News and insights within litigation and arbitration: Highlights from Q1, 2025

Contract law: The Supreme Court provides guidance on how to set aside commercial contracts between professional parties

On 12 February 2025, the Supreme Court delivered a judgement in which an agreement between professionals was set aside as null and void pursuant to Section 36 of the Contracts Act. The decision provides guidance on the application of Section 36 of the Contracts Act, an often asserted provision, in commercial contexts.

The case concerned a dispute between the founders of a technology company. Two of the founders believed it would be easier to sell the company if only two of the six founders were shareholders. Therefore, in 2017 they entered into a share purchase agreement where four founders sold their shares to the remaining founders for NOK 41 million. The sellers provided credit on the purchase price against share collateral to allow time to sell the shares. The purchase price valued the company at NOK 90 million.

In spring 2021, a third party showed interest in investing in the company through capital injection and share purchase. To facilitate the investment, the sellers' share collateral had to be removed. The buyers and sellers entered into a settlement agreement where the purchase price was reduced by 70%, to NOK 12.3 million, which effectively valued the company at NOK 30 million. Payment was to be made once the transaction with the investor was completed. Shortly thereafter, the investor bought all the shares in the company for NOK 180 million, with a cash consideration to the two sellers of NOK 94.5 million.

The Supreme Court set aside the 2021 settlement agreement in its entirety, pursuant to Section 36 of the Contracts Act. The court held that the sellers believed the company was worth significantly less than NOK 90 million. The buyers did not inform the sellers that negotiations with the investor were ongoing based on a company valuation of NOK 175 million. The failure to disclose this information constituted a lack of disclosure on the part of the buyers, leading to invalidity.

In assessing invalidity, the Supreme Court emphasised that:

• The background of the settlement agreement imposed a heightened duty of loyalty on the buyers. All the founders had a common goal of selling the company to an external investor to realise the collective effort they had invested.
• The disparity in the balance of power between the parties. Although all were professionals, there was a significant difference in knowledge at the time of the agreement. The buyers remained on the board, participated actively, and had full insight into the negotiations with the investor, and used advisors.
• Trust: The buyers unsuccessfully argued that the sellers took a conscious risk by not clarifying the company's value. The sellers' "well-founded trust" that the buyers were negotiating with the investor on behalf of everyone, meant that the lack of investigation by the sellers did not exempt the buyers from their duty of disclosure.

It is worth noting that,

• where there is a relationship based on trust, the duty of loyalty in contractual relationships entails that the duty to disclose often takes precedence over the duty to investigate, and
• the judgment suggests that the ability to set aside agreements between professionals is greatest when there is a defect in formation (the conclusion of the agreement). We assume that more is required to prevail with a claim of irregular development in a commercial contractual relationship.

• The judgment can be read here

EEA law: The Supreme Court clarifies EEA law questions

On 17 March 2025, the Supreme Court delivered a judgement on whether a foreign national could be prosecuted for violating an entry ban imposed before the defendant later married an EEA citizen. The question was whether the citizen, by marrying an EEA citizen, had obtained a derived right to enter and reside in Norway under EEA law, which would override the earlier entry ban.

In its judgment, the Supreme Court provided guidance on the interplay between national law, EEA law, and EU law, including statements on the principle of homogeneity, the relationship between EEA law and previous decisions, and the significance of advisory opinions from the EFTA Court.

The principle of homogeneity means that rules in the EU and EEA should be interpreted similarly to achieve equal treatment. This principle was central to the case because the EU Court had decided on parts of the legal questions at hand. However, the EU Court's result was partly based on a provision not included in the EEA Agreement.

The Supreme Court emphasised that the EU Court's interpretation of EEA-relevant rules carries significant weight, but that the consideration of achieving equal treatment could not alone justify a similar result. Sovereignty considerations require that the interpretation result must also be sufficiently based in the EEA Agreement. This assessment should include not only the specific provision or legal act, but also the EEA Agreement as a whole and the fundamental purposes and considerations it is based on. The Supreme Court concluded that the EU Court's interpretation result did have sufficient basis in the EEA Agreement, and that the interpretation result was not prevented by sovereignty considerations.

The relationship between EEA law and previous decisions was important because the citizen's EEA legal right to enter and reside arose after he had already been imposed an entry ban. The Supreme Court clarified that EEA legal rights arise with immediate effect and therefore generally override previous bans. The Supreme Court examined whether the entry ban could still be in line with EEA law, but concluded negatively. The defendant could therefore use his right to enter immediately and did not have to apply to overturn the decision.

The significance of the EFTA Court's advisory opinions was central because the Supreme Court had requested an advisory opinion from the EFTA Court on the case. The EFTA Court concluded that the defendant could have the right to enter and reside in Norway, and that the right would override an existing entry ban. Since advisory opinions are not binding, only advisory, it became a central issue what weight the advisory opinion should be given.

The Supreme Court based its reasoning on case law stating that the EFTA Court's opinions carry significant weight and that there must be good and compelling reasons to deviate from them. The Supreme Court then stated that considerations of sovereignty could constitute such good and compelling reasons if the EFTA Court has gone far in interpreting EEA law to achieve a similar result as EU law. In this case, however, the Supreme Court found no basis to deviate from the EFTA Court's understanding.

• The judgment can be read here

Employment law: Financial settlement after misclassification of employees

On 20 December 2024, the Supreme Court delivered a judgment in a case concerning the financial settlement following the misclassification of employees as independent contractors. The parties in the case agreed that the three healthcare workers had been incorrectly classified as independent contractors. The Supreme Court thus addressed two main questions:

Which principles to apply for the settlement of additional claims for work performed by an employee who was misclassified as an independent contractor, including claims for overtime pay, unpaid hours, inconvenience allowances, etc.

Whether the remuneration paid under the contract can serve as a basis for calculating holiday pay, and whether such holiday pay claims are subject to limitation periods.

In the first question regarding the principles for financial settlement, the Supreme Court's majority consisting of three judges concluded that in cases of misclassification of an employee as an independent contractor, mandatory rules should be applied when calculating any additional claims the employee is entitled to. Misclassified employees will therefore, in addition to the remuneration already paid, be entitled to overtime pay, pension, inconvenience allowances, holiday pay, etc., based on the mandatory rules applicable to that type of employee.

The majority emphasised that to the extent that remuneration already paid compensates for the claims made, deductions should be made to avoid overcompensation. It is the employer who bears the burden of proof for demonstrating that overcompensation exists. In this case, the majority concluded that there was no basis for deductions for the relevant claims since the healthcare workers had not been paid for such benefits previously.

Furthermore, a unanimous Supreme Court stated that holiday pay should be calculated based on the remuneration paid under the contract, as the remuneration in the contracts was to be considered 'wage compensation' according to the Act related to Holidays. The Supreme Court also stated that holiday pay claims cannot be raised until paid holiday is taken, according to the provisions of said Act or if the employment relationship is terminated. Therefore, the holiday pay claim was not time-barred.

The judgment clarifies the principles for settlement in cases of incorrect classification of an employee as an independent contractor, and illustrates the financial risks companies may face in such situations.

• The judgment can be read here

Choice of law: Which country's law should apply in international disputes

On 17 December 2024, the Supreme Court delivered a ruling providing clarification regarding the content of the choice of law rules for non-contractual liability claims. In a case connected to both Germany and Norway, the Supreme Court concluded that German legal rules should be applied to resolve the dispute.

The background was that the bankruptcy estate of the Norwegian shipping company IMSK SE ("IMSK") claimed compensation from the German company MAN Energy Solutions SE ("MAN") related to the delivery of ship engines in the early 2000s. IMSK was not a party to the original purchase agreements, and the compensation claim was therefore based on general tort law principles. The basis for the compensation claim was that companies in the MAN group had manipulated test results over many years, causing the engines' fuel consumption to appear lower than it actually was.

The question was which country's law should be used to determine the compensation claim. In the District Court and the Court of Appeal, IMSK was awarded compensation based on Norwegian legal rules. However, the Supreme Court, as mentioned, determined that German legal rules should be applied.

The Supreme Court stated that historically, the choice of law has largely been determined based on an assessment of which country the specific circumstances of the case had the closest connection to (the so-called "Irma Mignon formula"), but that recent developments have moved towards more fixed choice of law rules for different areas of law or groups of legal questions. Here, the choice of law rules in the EU, particularly the Rome I Regulation on choice of law for contractual claims and the Rome II Regulation on choice of law for non-contractual claims which came into force in 2009, have been significant. These regulations do not apply directly as Norwegian law. However, referring to previous case law, the Supreme Court stated that the consideration for legal unity argues for Norway to take into account the solutions chosen by EU countries.

The main rule under Article 4 of the Rome II Regulation is that " the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur" shall be chosen. However, in this case, the alleged tortious acts occurred before the Rome II Regulation was adopted. The majority of the Supreme Court, consisting of three judges, believed that the law of the place of damage was the main rule in Norway also before 2009. Furthermore, the majority concluded that the place of damage must be understood as the place of effect (where the damage occurs). Indirect effects are generally not decisive.

The majority held that the place of damage should be considered to be Germany in this case. The tortious act was the lack of information about fuel consumption, which occurred from Germany. The ships were built abroad to operate outside of Norway, and the engines were built and delivered outside of Norway. The loss that the Norwegian shipping company claimed as basis for the compensation claim was an indirect effect of the actions of the engine manufacturer, which could not provide grounds for applying Norwegian law.

The minority of two judges believed that Norwegian law should apply to the claims that IMSK asserted it had suffered itself (but not for the parts of the total compensation claim which had been transferred to IMSK from foreign companies).

• The judgment can be read here

Insurance law: The Supreme Court clarifies the relationship between natural disaster insurance and natural disaster compensation

On 16 December 2024, the Supreme Court delivered a judgment regarding whether a farmer could claim compensation for natural damage from the state's natural damage scheme when the damaged object is insured, but the insurance coverage does not include the specific damage. To receive compensation from the natural damage scheme, it is a requirement that the injured party could not have insured against the specific damage through a general insurance scheme. The Supreme Court concluded that the specific damage could entitle the claimant to natural damage compensation, but that the conditions for compensation were not met in this case. Therefore, the farmer's appeal was dismissed.

The facts related to a fertilizer cellar built on moraine ground which suffered settlement damage due to a peat layer under the moraine being compressed when the fertilizer cellar was filled. The farmer filed a claim with his insurance company. The insurance company rejected the claim on the grounds that the specific damage was not covered under the terms of the natural damage insurance. The farmer then filed a claim for natural damage compensation to the Norwegian state under the state's natural damage scheme. The farmer lost his compensation claim in the District Court and in the Court of Appeal. The farmer then appealed the case to the Supreme Court.

The Supreme Court first assessed section 2 of the Natural Damage Compensation Act, which reads in our office translation:

"Compensation is not granted if there is an opportunity to insure against the damage through a general insurance scheme, or if the injured party actually receives coverage for the damage from an insurance policy."

The Supreme Court assessed whether the conditions were met if the specific object (here: the fertilizer cellar) was insured, but the specific damage was not covered by the insurance terms. The Supreme Court emphasised the clear wording of the provision and concluded that the decisive factor was whether the damage could be insured through a general insurance scheme. Since the damage to the fertilizer cellar could not be insured, the damage could entitle the farm owner to natural damage compensation if the conditions for this were met.

The Supreme Court then assessed whether the damage was caused by a "natural disaster", cf. Section 4 of the Natural Damage Compensation Act. The Supreme Court believed the wording indicates that it must be a sudden and unexpected event causing significant damage. The cause of the damage to the fertilizer cellar was due to unfavourable ground conditions which formed cracks over time and was therefore not considered a natural disaster.

The claim against the state's natural damage scheme was unsuccessful, and the appeal was dismissed.

• The judgment can be read here

The Supreme Court clarifies the scope of vehicle liability insurance at workshops

On 19 December 2024, the Supreme Court delivered a judgement which clarifies the scope of vehicle liability during workshop stays. The Supreme Court concluded that ordinary workshop stays should be considered a regular part of the use of a motor vehicle as a means of transport. Consequently, damages caused by the motor vehicle during such workshop stays are covered by vehicle liability insurance.

The facts related to a motorcycle which was being serviced and repaired at a workshop for i.a. starting problems, caught fire in the workshop due to a technical failure. The fire resulted in damage to motorcycles, equipment and inventory at the workshop, as well as to the building itself. The motorcycle was insured with the insurance company Gjensidige. The building was insured with the insurance company Fremtind. The workshop and Fremtind filed claims for loss coverage and recourse respectively against Gjensidige, which opposed the claims. The cases were handled collectively in the lower courts and in the Supreme Court.

The Vehicle Liability Act entails a mandatory insurance scheme for motor vehicles. The main purpose is to protect victims of traffic accidents. Pursuant to section 4 of the Vehicle Liability Act, insurance companies have strict liability for damage caused by a motor vehicle. It was clear that the damages were caused by the motorcycle. The question was whether the motorcycle being placed in the workshop meant that the motorcycle was "safely parked off the street, road, or other place where the public can travel". If so, damages would be excluded from coverage under section 2 (b) of the Vehicle Liability Act.

The Supreme Court unanimously concluded that the exception rule did not apply. The motorcycle was not "taken out of use" by being placed in the workshop. On the contrary, the Supreme Court considered the workshop stay as ordinary and a "natural part of the planned continued use of the motorcycle as a means of transport". The conclusion was based on the scope of the term "use of vehicles" in Article 3 of the Motor Insurance Directive which according European Court of Justice case law should be interpreted broadly, the Supreme Courts previous judgment in HR-2021-822-A (carport), and the purpose of the Vehicle Liability Act, which is to protect victims of accidents caused by motor vehicles. Consequently, Gjensidige was obligated to pay insurance coverage to both the workshop and Fremtind.

• The judgement can be read here

Property law: Condominiums can bring action for damages directly against the management of the developer

On 6 March 2025, the Supreme Court delivered a judgement regarding a condominium's capacity to sue. The facts related to a condominium that had filed a lawsuit against the CEO and chairman of the company that constructed the condominium's building, claiming compensation for defects in the common areas under the negligence rule in the Companies Act. The developer company would not be able to pay if the action succeeded.

Pursuant to the Condominium Act, the board of a condominium can act as claimant on behalf of the unit owners in cases against the "developer" if "the claim relates to defects in the common areas." The question for the Supreme Court was whether the "developer" only includes the company or whether it also includes individuals in the company's management, including the chairman and CEO.

The Supreme Court first assessed that the wording itself allows the condominium to sue the company's management for personal liability. This was particularly justified by the fact that the term "developer" linguistically can include individuals with roles during the development, and that the management's negligence during the development has a strong connection to the alleged "defects in the common areas."

The Supreme Court further assessed that the purpose also supports the same conclusion. The purpose of the rule was to establish a practical and convenient arrangement for lawsuits concerning defects in the common areas. Especially for larger condominiums, it can pose greater practical challenges to organise a lawsuit if the individual unit owners must be the plaintiffs. It would also be complicated if the condominium and the unit owners must be parties in separate lawsuits about the same defects in the common areas, only based on the legal basis invoked and who is alleged to be responsible for the defects. The condominium's capacity to sue in such cases was therefore considered practical and convenient.

The Supreme Court therefore concluded that the association had the capacity to sue.

• The judgment can be read here

The Procedural Corner

In the "procedural corner," we focus on practical procedural decisions. This time, the focus is on two decisions regarding the valuation of the disputed subject-matter of an action and the possibility of arrest to secure future claims for compensation of legal costs.

The right to hunt in seven hunting grounds is worth more than the right to hunt in one

The first ruling is from 24 February 2025. The case concerned the question of denial of appeal in a case where the value of the appeal object was less than NOK 250,000, cf. section 29-13 of the Disputes Act[THO8] . As this provision allows the court to deny an appeal in cases where the value of the appeal action is less than this number, the valuation of the disputed object was therefore crucial.

The underlying dispute concerned the existence of a hunting right. The Supreme Court's Appeal Committee found that the Court of Appeal's assessment of the value was clearly incorrect and must have led to significantly undervaluing the disputed object. The Court of Appeal's valuation could therefore be set aside under the Dispute Act.

The object to be valued was an easement that gave the right to hunt in seven different hunting grounds. The Court of Appeal had based the valuation on the annual price of a hunting license, which only applies to one hunting ground. This was justified by the fact that the value could be equated, among other things, because it was not practical or relevant for one person to hunt in several hunting grounds simultaneously.

The Supreme Court's Appeals Committee found it clearly correct that a hunting right covering a large area has greater value than a hunting right covering a smaller area, all else being equal. The Appeals Committee emphasised that a larger area provided greater flexibility and access to a larger total hunting yield, even if the hunter could not be in several places simultaneously. A perpetual hunting right in the form of an easement also provided more secure access than annual purchase of a hunting license, and therefore had greater value.

• The ruling can be read here

Arrest cannot be granted for future legal costs

The second ruling is from 19 March 2025, and concerned an appeal over a ruling on arrest. The central issue for the Supreme Court was whether it is possible to grant arrest to secure future claims for compensation of legal costs.

The majority of the Appeals Committee answered this negatively and overturned the Court of Appeal's judgment. The ruling was issued under dissent 2-1.

The majority started from the premise that arrest can only be requested by someone who "has" a monetary claim against another, cf. section 32-1 of the Dispute Act, and that the claim must be substantiated, cf. section § 33-3. Arrest for future legal costs therefore requires that the party can substantiate that he or she will be awarded the legal costs incurred in the underlying case. The party must both substantiate that the substantive claim will succeed and that he or she will be awarded legal costs.

The majority further pointed out that arrest can be granted if the claim is conditional. The fact that a claim for future legal costs is conditional on future circumstances or events therefore does not in itself exclude arrest.

The majority nevertheless placed decisive weight on the fact that a claim for legal costs is conditional on the court's assessment of whether the party should be exempted from liability for legal costs if compelling reasons make it reasonable. The factor of uncertainty was significant, and the nature of the rule indicated that the probability assessment of the claim could not be made until the case is completed. The Appeals Committee therefore concluded that a plaintiff does not "have" a claim for legal costs under the Dispute Act until the judgment or ruling awarding the amount is issued, and that it is therefore not possible to grant arrest to secure future claims for compensation of legal costs.

Thommessen represented the appellant in the case.

• The ruling can be read here

"Coming up" in the Supreme Court

We look at two cases to be heard by the Supreme Court in the coming months:

The scope of liability for legal costs in small claims procedures in cases with multiple parties

Nydal Eiendom AS and several private parties were in dispute over a stretch of road. The case was processed under the rules for small claims procedures, which limits the right of litigants to claim compensation for legal costs. The main rule in such cases is that the responsibility for the opposing party's legal costs cannot exceed NOK 50,000. However, in a previous decision, HR-2024-87-U, the Supreme Court established that in cases with multiple parties on the same side, the limitation applies to each party and not to the total liability for legal costs.

In this case, the private parties won the case and were awarded NOK 110,000 in legal costs for the District Court, despite the fact that these parties had overlapping interests and a common legal representative. Nydal Eiendom AS appealed the legal cost decision, but both the majority and the minority in the Court of Appeal upheld the District Court's decision. The minority did point out that strong practical considerations suggested that the limit of NOK 50,000 should apply in a case where the winning parties had overlapping interests and a common legal representative, but noted that HR-2024-87-U did not allow for such an exception.

The Supreme Court's assessment will have significant practical implications in small claims cases. If the Court of Appeal's conclusion is upheld, it could become riskier to pursue cases against multiple parties in a small claims process. Five Supreme Court judges, as opposed to the normal number of three, will rule on the case.

• The Court of Appeal's ruling can be read here

Liability for damages after negligent advice in construction assignments

A consulting company was held liable for damages under professional liability for negligent advice in a construction project, after fire safety requirements were neglected during the building of an apartment building. The builder was initially awarded NOK 53,735,538 in damages, but this was reduced to NOK 30 million due to the amount being extraordinarily large and beyond what was usual and foreseeable.

The case concerns, among other things, the basis for establishing tort liability and the basis for mitigating liability for damages.

• The Court of Appeal's judgment can be read here