Subrogation and contribution


Gard Marine & Energy Ltd v China National Chartering Co Ltd [2013] EWHC 2199 (Comm)

The vessel Ocean Glory ran aground in the Kashima Fairway, off Japan, and became a total loss. The claimants were the insurers of the owners and demise charterers, who paid the loss and took an assignment of the assureds’ rights against the defendant time charterers. The insurers asserted that the loss was caused by the fact that the port of Kashima (to which the time charterers had ordered the vessel) was unsafe. The time charterers blamed the casualty on the negligence of the master.

Teare J found in favour of the insurers on the causation issue. However, the time charterers denied liability on the basis that the demise charterers did not face any liability to the owners under the charterparty between them, so that there was no liability to pass on to the time charterers. The charterparty contained a safe port warranty on the part of the demise charterers. Clause 12 went on to provide that the demise charterers were to insure the vessel at their own expense to protect the interests of both the owners and the demise charterers. The question was whether the owners were to look only to the insurers and not to the demise charterers in the event of any loss for which the demise charterers were liable (here, the breach of the safe port warranty).

Teare J held that the charterparty did not exclude the liability of the demise charterers, so that the owners’ insurers had a right of subrogation in respect of the loss caused by the breach of the safe port warranty. The court distinguished Kodros Shipping Corporation v. Empresa Cubana de Fletes, The Evia (No 2) [1983] 2 AC 736 in which it had been held that an obligation upon the owners to insure removed the liability of the charterers under a safe port clause. In later cases it had been held that the obligation upon a charterer to provide the funds for the owner’s insurance did not exempt the charterer from liability for breach of a safe port warranty (D/S A/S Idaho v. Colossus SA, The Concordia Fjord [1984] 2 Lloyd’s Rep 385; Pearl Carriers Inc v. Japan Line Ltd, The Chemical Venture [1993] 1 Lloyd’s Rep 508). In the present case, although there was a co-insurance clause so that the demise charterers were co-assureds (unlike the position in The Concordia Fjord and The Chemical Venture), there was no objection in principle to an insurer suing a co-assured where the co-assured’s liability was not removed by the contract between the two co-assureds (see Tyco Fire and Integrated Solutions v. Rolls-Royce Motor Cars [2008] Lloyd’s Rep IR 617). 

For further information: Gard Marine & Energy Ltd v. China National Chartering Co Ltd [2013] EWHC 2199 (Comm)

Sousa v London Borough of Waltham Forest Council [2011] EWCA Civ 194

The claimant was insured by the insurers under a policy against damage to his property. The property suffered subsistence damage caused by the roots of a tree owned by the defendant. The insurers provided the claimant with an indemnity (other than in respect of the policy excess) and instructed him to commence proceedings against the defendant, subject to agreeing to indemnify him against the costs of the proceedings.

The claimant was required to use a specified firm of solicitors with whom the insurers had a Collective Conditional Fee Agreement (CCFA) which included a success fee of 100 per cent. The claim was settled on the basis that the defendant paid the claimant’s costs, but the defendant contested the success fee on the basis that it had not been reasonable for the claimant to have entered into a conditional fee agreement because he had the benefit of a full indemnity against costs by the insurers.

The Court of Appeal, upholding HHJ Behrens QC, held that the success fee was recoverable. The assured was the notional claimant, and the fact that the claim was being controlled by the insurers under their subrogation rights was irrelevant. The question was whether it was reasonable for the claimant to enter into a conditional fee agreement, and in the circumstances it was reasonable because he had been instructed to do so. Even if the court looked to the reality of the situation and treated the CCFA as one for the benefit of the insurers, there was nothing which precluded insurers from taking out a CCFA: the financial resources of the claimant were irrelevant to the question of whether he was entitled to enter into a conditional fee agreement.

For further information: Sousa v. London Borough of Waltham Forest Council [2011] EWCA Civ 194 (03 March 2011).

W v. Veolia Environmental Services (UK) Plc [2011] EWHC 2020 (QB)

The claimant’s 21-year-old Bentley, worth around £16,000, was damaged by the negligence of the defendant.

The claimant entered into a credit hire agreement for a replacement vehicle at a rate of £863.68 per day. Under the agreement the claimant assumed liability for the contractual rate of hire, but payment was deferred pending a claim for those costs that was made against the defendant, and to the extent that the costs were irrecoverable the claimant was insured by separate insurers against that risk up to the amount of £100,000.

The replacement vehicle was delivered to the claimant at his house, and he signed both the credit hire agreement and the insurance application. The credit hire agreement was to last for 85 days, but repairs had not been effected on the expiry of that period and so a second agreement was sent to him which he signed and returned. The Bentley took 185 days to be repaired even though the damage was not serious. The credit hire fees amounted to some £138,000. The insurers, having paid the hire fees to the full extent, sought to recover from the defendants. Their argument was that the hire agreements were unenforceable under the Cancellation of Contracts Made in a Consumer's Home or Place of Work etc Regulations 2008.

HHJ Mackie held as follows:

  1. The first agreement was unenforceable under the 2008 Regulations, although the second was valid.
  2. Had the claimant not paid the fees under the credit hire agreement, he would not have had a claim for damages against the defendants, because he would not have suffered any loss.
  3. However, the fees had been paid, albeit by the insurers, and accordingly the claimant had an action against the defendants for the sums paid, and the insurers were subrogated to that cause of action.
  4. The claimant had not failed to mitigate his loss by making payment, as he had acted reasonably.
  5. The evidence showed that the claimant’s financial affairs were in a bit of a mess, and accordingly he had not failed to mitigate his loss by entering into the credit hire agreement.
  6. Although the insurers had paid £38,000 ex gratia, that did not prevent them from recovering the full amount of their payment by way of subrogation.

For further information, W v. Veolia Environmental Services (UK) Plc [2011] EWHC 2020 (QB) (27 July 2011).