Norwegian Supreme Court on the Law Applicable to Emission Scandal Obligations

German law shall be applied to a non-contractual obligations arising out of wrongful components in ship engines built in Germany, the Norwegian Supreme Court held in a  judgment rendered on 17 December 2024. Regardless of the fact that the Rome II Regulation is not binding for Norway and that it was not applicable in the EU at the time of the harmful event, the Norwegian Supreme Court paralleled its conclusions on analogous interpretations of the Regulation.

Background

In 2000, a Norwegian shipping company ordered six ships from a Chinese shipyard. In the contract with the Chinese shipyard, it was stated that the Norwegian shipping company had a right to choose what components that should be used. The Norwegian shipping company ordered the Chinese shipyard to use MAN engines. A contract for the delivery of the engines were entered into between MAN and the Chinese shipyard. Before the ships were delivered to Norway, the engines underwent testing at MAN’s factory in Germany. However, several years after the engines were delivered, it was discovered that these factory tests had been manipulated by MAN to show lower emission levels.

In 2012, MAN informed the Norwegian shipping company that the actual emission levels could be higher than originally promised. By this time, a criminal investigation had already been initiated against MAN in Germany. In a 2013 German court ruling, MAN was ordered to pay an administrative fine of 8.2 million Euros. Due to statutes of limitation under German law, the judgment only addressed events that had occurred after 2006.

In 2015, the Norwegian shipping company filed legal proceedings against MAN and its Norwegian subsidiary in the Oslo District Court. MAN lost the case in both the district court and the court of appeal. While both instances applied Norwegian law, they did so on different grounds. The district court found that the parties had agreed to apply Norwegian law, while the court of appeal reached the same conclusion by applying uncodified general conflict of law rules.

MAN appealed the decision to the Norwegian Supreme Court, which agreed to hear the case, focusing on the conflict of laws issue.

The Supreme Court’s Judgment

The Supreme Court began by observing that there was no agreement between the parties on the application of Norwegian law. It then turned to the issue whether the claim ought to be characterised as contractual or non-contractual. MAN had claimed that the plaint concerned precontractual liability and that the conflict of laws rules for contracts therefore should be applied. The argument was dismissed. The Supreme Court held that the matter did not relate to any contractual obligations as the Norwegian shipping company had not been a party to the contract for deliverance of the engines or to the contract for the construction of the ships.

Having concluded that the matter was non-contractual, the Supreme Court continued to seek to establish the applicable conflict of law rule. This was not an easy exercise under Norwegian private international law, as most conflict of law rules are uncodified and rather result from precedents and principles.

In the last decades, the Norwegian Supreme Court repeatedly held that the interest of keeping track with the conflict of law rules in the EU motivates a general presumption to take the choice of law solutions in the Rome I and the Rome II Regulations into consideration. A problem in the issue at stake was that the harmful event occurred long before the Rome II Regulation was applicable or even drafted. Hence, the Norwegian Supreme Court made an analysis of what conflict of law rules that were applicable in Norway in the early 2000s.

What Conflict of Laws Rules Were to Be Applied?

Recognizing that the main principle under the Rome II Regulation is that the law of the place where the damage occurs shall be applied (lex loci damni), the Supreme Court noted that older Norwegian case law rather relied on a centre of gravity test to determine the law applicable in non-contractual matters. Under the old Norwegian centre of gravity test, the place of damage was an important factor.

How the place of damage was to be determined in “distance delicts” (where the harmful event and the damage occurs in different states) was unsettled in old Norwegian case law. However, with reference to old Norwegian legal literature, the Supreme Court held that it was the place where the damage occurred that was decisive in such matters.

Noting that the place where the damage occurs is the main rule of the Rome II Regulation, the Supreme Court went on to remark that that rule in EU private international law makes a difference between direct and indirect damages. That issue had not been adjudicated in a choice of law context in Norwegian case law. Norway is however part to the 2007 Lugano Convention. In case law dealing with jurisdiction, the Norwegian Supreme Court had recognized the EU private international law difference between direct and indirect damages. Therefore, the Supreme Court concluded that, in similarity with contemporary EU law, also the place where the direct damage occurred was decisive to determine the law applicable in old Norwegian private international law.

Are German Rules on Limitation Compatible with Norwegian Public Policy?

Applying that conflict of law rule to the facts in the case, the Norwegian Supreme Court held that the direct damage took place in Germany as the urged damages were damages that had been inflicted to foreign companies after events fully taken place abroad. In such a situation the court held that it would be unpredictable to let Norwegian law apply only on the ground that a decision had been taken in Norway.

Having concluded that Norwegian choice of law rules pointed out German law as applicable, the Supreme Court continued to assess whether German rules on limitation was compatible with Norwegian public policy. According to German law, the matter was already precluded. Under Norwegian law it was not. The Norwegian Court concluded in this part that it was clear that the German limitation rules were shorter but held that it cannot be in conflict with “Norwegian sense of justice”. Consequently, German law was to be applied.

Comment

The judgment makes it clear that the Norwegian Supreme Court takes EU private international law seriously. By aligning its reasoning with the Rome II Regulation, the Supreme Court indeed affirmed its commitment to European harmonization of conflict of law rules. Such an approach is valuable from a predictability point of view and strengthens legal coherence.

However, a notable omission in the judgment is the lack of discussion on Article 5 of the Rome II Regulation. In this Article, the Rome II Regulation lays down lex specialis conflict of law rules for non-contractual product liability obligations. To me, it would have made sense to at least discuss those rules as the facts concerned some sort of product liability.