The Cypriot-registered cargo ship MV Server ran aground on 12 January 2007 at Ytre Hellisøy in Fedje municipality in Hordaland. Shortly after the grounding, the ship broke in two just in front of the wheelhouse. The foreship was quickly towed off the ground and towed to a temporary storage location. It was later permanently removed. The stern, with wheelhouse, cabins and engine room, remains where it sank. MV Server did not have cargo on board, but there were significant amounts of bunker oil and other oil products in the ship's tanks. Large parts of the oil spilled into the sea, and a state pollution operation led by the Norwegian Coastal Administration was immediately launched. The Coast Guard and a number of municipalities participated in the action.

The Cypriot-registered company Avena Shipping Co Ltd (Avena), was the registered owner of MV Server. The ship was operated by Dalnave Navigation Inc (Dalnave), which was registered in Liberia but has an office in Greece. A Greek citizen, Dimitrios Sficas, was the dominant owner of both companies. The ship had liability insurance with Gard. In the case, Avena, Dalnave and Gard are collectively referred to as the shipowners' side.

In letters to Avena and Dalnave on 16 January 2007, the Norwegian Coastal Administration informed that state action had been initiated, and that the companies would be held responsible pursuant to the Pollution Control Act § 76 for all claims related to measures implemented by the Norwegian Coastal Administration as a result of the grounding. On 19 January 2007, the Norwegian Coastal Administration sent a letter to Dalnave ordering measures to avoid further pollution from the ship and to remove both the foreship, which had already been towed off the ground, and the stern that was still there. In the further processing of the case, it was Gard who essentially acted on behalf of Avena and Dalnave.

Draining of the remaining oil from the stern was carried out in March 2007 and was considered successful. In March 2007, Gard invoked the limitation rules in the Maritime Code in its communication with the Norwegian Coastal Administration. Gard believed that the total costs for clean-up and wreck removal would exceed the limitation amount, and wanted an agreement with the Norwegian Coastal Administration that would ensure the shipowners' rights under the Maritime Code as the shipowners saw them. In July 2007, the Norwegian Coastal Administration refused to enter into such an agreement.

After significant negotiations, the Coastal Administration sent a letter on 27 May 2011 addressed to Gard which resulted in a decision. The decision was based on a claim of NOK 198,714,272 to cover the State's expenses for the pollution action, and ordered the polluter to remove the stern of MV Server from the accident site. On behalf of Avena, Dalnave and itself, Gard appealed the Coastal Administration's decision to the Ministry of Fisheries and Coastal Affairs. The complaint led to a minor downward adjustment of the reimbursement amount, but in a decision on 13 June 2012, the Ministry upheld the order to remove the stern.

Following a request from Gard on behalf of Avena and Dalnave, the Oslo District Court established a limitation fund on 23 May 2012 in accordance with Ch 12 of the Maritime Code. The limitation amount pursuant to § 175(a) of the Maritime Code was NOK 226,380,814.76 and was paid. In addition, a guarantee of NOK 115 million was provided, so that the total fund amount is NOK 341,380,814.76. The State received an interim payment of NOK 130 million.

During the fund processing, a number of disputes arose. These were considered at a fund meeting on 24 September and 5 November 2013 on the basis of a recommendation from the appointed fund manager. On 15 January 2014, Dalnave and Gard filed a summons to the Oslo District Court regarding several of the disputed issues. In addition, they argued that the decision to remove the stern was invalid. Later, Avena joined the plaintiffs' side. The State filed a summons on other issues in the fund processing. One of these was settled during the case preparation for the District Court. The two cases were joined for joint consideration and decision. It is these two cases that are now being processed in the Supreme Court. In addition, there is a dispute over what the guarantee amount of NOK 115 million can be used to cover.

The Oslo District Court held that:

1. The Ministry of Fisheries and Coastal Affairs' decision of 13 June 2012 on wreck removal is invalid in respect of Dalnave;
2. The Ministry of Fisheries and Coastal Affairs' decision of 13 June 2012 on wreck removal is valid in respect of Avena;
3. The obligation to remove the wreck applies regardless of the limitation of liability in the Maritime Code, Ch 9.
4. The claim for reimbursement of operating costs for the use of the state's vessels, the contingency supplement for the crew on the Norwegian Coastal Administration's vessels, and the Norwegian Coastal Administration's administration costs in connection with the oil spill response are approved in the limitation fund.
5. The claim for reimbursement of VAT paid by the Norwegian Coastal Administration is approved by the appraisal fund.
6. The Norwegian Coastal Administration is entitled to interest on late payments on approving requirements in the appraisal fund, from the establishment of the appraisal fund until payment takes place.
7. The claim for reimbursement of VAT of NOK 10,644,928.22 kroner which the Coastal Administration has paid to municipalities and inter-municipal action committees in connection with the oil spill response is not approved in the limitation fund.

Avena, Dalnave and Gard appealed to the Borgarting Court of Appeal against the judgment except for finding 1. The State cross-appealed on findings 1 and 7. During the preparation of the appeal case, some additional points of dispute were dropped or settled.

The Borgarting Court of Appeal reversed finding 1 in favour of the State but rejected its appeal on finding 7, and rejected Avena, Dalnave and Gard's appeal.

The parties appealed and cross-appealed to the Supreme Court:

Held:

VAT

This case raises two VAT issues. First, in respect of State-paid VAT, the State has the right to include VAT that the Norwegian Coastal Administration paid to businesses in its reimbursement claim under the Pollution Control Act § 76, and the shipowners' appeal on this point must be rejected. Second, in respect of VAT which has been included in claims from municipalities and inter-municipal action committees vis-à-vis the Norwegian Coastal Administration in accordance with the Pollution Control Act § 75(2), the State cannot demand this VAT refund from the shipowner pursuant to the Pollution Control Act § 76(1) on coverage of expenses under § 75.

Review of wreck removal decision

The order to remove the stern of the ship from the accident site was based on the Pollution Control Act § 37(2), which states that it 'may' be ordered to remove shipwrecks left in violation of § 28. According to § 28 it is forbidden to leave shipwrecks that can 'appear unsightly or be harmful or detrimental to the environment'. In the Norwegian Coastal Administration's letter of 27 May 2011, the order to remove the stern from the crash site was based on the fact that the wreck was harmful or inconvenient to the environment. In the justification, the Norwegian Coastal Administration stated that a shipwreck located in a nature reserve could in practice always be to the detriment of the environment. It had therefore not been found necessary to initiate any major environmental study; the experience that the Norwegian Coastal Administration had with other wrecks, provided a sufficient basis for the decision. The shipowner complained to the Ministry of Fisheries and Coastal Affairs. In the shipowners' view, the lack of investigation constituted a procedural error. The shipowners' side also claimed that the situation at the accident site implied that there was no danger of damage or inconvenience to the environment, so that the Norwegian Coastal Administration's decision was to that extent also based on an incorrect application of the law. In its submission of the complaint to the Ministry, the Norwegian Coastal Administration emphasised that a shipwreck that has been occurred in a nature reserve will be unsightly even if it is not visible above water. The Ministry referred to this and upheld the order to remove the stern on the basis of the following application of law:

The Ministry thus assumes that the stern of the ship Server is a shipwreck that is obviously detrimental to the environment, and that the conditions for issuing an order pursuant to the Pollution Control Act § 37 cf § 28 were therefore present. Against this background, the Ministry sees no need to assess whether the stern is harmful or detrimental to the environment.

The Ministry thus expressly failed to take a position on whether the stern ship constituted a damage or inconvenience to the environment. The Court cannot test the validity of the decision on a condition on which the Ministry did not have a position. This finding in the Court of Appeal's judgment is set aside.

Owner

In contrast to the District Court, the Court of Appeal concluded that the wreck removal order was in fact directed at Dalnave, the management company for MV Server, not just Avena, which is the ship's registered owner. The Court of Appeal further concluded that the wreck removal order could be directed to Dalnave. The Supreme Court will only rule on the latter finding. The legal basis for the order is the Pollution Control Act § 37. The first and second paragraphs read as follows:

The municipality may order that anyone who has left, emptied or stored waste in violation of § 28, shall remove it, shall clean up within a certain deadline, or shall cover reasonable expenses that someone has had for removal or cleanup. Such an order may also be issued to the person who has violated § 35, first or third paragraph, if this has led to the waste being spread.

The pollution authority may also issue an order for clean-up and removal to the person who was the owner of a motor vehicle, ship, aircraft or other similar major object, when it was left in violation of § 28 or who is the owner when the order is issued.

While the first para applies to waste in general, the removal of a 'ship, aircraft or other similar major object' is regulated by the second para. In Ot.prp.nr.11 (1979-1980) p 149, the special rule is justified by the fact that these are such large objects that it is not natural to refer to them as 'waste'.

The agreement between Avena and Dalnave is described as a 'management agreement'. The name itself can not be decisive. One must look at the content of the agreement that has been entered into and the circumstances in general. The Court of Appeal took as its starting point that 'Dalnave was not the owner of the ship', and that 'the relationship between Avena and Dalnave, [is] not ... sufficient that the company relations can generally be set aside with the effect that Dalnave can be considered the owner of MV Server in any context'. Nevertheless, the Court of Appeal came to the conclusion that Dalnave must also be regarded as the 'owner' as the term is understood in the Pollution Control Act § 37(2), because Dalnave 'was and is ... in a position to exercise a number of the powers normally belongs to an owner'.

This is incorrect. It is typical in shipping that a number of the powers that otherwise accrue to an owner are left to different companies. This was also the case when the Pollution Control Act was passed. If it had been the intention that such companies could also be regarded as 'owners' within the meaning of this provision, it would have been natural to specify this in the law. This applies not least because the subject of liability in § 37(1) is stated as 'the person who has left, emptied or stored waste' and thus can obviously include such operating companies. In this case, a very comprehensive management agreement has been entered into, but it does not go beyond what can reasonably follow from a management agreement. The wreck removal order cannot be directed to Dalnave based on § 37(2), and the shipowners' appeal on this point succeeds.

Wreck removal orders and limitation rules in the Maritime Code

After the sinking of the MV Server, a limitation fund was established in accordance with the rules in the Maritime Code, Ch 12. The parties disagree on whether the financial framework for the fund limits the duty of action for the owner as a result of the wreck removal order under the Pollution Control Act. The answer is based on an interpretation of the Maritime Code § 172(a) on limitation of requirements in connection with clean-up measures after maritime accidents. It states that when the ship's tonnage is more than 300 tonnes, the right to limitation of liability applies pursuant to § 175(a) - which determines the limits of liability - 'regardless of the basis for liability, for claims in connection with: 1) ... removal ... of a ship which has sunk ... or been wrecked'.

The wording itself does not provide a clear answer here. The same wording, or fairly similar wording, existed in previous regulations. Nor do these, or the wording of the Conventions on which they are based, provide a clear answer. The LLMC 1976, on which § 172(a) of the Maritime Code is based, does not entail any obligation to allow a public law clean-up obligation to be covered by the limitation rules. During the diplomatic conference on the LLMC 1976, there was no majority support for a proposal that the shipowner should have the right to report to the fund its own expenses to avert and limit losses to which the limitation rules apply. The reason for excluding such claims was that the shipowner had a duty to reduce the effect of its own damaging measures, and that it would therefore be immoral for it to report such claims to the fund: NOU 2002:15 pp 15-16.

In a consultation note from the Ministry of the Environment on 27 February 2001, the Ministry proposed as a clarification to include a provision in the Pollution Control Act § 5 that the limitation rules in the Maritime Code do not apply to the person responsible for action under § 46 of the Pollution Control Act, cf § 7. The proposal provoked strong opposition in consultations, both with regard to whether this reflected existing law and whether it was a happy solution. The Ministry therefore did not proceed with the proposal, but left it to the Maritime Law Committee to investigate the issues regarding limitation of liability rules and the costs of clean-up measures. The Maritime Law Committee stated in s 2.3 on p 15:

The Maritime Code § 172 first paragraph nos 4 and 5 [corresponding to the current § 172a nos 1 and 2] only covers claims from third parties, including public authorities, who have incurred expenses for removal and clean-up measures, and who can claim compensation from the shipowner to cover the requirements. ...

Costs that the shipowner has if the shipowner himself implements removal and clean-up measures or other damage-limiting measures as mentioned in the Maritime Code § 172 first paragraph nos 4 to 6, are thus not subject to liability limitation. The costs of the shipowner and other persons entitled to limitation of such measures are simply not covered by the enumeration in § 172 of claims subject to limitation of liability, nor are they taken into account in any other way in the application of the rules on limitation of liability. In such cases, the shipowner must cover such costs in addition to the claims that a third party has as a result of the maritime accident.

Under point 8.5 on p 40, the Committee pointed out that this is hardly a satisfactory solution. First, it could lead to the shipowner not complying with the clean-up obligation, but leaving the clean up to the public sector, in order to benefit from the public sector's reimbursement claim being covered by the limitation rules. Secondly, it complicated the assessment of what the level of limitation of liability should be for claims that were actually covered. However, the Committee's solution was not to allow the public law duty to act to be covered by the limitation of liability rules. Instead, the Committee proposed raising the limitation amount in combination with allowing the person who had incurred reasonable expenses to clean up itself, and who was covered by the limitation of liability rules, to report these expenses to the fund. Thus, in practice, the shipowner would at least be able to obtain a kind of 'discount' on the costs by allowing these expenses to compete with other claims in the fund.

With the amendment of the law in 2005, the rules on limitation of liability for claims in connection with, among other things, lifting and removal of wrecks were moved from the Maritime Code § 172 to the new § 172(a). The special limits of liability for claims covered by section 172(a) are laid down in section 175(a), and the owner's right to report its own costs of cleaning up in the limitation fund is stated in § 179.

The Committee's statements that the duty to remove wrecks in accordance with public law rules falls outside the limitation of liability rules are thus included as a precondition for the legislative changes that were implemented. Even if they directly concern the legal situation before the legislative amendments proposed by the Committee, they must weigh as heavily in the interpretation of § 172(a) as ordinary preparatory statements on new statutory provisions.

It follows that the shipowners' argument that the obligation to comply with the wreck removal order is limited by the financial framework of the limitation fund cannot be upheld, and that the appeal on this issue must be rejected.