4.4 Case law
A liability for breach of legitimate expectations through valid government acts has long been recognised in relation to changed planning regulations. In Rt. 1911 p. 444, the owner of a building site was given compensation for costs spent in reliance on planning regulations that were subsequently changed. Similarly, in Rt. 1968 p. 62, compensation was given to an owner for reliance on a building permit that had been issued in an unregulated area. The area was subsequently regulated, which meant that the owner could not after all carry out his building plans according to the permit. In both of these cases, the Supreme Court seems to have considered that the liability was strict and served to protect established, reasonable expectations, i.e. it did not depend on fault or wrongfulness. In the latter case, the court indicated that it considered the liability to follow directly from §§ 97 and 105 of the Constitution, the reasoning presumably being that the changed regulation, although legitimate, nevertheless disturbed established legitimate expectations under the old regulation.
This reasoning was upheld in a more recent decision in Rt. 1994 p. 813, where the Supreme Court nonetheless emphasised that what was at issue was a relatively narrow exception from the main rule that change of regulations must be expected and does not give a right to compensation. The court specified here that the exception was limited to reliance on existing and settled planning regulations, and did not cover disappointed expectations in relation to every kind of regulatory changes. Specifically, it required that the regulatory change could not reasonably have been foreseen, and that the costs in reliance on the existing regulation were significant. To this effect, the court seems to have affirmed that liability was strict and followed from §§ 97 and 105 of the Constitution.
One case which goes quite far in imposing liability for disappointment of expectations is Rt. 1925 p. 988. Here compensation was granted for the loss caused to a farmer, by virtue of a permit to import muskrats being withdrawn. The rationale may have been that the permit was apparently valid and therefore reasonably relied on, even though it was in fact invalid due to a lack of authority on the part of the permitting authority and therefore validly withdrawn. The case stands as a quite striking example of compensation being granted for loss caused by a valid decision overturning a prior invalid decision, because the latter had created legitimate expectations. The decision has however been criticised in the literature for going too far.(1) See Hagstrøm (1987) p. 371, referring to critique by both Castberg and Eckhoff.
In more recent case law, the Supreme Court may also appear more sceptical about imposing such a seemingly strict liability for disappointment of established expectations. In Rt. 1975 p. 620 (Eskemyr), a municipality had sold a number of housing sites subject to a specific area plan. The plan was subsequently changed, in order to make it possible to build more and bigger houses (e.g. apparently an apartment block), which led to the owners of the other sites claiming compensation because this had allegedly negatively affected the value of their properties. Although the Supreme Court found that the owners had a reasonable expectation that future buildings in the area would be in accordance with the area plan, it nevertheless held that this was not a legally protected interest. Specifically, it reasoned that the municipality had a right and a duty to adapt its planning regulations to changing needs, and that this could not give anyone relying on a given regulation the right to compensation. The difference from the previously cited case law relating to changed planning regulations, seems to be that in this latter case the owners claimed compensation for their expectation interest, i.e. the alleged reduced value of their housing sites, as a result of the changed regulation.
What must still be considered the central criteria for a liability for disappointed expectations was introduced in Rt. 1981 p. 462 (Malvik).(2) See also to this effect Hagstrøm and Stenvik (2015) p. 56.A building society had acquired a large property in expectation of being allowed to build houses there, based at least to a large extent on a perceived understanding with the municipality that the necessary permits would be obtained. The Supreme Court found that no agreement had been formalised, and that representations and decisions by the municipality that clearly assumed the project would go ahead could not be interpreted as a binding commitment from the municipality. As regards non-contractual liability, the court nevertheless considered it “conceivable that an expectation created by the municipality that the plan would be implemented, should be legally protected” (470) and that “there may be situations where compensation should be awarded irrespective of fault” (p. 471). This seems to have derived from a more general principle set out by the court, where it considered that a possible liability for disappointed expectations needed to depend on an evaluation of the “basis and strength of the expectation and on the circumstances that led the municipality not to decide in accordance with the expectation” (p. 469).
The majority of the court nonetheless found that on the one hand the building association did not have a reasonable expectation that the municipality had committed itself, since the association had experience as a builder and was itself well placed to assess the risk factors, and on the other hand that the decision of the municipality not to go ahead with the plans was based on a prudent weighing up of different concerns, where other public concerns (in this case, the location of a planned highway) had eventually won out. There was, however, dissent. The minority found that the conduct and representations of the municipality had created a very strong basis for a legitimate expectation regarding the municipality’s intention, and that the fact that the decision of the municipality not to go ahead with the plans was based on a mere change of policy therefore suggested the municipality was liable. Although the majority’s reasoning was that there was no basis for liability in this specific case, partly because the government had acted without fault, the broad evaluative criterion that it set out does also seem to suggest that fault on the part of the government in creating the expectations in the first place was not an absolute criterion for liability.
This was followed up in Rt. 1990 p. 1235 (Fiskarbank). A ship-owning company had relied on a subsidy scheme for shipbuilding in order to enter into a contract with a Norwegian shipyard. The Supreme Court found that that the ship was in fact not eligible for a subsidy under the applicable regulations, and consequently that the refusal to grant a subsidy was valid. At the same time, it was clear that similar ships had in the past obtained subsidies under the arrangement, and thus the question was whether the ship-owning company, irrespective of the correct interpretation of the regulations, had at least a legitimate expectation that it would receive subsidies, based on past government practice. The court referred to the same principle set out in the Malvik case, stating that liability depended both on the “basis and strength of the expectation”, and on the “circumstances which led to the decision not being in accordance with the expectation” (p. 1241). Although the court considered that the company did have good reasons to believe the application would be successful, based on past practice, it nonetheless found this insufficient for liability, as the past practice was based on an incorrect interpretation of the applicable regulation, and it considered there to be “strong concerns against imposing liability on public authorities for discontinuing a practice in breach of regulations, provided no specific promise has been given to the person whose expectations are disappointed” (p. 1241). While this past practice was the government’s fault, it did not constitute wrongfulness in relation to the ship owner. Moreover, the ship owner’s expectations did not have their basis in any direct contact with the relevant authority. In addition, in this case, the lack of fault on the part of the government in relation to the claimant was a factor in the broad evaluation by the court that led to no liability being found, but here it also seems that the court did not consider fault an absolute requirement for liability.
In Rt. 1992 p. 1235 (fiskekvote), the Supreme Court similarly held in an obiter dictum that government representations and promises giving the appearance of a government commitment could lead to the government being liable, even if the relevant authority did not have capacity to restrict its powers in this manner (p. 1240-41).
A number of other cases appear to rely more clearly on negligent misrepresentation as the basis for government liability in cases of disappointed expectations.
In Rt. 1915 p. 721, a permission to import cloth free of duties for a period of three years was withdrawn, because the relevant authority lacked competence to give such a permit for a longer period than one year. The court found that the government was liable for wasted costs spent in reliance on the permit, on the one hand because the private party had reasonably and without fault relied on the permit, and on the other hand because the relevant authority had not shown “necessary diligence” when the permit was given.
In Rt. 1952 p. 475, the government was considered liable towards an association of forest owners for its request that the association enter into a number of contracts for wood, meant to be used for the drying of fish in the upcoming season. As it turned out, the wood was not needed for this purpose after all, and the association suffered a considerable loss. Although no contract had been entered into between the association and the government, the latter was considered liable. It had specifically requested the association beforehand “to do its utmost to provide the necessary quantum of wood material”. Although the association was not legally required to act, it had reasonably relied on the request as an assurance that there would be a pressing demand for the requested quantum of wood. But in finding in favour of liability, the court also held that the relevant authority was to be blamed for having misled the forest owners’ association, stating that it “placed considerable weight” on this (p. 477).
In the previously mentioned Rt. 2006 p. 1519, a former offshore diver was deemed to have a legitimate expectation that treatment of his application for public disability insurance would be prioritised by the social security office. He had informed the authority that he needed a decision within a certain date to qualify for a private insurance from his employer, and had also been given assurances by the head of the authority that he would do what he could, in order to ensure treatment of the application before the relevant date. In finding that there was a basis for liability, the Supreme Court assumed that government fault was a necessary requirement for liability (see in particular para 44). Applying the law to the facts, it was found that one of the employees at the social security office had rather recklessly failed to prioritise the application, with full knowledge of both the promise that had been given and the consequences for the former diver of not meeting the specified date. Thus, there was little doubt that there was negligence on the part of the government.
In Rt. 2009 p. 1356, the court referred to the criteria developed in Rt. 1981 p. 462 and Rt. 1990 p. 1235 as part of the evaluation of negligence under the Torts Act section 2-1, but did not develop this much further.