MS Amlin Marine NV on behalf of MS Amlin Syndicate AML/2001 -v- King Trader Ltd & others (Solomon Trader) [2024] EWHC 1813 (Comm)
Background
King Trading Ltd (“Owners”) time-chartered the vessel “Solomon Trader” (“Vessel”) to Bintan Mining Corporation (“Charterers”) by a time charterparty dated 29 May 2017.
Charterers had taken out a charterer’s liability policy with MS AMLIN (“Insurers”) covering charterers’ liabilities to a limit of US$50 million.
On 4-5 February 2019, the Vessel grounded in the Solomon Islands. Following the incident and on 25th March 2021, the Charterers went into insolvent liquidation.
On 14th March 2023, an LMAA arbitration Tribunal in Hong Kong found Charterers liable to the Owners in respect of the grounding, awarding Owners +- US$ 47million in damages.
Owners looked to Insurers for recovery.
Subject to the validity of the “pay first” clause in the insurance policy (“the Policy”) and how it impacted Owners’ indemnity claim, the parties accepted Owners were entitled to pursue the claim directly against Insurers under the Third Parties (Rights against Insurers) Act 2010 (“the 2010 Act”).
Whilst section 9(5) of the 2010 Act generally invalidates these clauses, it makes an exception in section 9(6) for contracts of marine insurance (save for death or personal injury).
These proceedings were commenced by Insurers to secure a determination that a “pay first” in the Policy has the effect that no indemnity is payable under the Policy to the extent that Charterers have not discharged the legal liability for which the indemnity is sought.
The “pay first” clause in the General Terms and Conditions (Part 5) of the Policy stated:
“It is a condition precedent to the Assured’s right of recovery under this policy with regard to any claim by the Assured in respect of any loss, expense or liability, that the Assured shall first have discharged any loss, expense or liability.”
Arguments in the Commercial Court
Owners argued that:
- the “pay first” clause in the insurance contract could not be relied upon by Insurers as this clause was repugnant to the terms of the certificate and inconsistent with the main terms of the Policy (i.e. to pay charterers’ liabilities to third parties).
- the clause applied only in those cases where the insured has the means to pay a claim before receipt of insurance monies, or that it does not apply at all in the event of insolvency, or in the event that it is a third party, rather than the insured itself, bringing a claim against insurers.
- “pay first” clauses could be distinguished in a fixed premium policy from those in the P&I context. This is because P&I Clubs have for many years included provisions in their rules which limit a member’s right to indemnity for liability risks to circumstances in which the member has first discharged the relevant liability under such clauses.
- on the basis of the common law, “pay first” clauses occupied a lower place in the contractual hierarchy and would negate or deny effect to a clause which enjoys higher contractual status, such that the clause should be “ruthlessly” read down.
Insurers rejected Owners’ arguments and highlighted section 9 of the 2010 Act makes clear that “pay first” clauses are permitted in all contracts of marine insurance.
Findings of the Court
The Court found in favour of Insurers, the “pay first” clause was not repugnant to the main terms of the Policy and Owners argument that the clause should be “ruthlessly” read down was rejected.
There was a deliberate decision taken not to confine the limited saving for “pay first” clauses under the 2010 Act to cases of mutual marine insurance, and to extend it to all contracts of marine insurance, save for death or personal injury.
Owners reliance upon common law rules of interpretation also failed.
Comments
Whilst Justice Foxton highlighted that the state of English law in light of the 2010 Act is “not particularly satisfactory”, the judgment provides welcomed clarity and confirms insurers can rely on “pay first” clauses which are clearly worded and incorporated in marine insurance policies. This includes not only mutual P&I, but also fixed premium policies.
Considering the sums involved and effect of the decision, it is possible that this judgment could be the subject of a future appeal.
