Paul David Wood & Anor v Dilip Desai & Anor
[2024] EWHC 1893 (Ch)
MS Amlin Marine NV v King Trader Limited & Ors
16 July 2024
[2024] EWHC 1813 (Comm)
High Court
A company had insurance that said they had to pay their own bills before the insurance would pay them. The company went bankrupt. The court said the insurance company didn't have to pay because the bankrupt company hadn't paid its bills first. The law allows for this kind of clause in ship insurance policies, unless it's related to death or injury.
Key Facts
- •Amlin Marine NV (Amlin) issued a charterers' liability insurance policy to Bintan Mining Corporation (BMC).
- •The policy contained a "pay as may be paid" clause (a condition precedent to recovery that the insured first discharge any liability).
- •BMC went into insolvent liquidation.
- •An LMAA arbitration tribunal found BMC liable to King Trader Ltd (the Owner) and the Korea Shipowners' Mutual Protection & Indemnity Association (KP&I) for USD 47 million.
- •The Owner and KP&I, as relevant persons under the Third Parties (Rights against Insurers) Act 2010, brought a direct claim against Amlin.
- •The question before the court was whether the "pay as may be paid" clause prevented the Third Parties from recovering under the policy despite BMC's insolvency.
Legal Principles
Contractual interpretation: Inconsistency or repugnancy between bespoke and boilerplate terms. Where a contract includes both specifically negotiated terms and incorporated pre-existing terms, the court may not give effect to an incorporated term if it defeats the main purpose of the contract.
Glynn v Margetson [1893] AC 351, Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep 342, Alexander v West Bromwich Mortgage Co [2016] EWCA Civ 496, Septo Trading Inc v Tinetrade Ltd (The NouNou) [2021] EWCA Civ 718
Contractual interpretation: Inconsistency or repugnancy within a single document. The court is more reluctant to read down or out a clause within a single document, especially if professionally drafted, as opposed to separate bespoke and boilerplate documents.
Fraser v BN Furman [1967] 2 Lloyd’s Rep 1, Sofi v Prudential Assurance Co Ltd [1993] 2 Lloyd’s Rep 559, Impact Funding Solutions Ltd v Barrington Support Services [2016] UKSC 57
Third Parties (Rights against Insurers) Act 2010: Section 9. Deals with conditions precedent in insurance contracts; generally overrides conditions requiring prior discharge of liability, but this exception applies only to death or personal injury claims in marine insurance.
Third Parties (Rights against Insurers) Act 2010, s.9
Exclusion clauses: Clear and unambiguous language is required for clauses that restrict the right to enforce an indemnity. However, this principle does not automatically override a clear "pay first" clause.
Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Outcomes
The "pay as may be paid" clause was held to be valid and enforceable.
The court found no repugnancy or inconsistency between the clause and the rest of the policy. The clause, while harsh, was unambiguous and did not contradict the main purpose of the policy. The Third Parties (Rights against Insurers) Act 2010 did not override the clause because it did not relate to death or personal injury claims.
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