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Transport

The pledge of NSAB 2000 is an expression of customary law in Norway, but not in Denmark

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Legal news
calendar 18 June 2014
globus Denmark

A discussion regarding freight forwarders’ safety net is currently prevalent in Denmark. The discussion has arisen of a new ruling from the Danish Supreme Court determining the right of priority in a conflict between floating company charge and the freight forwarder’s pledge. The decision by the Danish Supreme Court has weakened the freight forwarder’s pledge and thereby his legal position. Previously, the Norwegian Supreme Court established that the pledge under NSAB 2000 applies as customary law in coherent contractual relationships of certain duration, even though the parties’ agreement is not governed by NSAB 2000. It is doubtful whether such custom exists in Denmark.

In Danish law the general legal principle of the right of retention provides freight forwarders with the right to withhold the customer’s goods as security for an unpaid claim against the customer. However, this right is conditioned on the retained goods having a close connection to the outstanding claim. This means that the freight forwarder is not necessarily entitled to withhold goods as security for a claim arisen from previous transports, as such claim might not be as closely connected to the goods as required. The right of retention is a general principle in Danish law and applies even without agreement.

Simultaneously, NSAB 2000 § 14 provides the freight forwarder with a pledge, which may be seen as an expanded right of retention. The pledge entitles freight forwarders to withhold goods as security for any claim against the customer, and is not conditioned on the claim being connected to the withheld goods. Thus, compared to the general principle of right of retention the pledge strengthens the freight forwarder’s legal position considerably.

However, NSAB 2000 only applies if this has been agreed between the parties; at least in Denmark.

The ruling of the Danish Supreme Court: Floating company charge is stronger than a pledge

In a ruling from January 2014 the Danish Supreme Court established that the floating company charge often will prevail over the pledge of NSAB 2000 § 14. IUNO commented on this ruling in the newsletter of 26 February 2014.

In this case the freight forwarder’s right of retention in accordance with the general principle was found to prevail over the floating company charge of the bank. The Supreme Court found that the condition of close connection was met, and – as the freight forwarder’s total service was found to increase or at least preserve the value of the retained goods – the Supreme Court let the freight forwarder “jump the queue” and obtain priority over the floating company charge of the bank.

However, unlike the right of retention the pledge of NSAB 2000 cannot jump the queue and obtain an improved legal position. This means that NSAB might provide a broader protection than the general principle of retention as to which claims may be secured, but on the other hand the general principle has the possibility to obtain priority over previous claims of third parties.

Due to this difference it is very important to clarify exactly how much it takes for the connection between the freight forwarders’ claim and the withheld goods to be close enough for the freight forwarder to support his right to withhold goods on the general right of retention; and not just the pledge of NSAB 2000. Previous case law shows that the Danish courts impose rather strict requirements of such connection.

The Norwegian Supreme Court: The pledge applies as customary law

The Norwegian Supreme Court dealt with this distinction in a ruling from January 2013. The case concerned a fish exporter, who – during the course of a year – hired a freight forwarder to transport about half of all of his fish orders. Each transport was separately ordered and the parties never entered into any framework agreement. In the summer of 2009 the freight forwarder had not received any payment for transports carried out in February and May the same year, and all in all the claim amounted approx. 245.000 EUR. As a result the freight forwarder retained a shipment of dried cod as security for the claim.

The Norwegian High Court reached the conclusion that the retention had not been justified as the freight forwarder’s claims was not related to the withheld shipment as closely as required.

However, the Norwegian Supreme Court came to a different conclusion. This court stated that sometimes the right of retention is subject to extensive interpretation so that it includes claims without close relation to the retained goods. This applies in the following two situations:

  1. If the parties have agreed that their contract is governed by NSAB 2000. This is in accordance with Danish law
  2. If there is a continuous contractual relationship between the parties, the pledge of NSAB 2000 § 14 – i.e. an expanded right of retention – applies on the basis of customs even without an agreement

In this case the Norwegian Supreme Court found that the parties had had a continuous contractual relationship, and thus changed the ruling from the High Court with reference to point 2. The Supreme Court clarified that parties have a continuous contractual relationship, when the freight forwarder has legitimate expectations of getting more orders.

The Norwegian Supreme Court ruling leads to a legal position that can shortly be described as follows: Individual isolated orders of transport do not automatically create a continuous contractual relationship and thus do not give the freight forwarder an extended right of retention. This is in accordance with Danish case law.

However, the Norwegian Supreme Court stated that several individual orders for carriage of goods can result in the freight forwarder having an extended right of retention, if the relationship between the parties is of such nature that the freight forwarder has legitimate expectations of getting more orders; i.e. if there is a continuous contractual relationship between the parties. This seems to be more far-reaching, than what has been established by Danish case law.

In this case the Norwegian Supreme Court concluded that there was a continuous contractual relationship even though there was no general framework agreement. Thus, the freight forwarder’s retention was found to be justified.

IUNO’s opinion

The Norwegian Supreme Court ruling establishes a legal position in Norway that the pledge of NSAB 2000 § 14 applies between two parties on the basis of custom, if the parties have a continuous contractual relationship.

If this similarly applied in Denmark the right of retention – and its inherent ability to “jump the queue” and obtain priority over e.g. a previously founded floating company charges – would be expanded to include claims that does not have the otherwise required close relation to the retained goods. On the contrary, this would only depend on the parties having a continuous contractual relationship.

As the term “continuous contractual relationship” seems to be broader than the “close relation” required by the Danish courts, it would be a great advantage for the Danish freight forwarders if the Danish Courts were to use the interpretation introduced by the Norwegian Supreme Court.

However, it seems that there is no Danish case law indicating such broad interpretation.

The Danish courts are not bound by rulings of the Norwegian Supreme Court, but due to NSAB 2000 being an agreed document widely used in Norway and Sweden as well as Denmark, the Danish courts sometimes take rulings of the courts of the other countries into consideration when interpreting the NSAB 2000. At this point, Danish freight forwarders can only wish that the Danish courts will take this ruling and its argumentation into consideration.

In general, attention should be paid to the fact that parts of the NSAB 2000 in some cases might be a manifestation of customary law and thereby be applicable even without an agreement of the contract being governed by NSAB 2000.

As for the right of retention, IUNO recommends that Danish freight forwarders to as wide an extent as possible enter into written framework agreements with their customers. Such framework agreements are often taken into consideration by the courts when determining whether or not there is a close relation between several transportations. In this way, a framework agreement might help Danish freight forwarders reach a protection approaching what applies in Norway.

In Danish law the general legal principle of the right of retention provides freight forwarders with the right to withhold the customer’s goods as security for an unpaid claim against the customer. However, this right is conditioned on the retained goods having a close connection to the outstanding claim. This means that the freight forwarder is not necessarily entitled to withhold goods as security for a claim arisen from previous transports, as such claim might not be as closely connected to the goods as required. The right of retention is a general principle in Danish law and applies even without agreement.

Simultaneously, NSAB 2000 § 14 provides the freight forwarder with a pledge, which may be seen as an expanded right of retention. The pledge entitles freight forwarders to withhold goods as security for any claim against the customer, and is not conditioned on the claim being connected to the withheld goods. Thus, compared to the general principle of right of retention the pledge strengthens the freight forwarder’s legal position considerably.

However, NSAB 2000 only applies if this has been agreed between the parties; at least in Denmark.

The ruling of the Danish Supreme Court: Floating company charge is stronger than a pledge

In a ruling from January 2014 the Danish Supreme Court established that the floating company charge often will prevail over the pledge of NSAB 2000 § 14. IUNO commented on this ruling in the newsletter of 26 February 2014.

In this case the freight forwarder’s right of retention in accordance with the general principle was found to prevail over the floating company charge of the bank. The Supreme Court found that the condition of close connection was met, and – as the freight forwarder’s total service was found to increase or at least preserve the value of the retained goods – the Supreme Court let the freight forwarder “jump the queue” and obtain priority over the floating company charge of the bank.

However, unlike the right of retention the pledge of NSAB 2000 cannot jump the queue and obtain an improved legal position. This means that NSAB might provide a broader protection than the general principle of retention as to which claims may be secured, but on the other hand the general principle has the possibility to obtain priority over previous claims of third parties.

Due to this difference it is very important to clarify exactly how much it takes for the connection between the freight forwarders’ claim and the withheld goods to be close enough for the freight forwarder to support his right to withhold goods on the general right of retention; and not just the pledge of NSAB 2000. Previous case law shows that the Danish courts impose rather strict requirements of such connection.

The Norwegian Supreme Court: The pledge applies as customary law

The Norwegian Supreme Court dealt with this distinction in a ruling from January 2013. The case concerned a fish exporter, who – during the course of a year – hired a freight forwarder to transport about half of all of his fish orders. Each transport was separately ordered and the parties never entered into any framework agreement. In the summer of 2009 the freight forwarder had not received any payment for transports carried out in February and May the same year, and all in all the claim amounted approx. 245.000 EUR. As a result the freight forwarder retained a shipment of dried cod as security for the claim.

The Norwegian High Court reached the conclusion that the retention had not been justified as the freight forwarder’s claims was not related to the withheld shipment as closely as required.

However, the Norwegian Supreme Court came to a different conclusion. This court stated that sometimes the right of retention is subject to extensive interpretation so that it includes claims without close relation to the retained goods. This applies in the following two situations:

  1. If the parties have agreed that their contract is governed by NSAB 2000. This is in accordance with Danish law
  2. If there is a continuous contractual relationship between the parties, the pledge of NSAB 2000 § 14 – i.e. an expanded right of retention – applies on the basis of customs even without an agreement

In this case the Norwegian Supreme Court found that the parties had had a continuous contractual relationship, and thus changed the ruling from the High Court with reference to point 2. The Supreme Court clarified that parties have a continuous contractual relationship, when the freight forwarder has legitimate expectations of getting more orders.

The Norwegian Supreme Court ruling leads to a legal position that can shortly be described as follows: Individual isolated orders of transport do not automatically create a continuous contractual relationship and thus do not give the freight forwarder an extended right of retention. This is in accordance with Danish case law.

However, the Norwegian Supreme Court stated that several individual orders for carriage of goods can result in the freight forwarder having an extended right of retention, if the relationship between the parties is of such nature that the freight forwarder has legitimate expectations of getting more orders; i.e. if there is a continuous contractual relationship between the parties. This seems to be more far-reaching, than what has been established by Danish case law.

In this case the Norwegian Supreme Court concluded that there was a continuous contractual relationship even though there was no general framework agreement. Thus, the freight forwarder’s retention was found to be justified.

IUNO’s opinion

The Norwegian Supreme Court ruling establishes a legal position in Norway that the pledge of NSAB 2000 § 14 applies between two parties on the basis of custom, if the parties have a continuous contractual relationship.

If this similarly applied in Denmark the right of retention – and its inherent ability to “jump the queue” and obtain priority over e.g. a previously founded floating company charges – would be expanded to include claims that does not have the otherwise required close relation to the retained goods. On the contrary, this would only depend on the parties having a continuous contractual relationship.

As the term “continuous contractual relationship” seems to be broader than the “close relation” required by the Danish courts, it would be a great advantage for the Danish freight forwarders if the Danish Courts were to use the interpretation introduced by the Norwegian Supreme Court.

However, it seems that there is no Danish case law indicating such broad interpretation.

The Danish courts are not bound by rulings of the Norwegian Supreme Court, but due to NSAB 2000 being an agreed document widely used in Norway and Sweden as well as Denmark, the Danish courts sometimes take rulings of the courts of the other countries into consideration when interpreting the NSAB 2000. At this point, Danish freight forwarders can only wish that the Danish courts will take this ruling and its argumentation into consideration.

In general, attention should be paid to the fact that parts of the NSAB 2000 in some cases might be a manifestation of customary law and thereby be applicable even without an agreement of the contract being governed by NSAB 2000.

As for the right of retention, IUNO recommends that Danish freight forwarders to as wide an extent as possible enter into written framework agreements with their customers. Such framework agreements are often taken into consideration by the courts when determining whether or not there is a close relation between several transportations. In this way, a framework agreement might help Danish freight forwarders reach a protection approaching what applies in Norway.

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