Claim No: CL-2022-000527 - [2025] EWCA Civ 1387

This appeal concerns the proper interpretation of a marine insurance policy (the Policy) issued by the claimant insurer, MS Amlin Marine NV (Amlin or the Insurer), on 28 March 2018 to the second Defendant, Bintan Mining Corporation (the Charterer or the Insured), in respect of the Charterer’s liability. The cover was for 12 months from 1 April 2018. The Charterer is now in insolvent liquidation.

King Trading Ltd (the Owner) time-chartered the Solomon Trader to the Charterer by a time charterparty dated 29 May 2017. In February 2019, the Solomon Trader grounded in the Solomon Islands. The Owner and the third Defendant, the Korea Shipowners’ Mutual Protection & Indemnity Association (the Club), obtained an award on 14 March 2023 against the Charterer in LMAA arbitrations in Hong Kong (the Award).

The Award against the Charterer, together with costs and accrued interest, now exceeds US$47 million. The Charterer was wound up in the BVI on 25 March 2021, and in London on 24 April 2024.

The Insurer issued these proceedings on 5 October 2022 seeking declarations that (i) a “pay to be paid” or “pay first” clause in the Policy (the “pay first clause”) was enforceable by the Insurer against the Charterer in respect of its liability under the Award, and (ii) the pay first clause survived the transfer of rights to the Owner and the Club under the Third Parties (Rights against Insurers) Act 2010 (the 2010 Act).

In other words, the Insurer claimed that its pay first clause (which was found at clause 30.13 of the Policy) meant that it did not have to indemnify the Charterer against its liability under the Award. The Charterer had not paid and could not pay the Award, because of its insolvency. As a result, the Insurer said that the proper interpretation of the Policy meant that it had no liability to the Owner and the Club, even if the Charterer’s liabilities passed to the Insurer under the 2010 Act.

The judge, Mr Justice Foxton, made declarations on 30 July 2024 to that effect. Specifically, the judge declared that: (i) the pay first clause was incorporated into the Policy, (ii) the pay first clause was enforceable against the Charterer, (iii) the true interpretation of the Policy meant that no indemnity was payable by the Insurer in respect of any liability that the Charterer had not discharged, and (iv) the pay first clause survived any vesting of the Charterer’s rights under the Policy in the Owner and the Club under the 2010 Act.

The Owner and the Club appealed on three grounds, which I shall present in reverse order. It is said that the pay first clause should not be given effect because: (a) it is inconsistent with the insuring clause (the inconsistency ground), (b) it falls foul of the so-called “red hand doctrine”, because it is an onerous or unusual clause, and was not brought fairly and reasonably to the Charterer’s attention (the red hand ground), and (c) it was not incorporated into the Policy (the incorporation ground).

The incorporation ground was not vigorously pursued in oral argument, so I shall concentrate on the inconsistency and red hand grounds. In essence, though, I have concluded that none of the grounds can succeed and that the judge was right, broadly for the reasons he gave. I have, however, respectfully disagreed with the judge on one point, namely as to the proper starting point for our consideration of the inconsistency ground. I shall explain that difference of view at [61]-[62] below.

I shall give my reasons under the following headings: (i) the critical terms of the Policy (ii) other terms of the Policy, (iii) the evidential background and the application by the Insurer to adduce further evidence, (iv) the legal background concerning pay first clauses, (v) the inconsistency ground, (vi) the red hand ground, (vii) the incorporation ground, and (viii) conclusions.

Under these headings, I will draw, with gratitude, on parts of the judge’s judgment.