P&I Clubs are not “jointly and severally liable”

The Rio De Janeiro State Court Of Appeals has ruled that P&I clubs are not jointly and severally liable for claims, correspondent Proinde has reported.

Attorneys were acting for Brazilian cargo underwriters that had been awarded a favourable judgment on a cargo claim against a foreign shipowner. That shipowner  purportedly went out of business, thus frustrating the enforcement of the court decision. The attorneys filed a lawsuit before a civil court in Rio de Janeiro against the group P&I Club of that shipowner, seeking to obtain a declaration from the court that the P&I providers have joint and several liabilities for loss and damage arising out of cargo carriage and payment of legal costs and winning lawyer’s fees

The claim was turned down by the first instance court and the Rio de Janeiro State Court of Appeals (TJRJ) has confirmed that the demand is groundless.

The appeals court said that the relationship between the shipowner and his P&I Club is statutory in nature and should not be confused with the contractual link between an insurer and its insured.

TJRJ Rapporteur-Justice Teresa de Andrade highlighted the relevant provision of the P&I Club’s rule (Payment first by the Member), widely known by the axiom ‘pay to be paid’, whereby a Member can only be indemnified by the P&I Club following a final judgment by a competent court, a final arbitration award or a final settlement of the dispute as approved by the Club, and only after he has paid the claim.

The Justice also ruled that, as a third party not named in the original cargo claim lawsuit, the Club should not pay the prevailing lawyer’s fees that were owed by the defeated shipowner to the attorneys of the cargo underwriters, as that would violate the principles of the adversarial proceeding and full right of defence.

While there was a precedent ruling issued in 1995 by the Court of Appeals of the State of Rio Grande do Sul in the same direction, Proinde said that this was a significant decision because it reaffirmed, in the light of the contemporary law and jurisprudence, that, unlike commercial, profit-making insurers operating in the Brazilian market, the P&I Clubs are not directly or indirectly liable for cargo loss or damage caused by their membership’s vessels.

Such second instance decision would also include P&I Correspondents who are neither agents nor legal representatives of the Clubs for which they act.