Thommessen's dispute resolution team rings in the Christmas season by summarizing highlights in dispute resolution and arbitration from the fourth quarter (October up to December 10). During this period, Thommessen has been involved in three cases for the Supreme Court. You can read more about these cases and several other news items in this newsletter.
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The Supreme Court clarifies the meaning of "sudden physical damage" as a condition for cover in non-life insurance
On 7 November, the Supreme Court rendered a judgment that clarifies the meaning of a commonly used condition for cover in non-life insurance, namely the requirement of "sudden […] physical damage". The widespread use of this condition means that the Supreme Court judgement will be of significant practical importance.
The Supreme Court confirmed that the condition entails a requirement that the damage occurs suddenly. When and how the damage became visible and was discovered by the insured, is, in principle, of no importance with this wording. The Supreme Court also stated that physical damage occurs when the insured object becomes physically altered in a detrimental way.
Physical damage may often have occurred well before it is discovered, and the damage will typically develop and increase during this time. This was the situation in the case put before the Supreme Court. In this case, the damage to a power plant had begun to develop several decades before its discovery. The Supreme Court therefore concluded that the damage was not "sudden" and acquitted the insurer.
The Supreme Court's result may entail an unpleasant surprise for policyholders that discover damage long after its initiation, because the damage may appear as sudden for them. However, the Supreme Court's decision means that insurance cover is unavailable in such cases. The result is in line with long-lasting practice from the lower courts and the Norwegian Financial Services Complaints Board. From the insurers' point of view, the reason for including this condition for cover is to avoid liability for damage which the policyholder may in principle prevent himself.
Thommessen represented the insurer that was acquitted in full, in all three court instances.
Prohibited evidence concerning attorney-client privileged correspondence
In a recent ruling handed down on 23 October, the Supreme Court determined that a shipowner could not require access to correspondence that the counterparty had with its subcontractor, as this correspondence was related to an attorney's legal assignment.
The underlying dispute concerned the supplier's liability for defects following the delivery of seals for propulsion systems in ships. The supplier contended that the fault was due to its subcontractor. In this context, the shipowner requested access to the supplier's correspondence with the subcontractor regarding the dispute between them. This correspondence had a certain connection to an attorney's legal assignment and advice.
The rules on prohibited evidence given in Section 22-5 of the Norwegian Dispute Act pertains to professional confidentiality and stipulates that the courts cannot accept evidence from, among others, attorneys regarding "something that was confided to them in their professional capacity". The Supreme Court noted that this rule on prohibited evidence is given a broad scope according to Norwegian case law. The starting point is that "everything the attorney obtains or gains access to on behalf of the client in the course of his profession and as part of a client relationship" falls under this rule on prohibited evidence concerning attorney-client privilege.
This ruling essentially clarifies two key points:
- Correspondence "related to a legal assignment is, as a general rule, covered by the prohibition of evidence regardless of the matter to which the correspondence pertains or the purpose the client has for contacting the attorney."
- Further, it is "not decisive whether the attorney was the sender or the recipient, as long as the correspondence regarding the recourse claim had a connection to the legal assignment."
In other words, attorney related correspondence is confidential and in general covered by the rules on prohibited evidence, irrespective of the matter to which the correspondence relates. The prohibition may also encompass correspondence that the attorney did not personally send or receive, as long as it has a sufficient connection to an attorney's assignment for a client.
The prohibition of evidence concerning attorney-client privilege is extensive in order to safeguard the confidentiality between attorney and client, without the risk of anyone peering into the client's affairs.
Thommessen partners Henrik Hagberg and Henrik Møinichen have published a scientific paper about this topic in Lov og Rett No. 1, 2023. To address this topic, the article is focusing on attorney's involvement in connection with written witness statements, expert reports, commercial agreements, and emails with attorneys "in copy".
State Aid: The Supreme Court examines municipal economic activities
On November 7, 2024, the Supreme Court delivered a judgment in case between Frogn Municipality and three fitness centers, which sued the municipality for violating the state aid rules in the EEA Agreement. The case raises several interesting questions, including the scope of existing support schemes, the application of the so-called market economy operator principle (i.e., whether actions taken by the public sector are made on market terms), and the interpretation of the conditions in Article 61(1) of the EEA Agreement.
State aid, defined as an economic advantage granted directly or indirectly by the state or municipality to one or more private enterprises, is illegal if all conditions in Article 61(1) of the EEA Agreement are met, but there are several exceptions. Compliance with the state aid regulations is monitored by the EFTA Surveillance Authority (ESA), which, as a general rule, must also approve the allocation of new aid.
The fitness centers claimed that Frogn Municipality had granted illegal state aid to Bølgen Fitness Center, which is organized as a municipal enterprise. Bølgen fitness center had been incurring losses for several years and received more than NOK 10 million in operating grants from Frogn Municipality between 2021-2022.
The Supreme Court concluded that the operating grants were not given under an existing support scheme predating the EEA Agreement, which would have provided grounds for an exemption from the requirement for approval from ESA. Therefore, the grants had to be assessed against the criteria for state aid in Article 61(1) of the EEA Agreement.
The Supreme Court found that all the conditions for illegal aid were met, except for the condition that an economic advantage must have been conferred. The municipality's argument that this condition was not met was new to the Supreme Court, while the Court of Appeal had assumed that the condition was satisfied.
The Supreme Court was divided into a majority and a minority. The majority of four judges held that there was insufficient evidentiary basis to make a substantive decision on the question of economic advantage, and that it was most prudent for the new argument to be first assessed by the Court of Appeal. The minority held that the Court of Appeal had adequately addressed the condition regarding economic advantage and that it could be established that this condition was also met. In line with the majority's assessment, the Supreme Court set aside the Court of Appeal's judgment.
Intellectual property: The Supreme Court concludes the "apixaban" case
The Appeals Committee of the Supreme Court decided 4 November that there was insufficient reason to hear the appeal against the Court of Appeal's judgment in the so-called "apixaban" case.
Thus, the judgment from the Court of Appeal on 3 June in the case between Teva Pharmaceutical Industries Ltd. and Teva Norway AS ("Teva") and Bristol-Myers Squibb Holdings Ireland Unlimited Company ("BMS") stands. Thommessen represented BMS before both the Court of Appeal and the Supreme Court.
The case concerned the validity of BMS's Norwegian patent NO 328 558 ("NO '558") and the supplementary protection certificate SPC/NO 20110021 ("SPC/NO '021"), which protects the active ingredient apixaban. This active ingredient is part of BMS's drug Eliquis, used for the treatment and prevention of blood clots.
In 2022, Teva had sued BMS, claiming that the patent NO '558 was invalid due to lack of inventive step and illegal amendments. Teva also claimed that SPC/NO '021 was invalid because the base patent was invalid. Teva argued that the patent lacked inventive step because, inter alia, the technical effect of the invention was not sufficiently demonstrated in the patent application. Teva's basis for claiming SPC/NO '021 was invalid was limited to the argument that the base patent was invalid.
The Court of Appeal found that the requirements for demonstrating technical effect in the application are not particularly stringent. The requirement is that it must appear credible to a person skilled in the art, based on the application, that the claimed technical effect of the invention is achieved. The Court of Appeal then assessed what a person skilled in the art would derive from the application based on general knowledge in the field. The Court of Appeal concluded, among other things, that the technical team would likely consider apixaban to be a potent and selective factor Xa inhibitor based on the application, combined with general knowledge in the field, and that the application contained more than sufficient information to rely on this technical effect in the assessment of inventive step.
The Court of Appeal concluded that both the patent and the SPC were valid, and the appeal was therefore dismissed.
Insurance: When does an employee have a right to occupational injury compensation - and how shall the compensation be calculated?
The Supreme Court has recently issued two decisions that shed light on important aspects of when claims for occupational injury compensation arise and how such compensation shall be calculated.
Judgement 1: Injury from a fall at the workplace was not an occupational injury
On 29 October, the Supreme Court rendered a judgment in a case concerning whether an elevator technician was entitled to occupational injury compensation for an injury sustained after falling and hitting his head on a concrete floor at work. The Supreme Court concluded that the incident could not be considered a "work accident" that would entitle the technician to occupational injury insurance. Therefore, the insurance company was acquitted.
The elevator technician did not remember the incident, but believed it was most likely that he had tripped over a re-bar and then fallen at the concrete floor. However, the insurance company argued that it was more likely that he had fainted and then fallen without any external influence. The Supreme Court concluded that fainting was the probable cause of the fall.
Pursuant to Section 11 of the Occupational Injury Insurance Act, the insurance covers "injury and illness caused by a work accident." The question was whether the technician's fall was a "work accident." The insurance company argued that the term "work accident" should be understood in the same way as in the National Insurance Act, which requires an "external event" for an injury to be classified as a "work accident."
The majority of the Supreme Court concluded that a fall caused by fainting is not a "work accident" because an external influence is required. The Supreme Court further stated that the legislative history of the Occupational Injury Insurance Act indirectly excludes falls on flat surfaces. The majority emphasized that the main purpose of the law is to prevent work accidents, which implies that an external influence must be present for a fall to qualify as a "work accident." The minority, consisting of one judge, concluded that there was no requirement for external influence and that a fall caused by the employee fainting therefore constituted a "work accident."
Judgement 2: ON the calculation of occupational injury compensation
On 29 November, the Supreme Court issued a judgment in a case concerning what constitutes the "settlement date" in Section 2-3 of the Regulation on standardized compensation under the Occupational Injury Insurance Act. The Supreme Court found that the settlement date should be the date of the Supreme Court's judgment, not an earlier date of the insurance company's unilateral insurance payment as the insurance company claimed.
A highly paid employee was entitled to occupational injury compensation for lost income and future loss of income. He had worked as a helicopter pilot and, as a result of his work, developed tinnitus and hypersensitivity to sound. He became disabled and had not worked since November 2016. In April 2019, the insurance company paid a standardized compensation of NOK 1,947,231 to establish a cut-off point between past loss and future loss of income.
The starting point under Norwegian law is that the employee is entitled to full compensation for lost income and future loss of income. The regulation contains specific rules for calculating compensation under the Occupational Injury Insurance Act. According to the Section 2-3 of the regulation, compensation for lost income up to the "settlement date" is determined individually, while compensation for future loss of income is determined on a standardized basis. The choice of settlement date is important because standardization can lead to less compensation for high-income earners. This is because the earlier the cut-off point is set in the process, the shorter is the period of individual loss calculation. For the employee, the difference between the payment date and the judgment date amounted to a significant sum.
The Supreme Court noted that the starting point under general tort law is that the settlement date is the date when the parties agree on the settlement or the judgment date. The question was whether Section 2-3 of the regulation provides for a different system. The Supreme Court's conclusion was no. Consequently, the settlement date was the date of the Supreme Court's judgment, not the date of the unilateral payment from the insurance company.
Financial contract law: Mortgage borrower is not objectively liable for the content of the loan application
On October 18, the Supreme Court ruled that a mortgage borrower is not objectively liable for the content of a loan application. For the bank to be able to terminate a loan agreement based on incorrect information in the loan application, the bank must be able to prove that the customer himself has knowingly withheld or falsified information or documentation.
The bank had granted a mortgage to a consumer who had used an intermediary to submit the loan application. The bank later discovered that incorrect information had been provided in the loan application, and that falsified documentation had been submitted. The bank terminated the loan agreement, making the entire loan amount due. The customer did not pay the total amount and did not make any payments on the loan. The bank demanded a forced sale through the courts and won in both the District Court and the Court of Appeal.
The Court of Appeal assumed that the customer is objectively liable for incorrect information in the loan application, even though an intermediary was used. The Supreme Court found that this was a misinterpretation of the law. The Supreme Court stated that the bank's right to terminate under Section 3-51 of the Financial Contracts Act is limited to cases where the bank can prove that the customer himself has knowingly withheld or falsified information or documentation.
The Supreme Court also found that the Court of Appeal made an inadequate assessment of whether it constituted an independent ground for termination that the customer stopped paying the loan and interest after the bank terminated the loan agreement. The Supreme Court emphasized that it must be assessed whether the lack of payment was due to circumstances on the bank's side and highlighted consumer considerations, which suggested that the bank must at least inform the customer of the effect of stopping payments if the customer intends to dispute the termination.
The Court of Appeal's judgment was set aside due to insufficient reasoning, and the case was sent back to the Court of Appeal for a new assessment.
Tax law - distribution of interest deductions between Norway and other jurisdictions
The issue in this tax case was whether "internal receivables" that a Norwegian bank's branch in New York had against the head office in Norway should be included in the calculation of the limitation of deductions under Section 6-91 of the Taxation Act for the period 2015-2019.
The background of the case was that the bank's branch in New York received deposits, which were largely transferred to the head office in Norway. The head office and the branch are part of the same legal entity, and the transfers therefore did not establish any receivable in a private law sense. However, in the accounts of the New York branch, the transfer was recorded as a receivable against the head office.
Pursuant to Section 6-91 of the Taxation Act, a foreign branch's "assets" should be included in the calculation of how much of the interest expense deduction the taxpayer can be denied in Norway. The question was therefore whether the internal receivables in the accounts of the New York branch could be considered "assets" in relation to said Section 6-91.
The Supreme Court, like the Court of Appeal, concluded that the internal receivables could not be considered "assets" under Section 6-91. The receivables should therefore not be included in the calculation of the deduction limitation.
The Supreme Court based its decision on the wording of the provision "assets" and stated that internal receivables do not have economic value – one does not become richer or poorer by having a claim against oneself. This is supported by private law perspectives that no one can be their own creditor. The Supreme Court believed that the wording "with significant strength" indicated that the branch's internal receivables against the head office should not be included in the calculation basis for the limitation of the interest deduction.
The Procedural corner
In the "procedural corner", we focus on practical procedural decisions. This time, focus is put on to two rulings which consider procedurals matters of interest beyond the specifics of the cases at hand.
Ruling 1: 1) is a party to a lawsuit entitled to request a declaratory judgement to the effect that the other party has violated section 25 of the marketing act?
On 7 November, the Appeals Committee of the Supreme Court ruled that at party cannot independently assert a claim and request a declaratory judgment to the effect that another party has violated Section 25 of the Marketing Act, as this does not constitute a legal claim, pursuant to Section 1-3 of the Dispute Act.
The underlying case involves a lawsuit in which a company in the oil service industry has sued another company for patent infringement. The defendant filed counterclaims, including a request for a declaratory judgment that two specified conditions constituted violations of Section 25 of the Marketing Act, which states that "no act shall be performed in the course of trade which conflicts with good business practice among traders."
The Appeals Committee found that the defendant's two claims for a declaratory judgment regarding violations of Section 25 of the Marketing Act must be dismissed on procedural basis. The Committee stated that the starting point is that a claim must be made regarding the effects of a legal rule being violated, and that an independent claim asserting that a legal rule has been violated cannot be made. Exceptions to this principle must be particularly justified, such as claims that the European Convention on Human Rights has been violated. This was further discussed in a case the Supreme Court addressed in May of this year (HR-2024-826-A), which we summarized in our Q2/2024 newsletter. Claims for declaratory judgments regarding violations of the Marketing Act have previously been made and upheld in appellate court practice, see, for example, LB-2022-178187. Following this ruling, however, it is clear that such formulations of claims will be dismissed.
What remains somewhat unclear is whether claims for a declaratory judgment that something is "unlawful," "in violation of good business practice," or similar legal characterizations, based on a violation of the Marketing Act, can be made if references to provisions of the Marketing Act are not expressly included in the claim. In the case considered by the Appeals Committee, the defendant had made alternative claims that omitted references to Section 25 of the Marketing Act. The Appeals Committee concluded that these claims must also be dismissed in their alternative formulation, but it is not clear whether this was due to the claims not constituting legal claims or because there was no "justified need" for a judgment on the claims, as the relevant parts of the appeal were dismissed under Section 30-9 of the Disputes Act.
Thommessen assisted the defendant in this case. The underlying matter is set to be heard by the District Court in 2025.
Ruling 2: who bears the cost in interim injunction proceedings when the facts change prior to the start of appeal proceedings?
The second ruling is from 13 October. The case concerned the responsibility for legal costs under the Disputes Act when a request for a temporary injunction is dismissed in the appeal round because the factual circumstances have changed after the district court's ruling.
The person A requested a temporary injunction from the District Court to immediately stop B from harassing him and to delete all Facebook posts about A or his family. A lost the case but appealed to the Court of Appeal. The Court of Appeal disagreed with the District Court and believed that the District Court should have ordered B to delete the posts. In the meantime, B had already closed his Facebook profile, making the posts only accessible to his Facebook friends. Therefore, there was no longer a basis for ordering deletion when the Court of Appeal heard the case.
The question was who should be awarded legal costs for the District Court proceedings when the Court of Appeal's conclusion meant that B won, but A should have won in the District Court.
The main rule under Section 20-9 of the Disputes Act is that the party who wins in the appeal instance can be awarded legal costs for the first instance as well. However, the Court of Appeal had concluded that this main rule could be deviated from. Referring to case law under the previous Disputes Act, the Court of Appeal concluded that the decisive factor was what the outcome would have been in the District Court. B disagreed with this and appealed the issue of legal costs to the Supreme Court.
The Appeals Committee of the Supreme Court reached the opposite conclusion to the Court of Appeal. The Appeals Selection Committee pointed out that the unwritten rule the Court of Appeal relied on, did not apply to the new Dispute Act and that any exceptions must follow from the Act as such. Exceptions are found in Section 20-4 of the Disputes Act, which allows for legal costs to be awarded to the losing party in some special cases (but with a high threshold). Outside these cases, the decisive factor is who wins the appeal case, regardless of who would have won in the District Court.
Arbitration news
Norway and the other Nordic countries are competitive jurisdictions for conducting international commercial arbitrations and can be a cost-effective alternative. There is an increasing focus on commercial arbitration and the use of institutional rules in the Nordics to ensure that parties from other countries can have confidence in experiencing due process. Numerous events related to arbitration are taking place, and in the first half of 2025, we recommend that all interested parties take note of the following:
- 23.-24. januar 2025 – Swedish Arbitration Days (Stockholm) – tema: "information in arbitration"
- 26. februar 2025 – Norwegian Arbitration Day (Oslo)
- 11. mars 2025 – Nordic Commercial Arbitration Forum – Nordic Arbitration: A Strategic Choice for Business (Stockholm)
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"Coming up" in the Supreme Court
We take a closer look on two judgments from the Court of Appeal's that will be subject to review by the Supreme Court in the upcoming year.
LB-2023-152340 (the municipality's liability for damages after a diving accident)
A young man was seriously injured when he dove from a pier in Oslo municipality. The question is whether the municipality is objectively liable for damages under the rules regarding employer liability, and whether there were grounds to reduce any potential compensation due to the negligence of the man who dove. The Court of Appeal found that the municipality could and should have secured the pier better against the significant risk of serious injury that diving from the pier could entail. Thus, the municipality had disregarded the reasonable expectations the man could have towards the municipality, resulting in liability for damages under Section 2-1 of the Tort Liability Act. However, the compensation was reduced by one-third, particularly because the man could have conducted inquiries prior to the dive that would have reduced the risk of injury. The case has not been scheduled for the Supreme Court but will be addressed during 2025.
LB-2023-126175 (termination of agreement after failed delivery)
During the COVID-19 pandemic, there was high demand for Norwegian salmon in China, but due to infection control restrictions and a lack of refrigeration capacity at Guangzhou International Airport, the delivery was challenging. To reduce the need for refrigeration capacity, Schenker and Grieg Seafood Sales (GSF) entered into an air freight agreement where the salmon would be delivered to customers in China shortly after arrival. This arrangement did not go as planned, and the salmon was left outside in the heat and was completely damaged. Schenker demanded payment for the freight service, while GSF argued that there were grounds for termination with retroactive effect. GSF won the case in both the District Court and the Court of Appeal. As we understand it, the main question in the case is whether there are grounds for termination with retroactive effect, which would mean that Schenker's payment claim against GSF must be considered void. The case also raises questions about the requirements for having accepted standard terms in professional relationships. The Supreme Court will hear the case on 4 April 2025.
