P&I Clubs are not jointly and severally liable for claims against their Members, the Rio de Janeiro State Court of Appeals decided

Attorneys acting for Brazilian cargo underwriters, who were awarded a favourable judgment on a cargo claim on a foreign shipowner that purportedly went out of business thus frustrating the enforcement of the court decision, filed a lawsuit before a civil court in Rio de Janeiro against the P&I Club of that shipowner, a leading mutual within the International Group that maintains an office in that city, 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 swiftly turned down by the first instance court and the Rio de Janeiro State Court of Appeals (TJRJ) has just confirmed that the demand is groundless, since 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.

In her comprehensive decision, TJRJ’s 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 are owed by the defeated shipowner to the attorneys of the cargo underwriters as it would violate the principles of the adversarial proceeding and full right of defence.

Rio de Janeiro State Court of Appeals (TJ-RJ)

While there is a precedent ruling issued in 1995 by the Court of Appeals of the State of Rio Grande do Sul in the same direction, this is a significant decision because it reaffirms, 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.

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

A copy of the judgement by the TJRJ is available on request.