August 22 2018 | Contributed by Kincaid | Mendes Vianna Advogados Shipping & Transport Brazil
The Sixth Civil Chamber of the Rio de Janeiro State Court of Appeals recently decided that a protection and indemnity (P&I) club was not liable for an associate shipowner’s debts. In its decision, the court distinguished the P&I club from insurers operating in the Brazilian insurance market.
In the original proceedings, the Ceara State Court of Appeals confirmed the first-instance decision which granted the Brazilian insurer’s claim and required the foreign shipowner to reimburse the insurer for the indemnification paid to its insured for the damaged cargo. However, the shipowner failed to pay the credit owed as, according to the insurer and its lawyers, the foreign shipowner had ceased his activities. Thus, the Brazilian insurer’s attorney filed a lawsuit before the Rio de Janeiro State Court against the foreign shipowner’s P&I club, claiming a declaration that the P&I club was a joint or secondary debtor of the shipowner with respect to payment forthe aforementioned cargo damage and attorney fees. The first-instance judge rejected the claim. This decision was
confirmed in the second instance by the Sixth Civil Chamber of the Rio de Janeiro State Court of Appeals.
The second-instance decision is significant, as it considers the merits of the existence of joint or secondary liability between P&I clubs and associated shipowners. In short, the court made the following observations:
- The legal relationship between the shipowner and its P& club was of a statutory nature rather than a contractual one (as was the case for the existing relationship between the insurer and its insured). In other words, the P&I club maintained an associative relationship with its members. This constituted a corporation of mutual assistance, which is distinguished from the relationship that exists in insurance
- In an insurance contract, the insurer must reimburse the insured for the indemnity paid to the aggrieved third party. P&I club coverage is subject to the ‘pay to be paid’ rule. Therefore, if a shipowner fails to pay an amount that it was incumbent on making, the P&I club does not become liable for such payment.
- The sucumbentia fees due to the insurer’s attorney should not have been paid by a third party that was not even a party to the lawsuit that created the aforementioned fees.
- The P&I club’s obligation to the shipowner was restricted to civil liability coverage resulting from the cargo loss or damage. Further, the limits of such coverage could not be extended by judicial means in order to include the sucumbentia fees that the shipowner owed the attorneys.
- The P&I club had no joint and several liability in relation to the shipowner’s obligation, as it was not a party to the proceedings that adversely judged the shipowner. Imposing this liability would violate the adversary proceeding and full defence principles.
The Rio de Janeiro State Court of Appeals’ decision is paramount for the Brazilian shipping industry because it creates an important court precedent regarding P&I clubs‘ liability for the damages caused to third parties by their associates (let alone imposing joint and severally liability on them) and confirms the already existing foreign precedents on this issue.