitsui Sumitomo Insurance Co. Ltd., as H&M insurer. Stolt Commitment was P&I insured by Assuranceforeningen Gard, domiciled in Arendal, Norway.

The owners of the Thorco Cloud brought direct action proceedings against Gard before the Arendal District Court and then sought to join the assured Stolt companies to the proceedings. An apparent motivation for bringing a suit in Norway was to benefit from the higher global limitation limits under Norwegian law as opposed to the applicable limits in the domicile of the assured Stolt companies and Indonesia.

The Norwegian law backdrop and the Court of Appeal decision

Jurisdiction in matters relating to international insurance is provided for in the Lugano Convention. The key finding of the Supreme Court in Stolt Commitment I (HR-2018-869-A) was that jurisdiction in insurance matters subject to the Lugano Convention is exclusively governed by Section 3, meaning that any basis for jurisdiction must be found within that section.

The claimant in the case, owners of the Thorco Cloud, argued that the Norwegian courts had jurisdiction pursuant to article 11 no. 2 of the Lugano convention, cf. article 9 no. 1 (both articles contained in Section 3 of the convention). Article 9 no. 1 and article 11 no. 2 reads:

“Article 9

    1. An insurer domiciled in a State bound by this Convention may be sued:
      (a)  in the courts of the State where he is domiciled;[…]

Article 11

    1. Articles 8, 9 and 10 shall apply to actions brought by the injured party directly against the insurer, where such direct actions are permitted.” (Our underlining)

To establish Norwegian jurisdiction over a direct action pursuant to the Lugano Convention the court must accordingly consider whether “such direct actions are permitted” under Norwegian law. Generally, direct actions are permitted under Norwegian insurance law, cf. the Norwegian Insurance Contracts Act 1989 (the “ICA”) § 7-6.

However, ICA § 1-3 allows marine insurers to contract out of the otherwise mandatory direct action provisions of the ICA. All major Norwegian P&I insurers have utilised this liberty to the maximum extent, cf. Gard Rule 90, Skuld Rule 47 and NHC Rule 59. This means that – by virtue of the “pay-to-be-paid” rule – there is as a starting point no direct action right against Norwegian P&I insurers.

There is however an important “exception from the exception” that P&I insurers can contract out of direct actions; and that is when the assured is insolvent. If the assured is insolvent, the injured third party may pursue a direct action against a marine insurer regardless of the “pay-to-be-paid” rule, cf. ICA § 1-3 second paragraph cf. § 7-8 second paragraph which reads:

In the event that the Assured is insolvent, the provisions of sections 7-6 and 7-7, cf. section 8-3, second and third paragraphs, shall apply.

This issue raises the point of whether the Norwegian courts – to establish jurisdiction for direct actions under article 11 no. 2 of the Lugano Convention – are to consider direct actions being generally permitted or specifically permitted (i.e. permitted in the case at hand). The issue is of practical significance because if the former approach is taken, the insolvency requirement becomes a substantive issue (considered following an oral hearing on the substantive merits of the case) without consequence to the (procedural) jurisdiction issue, whereas if the latter approach is taken the insolvency requirement becomes a procedural issue (normally considered in writing at the outset of the proceedings) which determines jurisdiction. This was the issue granted leave of appeal to the Norwegian Supreme court.

The Supreme Court’s decision

By a narrow majority (3-2) the Supreme Court held that the requirement “where such direct actions are permitted” must be understood as referring to the permissibility of direct actions generally. As direct actions are generally permissible under Norwegian law, the Supreme Court allowed the appeal and sent the case back to the Court of Appeal for renewed consideration.

In considering the proper construction of article 11 no. 2 the majority found that the wording of the convention in its various languages provided no decisive answer as to whether the provision referred to direct actions being generally or specifically permitted, but that the convention wordings, in the majority’s opinion, tended towards direct actions being generally permitted.

Having considered the different wordings of the convention the majority turned to consider Norwegian case law as well as case law of the Court of the European Union and domestic courts in the member states, finding that no case law addressed the issue directly and otherwise giving limited guidance.

The wording and case law not providing a clear answer, the majority put decisive weight on the purpose of the provision in strengthening the position of the assumed weaker party, being the third party having suffered loss or injury. The majority further considered that an approach whereby article 11 no. 2 is understood to concern direct actions being generally applicable, was most aligned with the purpose of the provision. Further, the majority put considerable emphasis on this solution being aligned with the primary rule under Norwegian procedural law that for procedural purposes a claimant’s allegation that a substantive requirement is fulfilled is sufficient (even if by mere pretence), cf. the Norwegian Courts of Justice Act section 36.

The minority (including justice Normann who wrote the majority decision of the Supreme Court in Stolt Commitment I) found that article 11 no. 2 predicates the direct action is permitted in the specific case.

Whilst agreeing with the majority in the wordings of the convention not providing a clear answer, the minority considered that the judgements of the Danish Supreme Court in Assens Havn and the English Court of Appeal in Keefe supported the argument that the injured third party must have a substantive right to bring a direct action in the specific case. In the further view of the minority the purpose of the provision is to channel direct actions to jurisdictions where the substantive case against the insurer can be heard also supported the view that article 11 no. 2 concerns direct actions that are specifically permitted. Lastly, the minority emphasised the likely adverse effect the majority’s approach may have on the (non-Norwegian domiciled) assured as well as the resulting competitive disadvantage for the Norwegian P&I Clubs which was an express reason why P&I insurers were given the ability to contract out of otherwise mandatory direct actions in the first place.

Our remarks

On its face, it is not surprising that an insurer domiciled in Norway, providing insurance subject to Norwegian law and jurisdiction, can be sued in Norway. The material outcome for the P&I Club (in a narrow sense) will be the same whether the insolvency requirement pursuant to ICA § 7-8 second paragraph is considered as a procedural or substantive issue. The fact that the claimant can allege for procedural purposes that a substantive requirement is fulfilled (even by mere pretence) is indeed the primary rule under Norwegian procedural law in which legal costs liability is viewed as the primary means for preventing groundless lawsuits. As such, the decision fits well with the primary approach and system under Norwegian procedural law.

Whilst the decision is in harmony with Norwegian procedural law in general, it seems hard to reconcile with the foreign body of law on direct actions relating to the Brussels I Regulation, such as the decision of the Danish Supreme Court in Assens Havn and the English Court of Appeal in Keefe. Nor is the decision necessarily in harmony with its own decision in Stolt Commitment I. The minority opinion’s concerns regarding the difficulty in defining the scope of what is “generally permitted” and the negative consequences of permitting a direct action on this basis may have on the (non-Norwegian domiciled) assured, also holds substantial merit in our opinion. The narrow majority’s failure to materially address these concerns makes the strength of the majority decision in the future interesting to follow. This is further emphasised by the decision also being at odds with the minority decision in Stolt Commitment I (the minority being the only justices then addressing the issue).

The true and primary issue in the Stolt Commitment saga however; the joinder of the assured, remain unsolved. Indeed the joinder issue is now brought to the very forefront as the only remaining issue to be decided. There is little doubt that if the Norwegian courts allows for the joinder of the assured, such joinder may have a severe negative effect on Norwegian P&I Clubs as it effectively would mean that a member of a Norwegian P&I Club can be sued in Norway. Given the higher limitation fund limits in Norway that could prove costly for the Norwegian clubs. Accordingly the upcoming round in the Court of Appeal will be followed closely.

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