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01 May 2013
The Supreme Court recently handed down a judgment on the Lugano Convention in a case between a Singaporean shipbroker and a Norwegian shipowner. The outcome in the case is surprising and merits attention, given the importance of the convention in relation to jurisdiction and enforcement, issues which often arise in the international business of shipping.
The Lugano Convention 2007 was adopted in 2010 and succeeded the Lugano Convention 1988. The convention regulates questions of jurisdiction and enforcement in international disputes, and is the European Free Trade Association's equivalent of the EU Brussels I Regulation. The convention is treated as lex specialis under Norwegian law and supersedes national legislation should there be a conflict between the two.
A Singaporean shipbroker commenced legal proceedings in Norway against a Norwegian shipowner for non-payment of broker commission. Singapore is not a party to the convention and the dispute had no "adequate connection" to Norway apart from the defendant's domicile.
The central question in the case was whether the convention applies where a claimant not domiciled in a member state commences legal proceedings against a defendant in its place of domicile. The issue was whether the convention could be invoked by a non-member state claimant, notwithstanding general international law principles to the contrary. The Supreme Court was also asked to consider whether an additional requirement of adequate connection between the subject matter in dispute and the convention state where legal action is being taken (ie, Norway) is required under the convention.
Three of the five Supreme Court justices held that this requirement is necessary for the purposes of the convention. As a result, the convention did not permit the Singaporean shipbroker to invoke jurisdiction in Norway.(1) The two justices in the minority concluded that the convention's primary principle – that legal proceedings should be initiated against a party in the country of its domicile – should prevail. This principle was also considered to be beneficial for defendants generally. The minority further argued that case law from the European Court of Justice (ECJ) and the opinions of European legal scholars(2) support the view that the claimant's domicile is irrelevant. Relying on the wording of the convention and the need for certainty, the minority held that there is no absolute requirement that the claimant be domiciled in a member state.
The majority disagreed, arguing that an international convention cannot establish rights for non-member states (or their citizens). It was felt that the equality of arms between litigating parties would be overridden if one party could initiate legal proceedings under the convention, while the other party was limited to bringing a claim in the opponent's national territory. The majority further disagreed that allowing defendants to be sued in their place of domicile would generally be beneficial to defendants.
To support its view, the majority relied on national sources of law, such as the Norwegian preparatory works, legal theory and case law. It circumvented two clear ECJ decisions that supported the minority's view by arguing that, in those cases, the subject matter in dispute did in fact have an adequate connection with the member state. The justices argued that the requirement of an adequate connection is not an additional requirement, but merely a part of the natural interpretation process of the convention itself.
Following the Supreme Court decision, the dispute was sent back to the Court of Appeal for further consideration. Although the Supreme Court held that the convention was inapplicable, it specifically directed the Court of Appeal to take into account the general rule under Norwegian law that a claimant may initiate proceedings against a Norwegian company at the place of the company's domicile in Norway. However, what may have been overlooked is that the Civil Procedure Act contains an express requirement that in order to find jurisdiction in Norway, the case must have an adequate connection to Norway.
This Supreme Court judgment advances an interpretation of the convention that is contrary to current ECJ practice and European legal theory. In recent years, the ECJ has sought to apply the convention widely to cases where the claimant is domiciled in a non-member state. This may in part be influenced by widespread criticism from legal scholars against courts which seek to limit the application of the convention.
Norway's contribution to the debate places it in opposition to the approach being taken in Europe. This is unfortunate because it runs contrary to the principle expressed by the ECJ that "it is settled law that as far as possible, the Court of Justice will interpret the terms of the Convention autonomously so as to ensure it is fully effected" and "the concept used in the Convention…must be interpreted independently by reference principally to the system and objectives of the Convention".(3)
This decision is surprising because it does not appear to recognise some important considerations on which the fundamental rule of autonomous interpretation is based, such as:
In this case, the Supreme Court meticulously distinguished ECJ judgments in order to arrive at a conclusion that appeared to be contrary to the spirit and intention of the convention. This came as a surprise to many who question the reasoning and outcome in this decision. It remains to be seen what approach the Supreme Court will seek to take in future cases concerning the convention.
In the meantime, industry insiders should take note that it may be necessary to seek Norwegian legal advice on whether a claim has jurisdiction in Norway when the claimant is domiciled in a non-member state. This will be of particular importance in relation to claims which are not governed by jurisdiction clauses and are not secured by guarantees, such as various service commissions and other third-party contractual claims. Taking into account the significant activities of Norwegian shipowners and others in Asia in particular, the judgment yet again shows the importance of seeking to regulate jurisdiction in contractual arrangements in order to secure predictability should a conflict arise.
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