Right of action for a Norwegian branch of a foreign company

A great number of international corporations in the energy sector are engaged in business activities through affiliated branches offshore and onshore in Norway.

Numerous law decisions have been based upon the legal assumption that a Norwegian branch of a company domiciled abroad is entitled to appear as a party in civil proceedings in Norway. The Norwegian Supreme Court recently clarified the state of law in this respect.

Registration requirements

A foreign enterprise that engages in business in Norway or on the Norwegian continental shelf is obliged to register in the Norwegian register of Business Enterprises pursuant to Norwegian company registration rules, so that contracting parties, creditors and the public authorities get access to requisite information about the enterprise. The prevailing statutory provisions also imply some registration requirements for a Norwegian branch of a foreign legal entity, even if the branch cannot judicially be classified as an independent legal entity.

Applicable law is based upon the general comprehension that only a legal entity holds the capacity to sue or to be sued in a civil case in Norway. Until recently, however, some judicial uncertainty has prevailed concerning the right of action for affiliated branches in Norway, probably due to the ruling registration requirements for Norwegian branches of foreign companies.

Current state of law

 On December 16, 2008, the Norwegian Supreme Court pronounced a principal judgement, which lays down that a Norwegian branch of a foreign company that engage in business activities in Norway does not hold the capacity to sue or to be sued in a civil case in Norway. The Norwegian Supreme Court suspended the preceding judgements passed by the Conciliation Court, the Court of Justice and the High Court.

The recent judicial clarification is normative for any international corporation that is engaged in business activity onshore in Norway or on the Norwegian continental shelf. Due to the great number of transactions in the oil & gas industry that are made through affiliated branches both onshore and offshore in Norway, the new Supreme Court judgement will be particularly relevant for corporations within these sectors and their suppliers. 

Consequences 

In principle, the new principal legal clarification from the Supreme Court affirms and clarifies the state of law without altering it, but previous case law has not been fully consistent. In future case law, however, we expect that the judiciary will follow a significantly more consistent practice, after which only legal entities will be allowed to institute legal proceedings and only legal entities will be subject to lawsuits.

Thus, in the event of any legal dispute, a foreign corporation that operates through a Norwegian branch or considers the possibility should notice that the branch itself is not entitled to institute legal proceedings in Norway, irrespective of previous contradictory case law.

Moreover, the Norwegian Civil Procedure Act determines that a foreign company with a branch in Norway is subject to Norwegian jurisdiction rules. If any deadlocked disagreement should arise between a Norwegian branch and one of its Norwegian business associates, the foreign head company will be obliged to appear before the domestic court in the proceedings pursuant to the Norwegian Civil Procedure Act.

Any company that enters into agreements or commercial intercourse with a Norwegian branch of a foreign company should also take into consideration that the branch unit cannot be taken to court in the Norwegian legal system. 

The jurisdiction rules can, however, be derogated from by contract, since the rules are non-mandatory. 

Summary 

 The latest principal case law affirms that the correct judicial interpretation of applicable law and the Norwegian Civil Procedure Act is that only legal entities hold the capacity to sue or to be sued.

The principal rule is that a branch of a foreign company is not considered to be a legal entity, and therefore does not hold the capacity to sue or be sued. Any exceptions must have statutory basis or contractual basis.

Few statutory exceptions are made. Contractual exceptions are likely to become more common.

For more information about this topic, please contact:

Morten Hassum, tel. (+47) 33 00 39 11

Deloitte Advokatfirma DA is a leading business law firm in Norway with more than 100 professional staff members, specialized within 3 main sectors: Transactions, Tax and Business Law. 

Deloitte is a multidisciplinary organization. Our Tax & Legal department collaborates with the other branches of Deloitte in Norway, i.e. Financial Advisory, Consulting and Audit & Advisory. Deloitte Advokatfirma DA is a part of the Deloitte Global Tax & Legal Network, one of the largest networks of law firms in the world. 

Deloitte Website: http://www.deloitte.com/dtt/home/0%2C1044%2Csid%25253D6949%2C00.html