Right of Subrogation in Marine Insurance-A Comparative Study of English and Chinese Law

FACULTY
OF LAW
Lund University

TIAN LI

Right of subrogation in marine
insurance:

A comparative study of English and Chinese Law

Master’s thesis
30 credits

Abhinayan Basu Bal

Master´s Programme in Maritime Law

Spring, 2012
Contents
Summary 1
Preface 2
Abbreviations 3
Chapter 1 Introduction
1.1 Background 4
1.2 Purpose of the thesis 5
1.3 Structure of the thesis 6
1.4 Research methodology 7
Chapter 2 History and development of subrogation in marine

insurance
2.1 History of subrogation 9
2.2 The proper fields of subrogation 11
2.3 Development of subrogation in marine insurance 13
2.4 Nature of subrogation in marine insurance 17
2.5 Purpose of subrogation 20
Chapter 3 Overview of right of subrogation & the rights and

obligations of the parties
3.1 Various situations under the right of subrogation 23
3.1.1 Recoupment 24
3.1.2 The abandonment and salvage 26
3.2 Rights of the insurer before and after full indemnification of the
assured 29
3.2.1 The right of subrogation raised after the full indemnification 29
3.2.2 The insurer's rights before the full indemnification 31
3.2.2.1 The implied obligations of the assured 31
3.2.2.2 Express obligations of the assured before full
indemnification from insurer 32
3.2.2.3 Limited explanation from courts on the express obligations 33
3.2.3 The insurer's rights after the full indemnification 34
3.2.3.1 Sections 80 and 81 of the MIA 34
3.2.3.2 Section 79 of the MIA 35
Chapter 4 Associated conceptions and definitions relating to
subrogation
4.1 Comparison between subrogation and assignment 39
4.1.1 A brief view in law of assignment 39
4.1.2 Subrogation compared with assignment 42
4.1.3 Distinction of subrogation and assignment discussed in case
law 44
4.2 Co-assured and waiver clause of subrogation 45
4.2.1 The insurer cannot exercise subrogation rights against co-
assured 45
4.2.2 The reason for the existence of co-assured 48
4.2.3 Exclusions on co-assured 50
4.2.4 The waiver clause of subrogation 53
Chapter 5 Litigation issues concerning to the third party under

subrogation
5.1 Who is controlling the rights to claim recovery from third party
under subrogation 55
5.2 Assured forfeits the right of subrogation to the third party 58
5.2.1 Assured forfeits the subrogation rights before insurance
contract 59
5.2.2 Assured forfeits the subrogation rights before the loss after the
insurance contract 61
5.2.3 Assured forfeits the subrogation rights before the
indemnification from insurer after the loss 61
5.2.4 Assured forfeits the subrogation rights after the
indemnification 62
Chapter 6 Right of subrogation under Chinese Law

6.1 The definition of subrogation under Chinese law 63
6.2 The insurer’s claiming rights 65
6.3 The scope of subrogation under Chinese law 67
6.4 The obligations of assured to protect the right of subrogation 69
Chapter 7 Conclusion 73
Supplement 76
Bibliography 79
Table of Cases 81
Summary
Marine insurance is one of the oldest forms of protection methods against

the loss. It has a very long history and is associated with the development
of the maritime business. When the assured is facing a loss caused by the
third party, he has the free choice of suing the insurer or the third party.
The problem raised under this circumstance. The assured has the
possibility of double recovery that cannot be recognized by the principle of
insurance law. The definition of subrogation provides the solution for this
situation.
The thesis will examine the law of subrogation under English law and
compare it with Chinese Law through analysing the cases law and English
legislation.
The last part of the thesis is the comparison study between Chinese law
and English law. In the Chinese law respect, there are some confused
issues about the right of subrogation such as the scope and definition. The
author will figure out the differences between Chinese law and English
law and provide the possible suggestions on these issues.
1
Preface
The purpose of this thesis is to examine the law of subrogation under

English law and compare it with Chinese law. I will analyse the related
provisions and cases law jurisdiction.
To prepare this thesis I have read several books in marine insurance that
contain the chapters of subrogation rights. The books are Marine Cargo
Insurance, The Law of the Marine Insurance, The Modern Law of Marine
Insurance and The Law of Marine Insurance and some other books.
Furthermore, I have quoted some speeches of Lord on different cases in
order to make the statement clear and accurate. Finally, I analyse the
relevant provisions in MIA and Maritime Code in China in order to
compare the differences between them.
After finishing the thesis, I will graduate from Lund University as a master
student of Maritime Law programme. I am grateful to a number of people
for supporting me to finish the thesis. I must thank firstly Abhinayan Basu
who is my supervisor and has provided quite a lot of suggestions and help
me on this work. I must also thank my parents. I could not finish the
master programme without their encouragement and support. Then I must
thank Professor Proshanto K. Mukherjee from World Maritime University
and Professor Lars-Göran Malberg from University of Goteborg for
guiding the study during these two years. In addition, I need thank my dear
friends Chun Deng and Lijia Yi from the maritime law programme in
Lund University. They provided the suggestions on the structure and the
Chinese law respect on the right of subrogation. Finally, I would like to
thank Peidi Liu from University of Goteborg for the extra support.
2
Abbreviations
CIF Cost, Insurance and Freight
FOB Free on Board
MIA Marine Insurance Act, 1906
P&I Club Protection and Indemnity Club
PPI Policy Proof Insurance
SUPPLYTIME 2005 Time Charter Party for Offshore
Service Vessels Code
TOWCON International Ocean Towage
Agreement
USD United State Dollar
3
1 Introduction
1.1 Background
Maritime business is always facing quite a lot of risks in practice from
very early time. Marine insurance as one of the oldest forms of protection
against the loss has a very long history and is associated with the
development of the maritime business. As the ship owner or cargo owner
may encounter the risks from sea or from third parties, it is better for the
owners to buy the marine insurance, which can cover the loss once they
meet the risks. When the owner buys the marine insurance, he is called the
assured and the person or company who provides the various kinds of
insurance is called an insurer or an underwriter (the insurance company
who handles with negotiations).
Further, assuming that the assured faces a loss of the insured cargo and it
is caused by the third party during the transportation over the ocean, the
assured has choice of claiming from the insurer under the contract of
indemnity or from the third party who has caused the loss under the tort.
Now the problem is raised under this circumstance. Generally speaking,
the assured has the free rights to choose either claim he wants to pursue at
first. If the assured decides to pursue claiming the recovery from the
insurer under the insurance policy, the insurer must pay the assured
indemnity for the loss. The existence of the right to sue the third party is
no defence.1 It means that the insurer cannot reject this claim or payment.
The reason is that the “insurer should first have exhausted his rights
against the third party.”2 Apart from claiming the insurer under the policy,
the assured also has the choice of claiming from the third party. This
brings a difficulty. “A right to compensation or indemnity from the third
1
Rhidian Thomas, The Modern Law of Marine Insurance, volume 2, London: Informa
House, 2002 at p. 123.
2
Charles Mitchell and Stephen Watterson, Subrogation: law and practice, Oxford:
Oxford University Press, 2007 at p. 308.
4
party is no barrier to an assured recovering against the insurer under the
policy. Similarly an assured’s right to recover as against a third party is in
no way prejudiced by either a right of indemnity under an insurance policy
or actual payment by the insurer.”3 The problem of double recovery may
happen under this circumstance. However, the nature of insurance as an
indemnity contract does not allow the assured recovered doubly by the
insurer and third party. The doctrine of subrogation provides the solution
of this issue. If the insurer pays the assured, the insurer is entitled to
exercise all the remedies and rights of assured against the third party. As
Lord held in the case Castenllain v. Preston reads as follows:
As between the underwriter and the assured the underwriter

is entitled to the advantage of every right of the assured,
whether such right consists in contract, fulfilled or
unfulfilled, or in remedy for tort capable of being insisted
on or already insisted on, or in any other right, whether by
way of condition or otherwise, a legal or equitable, which
can be, or has been exercised or has accrued, and whether
such right could or could not be enforced by the insurer in
the name of the assured by the exercise or acquiring of
which right or condition the loss against which the assured
is insured can be, or has been diminished.4
1.2 The purpose of the thesis

The purpose of this thesis is to examine the law of subrogation under
English law and compare it with Chinese Law. To achieve this purpose,
the author will closely examine the relevant provisions on Marine
Insurance Act, 1906 of United Kingdom and relevant case law
jurisdictions. This thesis will examine the provisions related to subrogation
and Chinese law as containing to Chinese Maritime Code.
The thesis will identify the differences in the law on the subject matter in
these two jurisdictions and discuss if there is any need to make
improvements in Chinese Law.
3
Howard Bennett, The Law of Marine Insurance, 2nd. Edition, Oxford: Oxford University
Press, 2006 at p.776.
4
The case of Castenllain v. Preston (1883) LR 11 QBD 380.
5
The thesis will is an attempt to explain the position of Chinese Law of
subrogation to foreign lawyers and highlight the possible differences in
outcome on the same case if brought before an English court and a
Chinese court.
1.3 Structure of the thesis

Chapter 2 is the brief overview of the subrogation in marine insurance. It is
including the general introduction of subrogation and the proper fields of
subrogation. In addition, it provides a deeper introduction about the
subrogation especially in marine insurance. In the following part of this
chapter, there is an argument about the nature of the subrogation whether it
is an equitable right or an implied contractual term in common law? At the
end of the chapter is the purpose of the right of subrogation.
Chapter 3 is combined with two parts that are the various situations under
the subrogation and rights of the insurer before and after the full
indemnification of the assured. In the first part of this chapter, the author
provides the situations of recoupment and distinguishes the definitions of
abandonment and the salvage. The second part of this chapter talks about
the rights and obligations of the insurer and assured respectively. The
author focuses on the disadvantages of the issue and the insurer should act
in the name of the assured when he claims the third party based upon the
subrogation. The problem in this chapter is when the insurer could have
the right of subrogation. The author answers this question in the 3.2.1 of
this chapter.
Chapter 4 is about the relative issues under the right of subrogation. The
first part of this chapter is the comparison between the subrogation and the
assignment. In this part, the author wants to tell the real differences
between these two confused definitions, namely subrogation and
assignment. At the end of the first part, the author uses a case that
highlights the differences between the subrogation and assignment. There
6
is saying that the subrogation will replace the assignment someday.
However, it is an arguable issue and the author uses some cases to prove
that this is an incorrect view and provides the reasons as well. In the
second part of the chapter, the author provides the situations on co-assured
and the waiver clause of the subrogation. There is a question whether or
not the insurer could use the right of subrogation against the co-assured.
The author uses the cases and provisions to answer this question. In
addition, the author provides the waiver clause of the exclusion on co-
assured that is a situation when the co-assured cannot be protected.
Chapter 5 provides some litigation issues concerning to the third party. At

the beginning of this chapter, the author asks a question: who is controlling
the rights to claim the recovery from the third party? The reason for this
question is that the insurer should act in the name of assured under the
right of subrogation in English law. In the last part of this chapter, the
author explains the four periods of the assured’s forfeiture of the claiming
rights from the third party. It leads to different results depending on the
different periods.
Chapter 6 is about the right of subrogation under the Chinese law. As

China belongs to the continental legal system, there are quite a lot of
differences in the right of subrogation between the Chinese law and
English law. The author divides this issue into four parts: the definition,
the insurers’ claiming right, the scope of subrogation and the obligations of
the assured on protecting the right of subrogation. These four parts could
be compared with the English law that are analysed in the previous
chapters. Moreover, the author points out the disadvantages in Chinese law
through comparing it with English law. Finally, the author provides
possible suggestions on how to improve the situation.
1.4 Research methodology

In this master thesis, the descriptive method of research is used for
introducing the history and development parts of the subrogation in marine
7
insurance law and showing the situations, sections, rights and obligations
under different chapters. Since the marine legislation under Chinese law is
stated in the existing legal framework of Maritime Code and Insurance
Law, the author uses the descriptive methods in order to clarify the exact
statement of the legislation.
In addition, the method of cases analysis is also used into this thesis. It is
easy to understand the abstractive definitions or situations of bringing the
case and lord’s speech. It is to say in this essay, the author uses quite a lot
of cases analysis to support the discussion. The scope of the cases is from
nineteenth century to present. The cases are relevant to main subject that is
the right of subrogation in marine insurance are introduced in details
among this master thesis. However, several cases which relating to the
waiver clause, co-assured, etc. are not stated in details.
Finally, the comparative method is also used in this thesis. The author uses
this method when analyses the differences between the subrogation and
assignment. This study method is also used in the chapter that is about the
comparison study between the Chinese law and English law in respect of
right of subrogation. Four respects, definition of subrogation under
Chinese law, insurer’s claiming rights, scope of subrogation in Chinese
law perspective and the obligations of assured to protect the subrogation
rights are compared with English law which is stated in early chapter
separately and accordingly.
8
2 History and development of
subrogation in marine
insurance
2.1 History of subrogation
Subrogation is a crucial principle in the field of insurance, which appears

at early time of Imperium Rome. The word “subrogation” comes from an
English word “substitution” and “surrogate” of Latin. In English law
perspective, the word of “subrogation” refers to a process. The process is
that one party of the contract is considered to substitute for another party.
Therefore, the “one party” based on his own benefits could acquire the
other’s rights against the third party. “It is often said that a subrogated
claimant ‘stands in the shoes’ of the party whose rights he is deemed to
have required.” 5 The subrogation rights appear in different situations,
which can be “acquired by contract” and “can be awarded as a remedy for
unjust enrichment.” 6 Such as Lord Hoffmann said in case of Banque
Financiere de la Cite v. Parc (Battersea) Ltd (1991) 1 AC 221
“Subrogation may arises either from the express or implied agreement of
the parties or by operation of law in a number of different situations.”7 In
marine insurance field, after paying the underwriter thereupon can get the
implied subrogation according to the Section 79 in Marine Insurance Act,
1906 (MIA).8 However, the underwriter usually asks for subrogation from
5
Oxford University Press, 2007 at para. 1.01, p. 3.
6
University Press, Oxford, 2007 at, para. 1.02, p. 3.
7
The case of Banque Financiere de la Cite v. Parc (Battersea) Ltd (1991) 1 AC 221,
House of Lords.
8
Marine Insurance Act 1906，Art. 79 Right of subrogation.
(1) Where the insurer pays for a total loss, either of the whole, or in the case of
goods of any apportionable part, of the subject-matter insured, he thereupon
becomes entitled to take over the interest of the assured n whatever may remain
of the subject-matter so paid for, and he is thereby subrogated to all the rights
and remedies of the assured in and in respect of that subject-matter as from the
time of the casualty causing the loss.
9
assured after paying in reality. It means the right of subrogation is on both
of implied (MIA) and express (contract) sides. There are some differences
between the implied and express subrogation in the respect of the letter of
subrogation. Such as the underwriter could claim the indemnity from the
third party using the name of assured no matter if the payment has been
received or not.9 Alternatively, underwriter claims the indemnity based on
its own benefit that means the sum money of returning under subrogation
is more than the indemnity under the insurance contract. The underwriter
does not need to return extra money back to the assured.10
The theories of unjust enrichment and subrogation are confused sometimes.

Subrogation could be a contractual term about transferring the rights of
claiming the recovery from third party and the basis of the subrogation
right is the common intention among the parties. However, under some
circumstances, the right of subrogation could be also considered based on
the prevention of unjust enrichment under equitable doctrine.11 Actually,
“there is no general doctrine of unjust enrichment in English law”,12 said
Lord Diplock in the case Orakpo v. Manson Investments Ltd (1978) AC 95.
However, this point of view has been changed in the following case of
Banque Financiere de la Cite v. Parc (Battersea) Ltd (1991) 1 AC 221. As
Lord Steyn declared “unjust enrichment ranks next to contract and tort as
part of the law of obligations. It is an independent source of rights and
obligations.”13 Thus, the words of Lord Hoffmann in this case can be the
definitive statement of English law.14 “Indeed, it might be more accurate to
(2) Subject to the foregoing provisions, where the insurer pays for a partial loss, he
acquires no title to the subject-matter insured, or such part of it as may remain,
but he is thereupon subrogation to all rights and remedies of the assured in and in
respect of the subject-matter insured as from the time of the casualty causing the
loss, in so far as the assured has been indemnified, according to this Act, by such
payment for the loss.
9
The case of Arthur Barnett Ltd v. National Insurance Co. of New Zealand Ltd (1967)
NZLR 874 (NZCA).
10
J. Birds, Contractual Subrogation in Insurance, JBL, 1979 at p. 124, 131.
11
supra. note 7.
12
The case of Orakpo v. Manson Investments Ltd (1978) AC 95.
13
supra. note 7.
14
His statement that non-contractual subrogation is a remedy for unjust enrichment has
been followed in: Birmingham Midshires Mortgage Services Ltd v. Sabherwal (1999) 80
10
describe his Lordship’s speech as a definitive restatement if the law… it
does not establish any new principles and contain nothing which conflicts
with any of the established principles relating to subrogation.”15
2.2 The proper fields of subrogation

The principle of subrogation can be applied into three main situations.
Firstly, the most significant one is insurance subrogation. It will be
introduced in details in the following. Secondly, the author takes an
example to explain this situation. A as a debtor owes B as a creditor
amount of money for the reasons like contractual, unjust enrichment, tort
or others. Then B receives the payment from C in respect of A’s
obligations. However, there is no contractual distribution clause between
A and C. It is possible that C could claim to B based upon the right of
subrogation by legal fiction. Hence, B’s rights are not extinguished by the
payment but are transferred to C so that he could claim for his own
benefits. It means that C is given the new rights that are copied from B’s
extinguished rights. There is another example of subrogation in the
guarantee law as following:
There are many situations where two parties are liable to

a creditor, where one satisfied his own liability to the
creditor, and where his payment or other performance
also has the effect of discharging the other’s liability. In
such cases, and whether or not the parties have
previously agreed that the performing party should have a
contractual indemnity, the law commonly giving him a
restitutionary remedy against the other. Depending on the
proper distribution of the burden of liability between
claimant and defendant, the claimant’s primary remedy is
a contribution or reimbursement award. In additional, and
as supplementary measure which is capable of supporting
either entitlement, the claimant has also commonly been
afforded the remedy if subrogation to the paid-off
creditor’s extinguished rights against the defendant. Such
remedies have been made available between various
parties, including sureties and principal debtors, co-
P & CR 256 (CA) 264; Cheltenban & Gloucester plc v. Appleyard (2004) EWCA Civ
291 [32].
15
11
sureties; sureties and sub-sureties; joint contractors;
partners; joint wrongdoers; and several wrongdoers liable
16
for the same damage.
In order to make this situation clear, there is a case named Niru Battery
Manufacturing Co. v. Milstone Trading Ltd (2004) EWCA Civ 487. The
Niru had the sale of goods contract with Milestone on the subject matter of
lead ingots. The payment was letter of credit against presentation on
various documents including bills of lading and an inspection certification
issued by SGS. The seller Milestone financed this deal through loan from
CAI, using the deposit of the warehouse warrants relating to the lead as the
security method. This arrangement put Milestone in a dilemma position.
Because Milestone’s only source of fund was the letter of credit.
Nevertheless, the payment under letter of credit required the bill of lading
from the Milestone, which in reality that the goods needed to be released
from the warehouse. However, the Milestone could not release the goods
without the warehouse warranties kept by the CAI until the payment done.
Finally, the Milestone presented a falsely bill of lading. Then the CAI
presented the falsely bill of lading and other necessary documents together
to the bank for claiming the payment. CAI paid the money away for the
benefit of another company in Milestone’s group, even though it had
previously sold the subject matter that was the goods of the sale to Niru.
The payment was paid under the letter of credit. The outcome was that
Niru, which has been indemnified the bank for its payment under the letter
of credit, had been induced to the part of USD 5.8m, without any return.17
SGS claimed to be returned all of the payment under three legal reasons,
which are subrogation, recoupment and contribution under the Civil
Liability (Contribution) Act 1978. Clarke LJ from the Court of Appeal
stated the leading judgement, held that “SGS was entitled to be subrogated
to Niru’s rights against CAI; SGS was entitled to reimbursement; and (if
16
Oxford University Press, 2007 at para. 6.03, p.88.
17
12
the 1978 Act applied) SGS would be entitled to 100 percent contribution
under its terms.”18
Finally, the third situation of how subrogation works in reality is explained

in another example. A as a debtor owes B as a creditor amount of money.
A could claim the indemnity from C based upon in tort or contract
between them after paying B. In the normal run of things, A pays B and
then recovers the expenditure from C. However, this process can be
disrupted if A becomes bankrupt or insolvent and B needs to improve that
A is becoming bankruptcy or insolvency as an unsecured debtor. Under
this circumstance, B could recover a little money or just nothing, even
though A’s estate is swollen by the amount of the indemnity. To prevent
this situation, there is principle that A could transfer his indemnity rights
to B and allows him to enforce this right against C for his own exclusive
benefit. For this kind of subrogation, there is one example, which is stated
in the Third Parties (Rights against Insurer) Act, 1930. It is about the third
party who has a claim against the bankrupt or insolvent assured to enforce
his rights under the liability policy.19 There is a new vision of the Act in
2010, Third Parties (Rights against Insurer) saying that B who is the
aggrieved party can claim the indemnity from C according to the insurance
contract directly. It seems like the instead of A’s contractual rights. It is to
say that this provision is much more similar with the right of subrogation
in insurance law.
2.3 Development of subrogation in

marine insurance
In modern society, the doctrine of subrogation and abandonment are to be
distinct quite well under the English insurance law system. However, the
situation that the indemnity insurer is entitled to acquire the assured to
subsist the rights based on the subrogation now is derived from the
18
The case of Niru Battery Manufacturing Co. v. Milstone Trading Ltd (2004) EWCA
Civ 487.
19
13
principle of abandonment from the eighteenth century (1750 - 1850).20
The abandonment doctrine during that time allowed a marine insurer who
had paid the total loss for the subject matter to be entitled to acquire
whatever remained of the insured subject matter (terms the “salvage”). As
Judge Tindal stated in the case Roux v. Salvador (1835) 1 Bing (NC), “out
of the very nature of the contract of insurance, which is a contract of
indemnity only: for the assured would obviously be more than
indemnified, unless the underwriter is put into his place as to all the benefit
that may be derive from what has been actually saved or recovered from
the loss.”21
As time passed and law evolved, the doctrine of subrogation and

abandonment were separated for the first time in the case Simpson v.
Thomson (1877) LR 3 App Cas 279, Lord Blackburn that stated that:
Where the owners of an insured ship have claimed or been

paid as for a total loss, the property in what remains of
the ship, and all rights incident to the property, are
transferred to the underwriters as from the time of the
disaster in respect of which the total loss is claimed for
and paid…But the right of the assured to recover
damages from a third person is not one of those rights
which are incident to the property in the ship; is does pass
to the underwriters in case of payment for a total loss, but
on a different principle. And on this same principle it
does pass to the underwriters who have satisfied a claim
22
for a partial loss, though no property in the ship passes.
Lord Chancellor made a statement in this case about the right of

subrogation as well. There is a principle that if the underwriter who has an
20
ibid
21
The case of Roux v. Salvador (1835) 1 Bing (NC) 526, 539.
22
The case of Simpson v. Thomson (1877) LR 3 App Cas 279.
In this case, there were two ships with the accident of collision that belonged to the same
owner; as a result, one of the ships was total loss. Therefore the insurer paid the
indemnity of total loss to the shipowner. After paying the indemnity, the insurer thought
could subrogate the rights which included with the owners of the cargo which had been
destroyed, in the distribution of the fund lodged in the court by the owner of the other
colliding vessel who was, of course, the very same person whom the insurer had
previously indemnified. The House of Lord ruled that the insurer had no right to be a
claimant to any part of the fund in this circumstance. Because he was acting in the name
of assured, he was in fact taking action against himself.
14
insurance contract with the assured, the underwriter pays the good
indemnity for the loss and he is entitled to succeed all the ways and means
by the assured in order to protect himself against or reimbursed himself for
the loss. Based on this principle, the underwriter of a vessel that has been
lost in the sea is entitled to succeed the ship if he can find it and recover it.
Moreover, the underwriter could claim any rights that the owner of the
vessel might have maintained on the insured vessel against the third party
or the wrongdoer who is causing the loss. In addition, the underwriter must
act in the name of assured.23 Lord Cairns also had some words to confirm
Lord Chancellor. Assuming that an accident of collision happened at the
sea, Lord Cairns held if an underwriter paid the partial loss of a vessel to
the assured, the underwriter could sue the assured if his vessel was in fault
of the collision. There is no fundamental principle for the underwriter’s
rights “except the well-known principle of law, that where one person has
agreed to indemnify another, he will, on making good the
indemnity…loss.”24
Five years later, Judge Brett stated the classic definition about the
subrogation in case Castenllain v. Preston (1883) LR 11 QBD 380:
Now it seems to me that in order to carry out the

fundamental rule the insurance law, this doctrine of
subrogation must be carried to the extent, which I am
now about to endeavour to express, namely that as
between the underwriter and the assured the underwriter
is entitled to the advantage of every right of the assured,
whether such right consists in contract, fulfilled or
unfulfilled, or in remedy for tort capable of being insisted
on or already insisted on, or in any other right, whether
by way of condition or otherwise, legal or equitable,
which can be, or has been exercised or has accrued, and
whether such right could or could not be enforced by the
insurer in the name of the assured by the exercise or
acquiring of which right or condition the loss against
which the assured is insured can be, or has been
25
diminished.
23
Susan Hodges and Roy Carlile, Cases and Materials on Marine Insurance Law,
London, Sydney: Cavendish Publishing Limited, 1999 at p. 18.
24
25
The case of Castenllain v. Preston (1883) LR 11 QBD 380.
15
The real meaning of doctrine of subrogation is much further than the
meaning of transferring those rights, which may give a cause of action at
any time in either the contract or tort. Because if there is a contract
between the assured and third party about the loss or damage on subject
matter, the third party satisfies the assured about the loss with good action
or good compensation. Then there is no subrogation right for the
underwriter under this circumstance. It is true that there is an existence of
the right of action for a moment that is good for the assured, which the
underwriter could have been subrogated. However, he cannot have the
right of subrogation until he has paid the sum insured and made good loss.
All the cases and statements above are the fundamental factors of Section
79 “Rights of subrogation” in MIA Section 79 states as following:
(1) Where the insurer pays for a total loss, either of the
whole, or in the case of goods of any apportionable part,
of the subject-matter insured, he thereupon becomes
entitled to take over the interest of the assured in
whatever may remain of the subject-matter so paid for,
and he is thereby subrogated to all the rights and
remedies of the assured in and in respect of that subject-
matter as from the time of the casualty casing the loss.
(2) Subject to the foregoing provisions, where the insurer
pays for a partial loss, he acquires no title to the subject-
matter insured, or such part of its as may remain, but he
is thereupon subrogated to all rights and remedies of the
assured in and in respect of the subject-matter insured as
from the time of the casualty causing the loss, in so far as
the assured has been indemnified, according to this Act,
26
by such payment for the loss.
The Section 79 states two separate issues that are salvage and subrogation
(the first part of Section 79 deals with subrogation and salvage and the
second part deals with the subrogation on payment of partial loss).
“Salvage is the right of an underwriter who has paid for a total loss (actual
or constructive) to assert proprietary rights over whatever remains of the
Also Howard Bennett, The Law of Marine Insurance, 2nd. Edition, Oxford: Oxford
University Press, 2006 at para. 25.05, p. 777.
26
Marine Insurance Act 1906, Art. 79 “Right of subrogation”.
16
insured subject-matter.”27 The main principle in Section 79 is that the
underwriter is entitled to subrogate the rights of the assured against the
third party or person who has caused the loss of insured subject matter and
the payments from the third party which satisfies the loss of the assured’s
loss on the subject matter. If the underwriter has fully indemnified to the
assured, the underwriter should act in the name of assured order to begin
the litigation proceedings against the third party or wrongdoer.28
In the twentieth century, there are quite a lot of developments in this field.
The insurer’s rights on the insured subject matter that could be against the
defendant under the subrogation were reaffirmed by different occasions.29
During the same time, the courts made the great process in the
development of the subrogation right based on many cases, revisiting the
rationales and prerequisites for the award. Meanwhile, the courts limited
the scope of the subject and brought the developments into practice.30
2.4 Nature of subrogation in marine

insurance
It has been explored for a long time in English court about the nature of
subrogation in marine insurance. There are two main theories: one is under
the principle of unjust enrichment of equity and the other is a matter of
implied term of contract in common law.
27
Robert Merkin, Marine Insurance Legislation, 3rd. Edition, London, Singapore: LLP,
2005 at p.97.
It is much clearer to explain like this: in the case of total loss, the insurers are also to be
entitled to take over the property in the goods, which mean “salvage”. Therefore Section
79 (1) is about the salvage and subrogation. The meaning of the word “salvage” here is
different from salvage that means a kind of service, that saves or helps tis ace the subject
of the service, including marine property, from dander for the reward.
28
supra. note 26.
29
The cases of James Nelson & Sons Ltd v. Nelson Line (Liverpool) Ltd [1906] 2 KB
217; H Cousins & Co Ltd v. D & C Carriers Ltd (1971) 2 QB 230 (CA); Caledonia North
Sea Ltd v. British Telecommunications plc [2002] UKHL 4, [2002] 1 Lloyd’s Rep. 553
[11] (Lord Bingham) and [89] (Lord Hoffmann).
30
17
The nature under the equitable doctrine is stated in the case Banque
Financiere de la Cite v. Parc (Battersea) Ltd (1991) 1 AC 221 Lord Huttin
expressed as following:
The doctrine of subrogation applies in a variety of

circumstances where the defendant has been unjustly
enriched at the expense of the plaintiff, and where equity
considers that it would be unconscionable for the
defendant to retain that enrichment. In such a case, as
Goff and Jones say, the remedy is fashioned to the facts
of the particular case. In the Orakpo v. Manse
Investments [1978] AC 95, 104E Lord Diplock stated that
some rights by subrogation “appears to defeat
classification except as an empirical remedy to prevent a
particular kind of unjust enrichment.”31
Besides, Lord Hoffmann also kept the point that remedy of subrogation
was not the common intention among the parties. The speech is follow:
…it is a mistake to regard availability of subrogation as a

remedy to prevent unjust enrichment as turning entirely
upon the question of intention, whether common or
unilateral. Such an analysis has inevitably to be propped
up by presumption which can verge upon outright
fictions, more appropriate to a less developed legal
system than we now have…I think it should be
recognised that one is here concerned with a resitutionary
remedy and that the appropriate questions are therefore,
first, whether the defendant would be enriched at the
plaintiff’s expense; Secondly, whether such enrichment
would be unjust; and thirdly, whether there are
nevertheless reasons of policy for denying the remedy.32
There is another case Napier and Ettrick v. Kershaw [1993] 1 Lloyd’s Rep
197, the Court appealed that the subrogation was a kind of remedy under
the equitable doctrine but not the implied terms under the contractual
law. 33 However, the right of subrogation might be negotiated by an
underwriter on the express terms in the insurance contract that is the scope
of unjust enrichment under the equitable doctrine.34
31
supra. note 7.
32
Liangyi Yang, Marine Cargo Insurance, China: Law Press, 2010 at p. 455.
33
The case of Napier and Ettrick v. Kershaw [1993] 1 Lloyd’s Rep 197.
34
The case of Bee v. Jenson [2008] 2 Lloyd’s Rep IR 221.
18
According to the equitable doctrine, could the underwriter have the right of
subrogation after the payment, which is defaulted or refused by assured at
the beginning? The general principle of equitable doctrine is that the
person who claims the remedies cannot be the wrongdoer. This argument
appears in the case England v. Guardian Insurance Ltd [2002] Lloyd’s
Rep IR 404. In the judgment from court said that the subrogation could not
be extinguished even though there is non-appropriate of underwriter.35
Because the subrogation is the right in rem not in personam, it means that
the underwriter could have lien or property on the payment from third
party. There is another instance under the circumstance when the assured
becomes bankruptcy or insolvent. It is to say that the money from the third
party should be returned to the underwriter based upon the subrogation.
However, the underwriter may be one of the creditors even without
guarantees according to the implied terms under the insurance contract. It
is possible for the underwriter not to get the payment back. The right of
claiming could be invalid after the assured becomes bankruptcy or
insolvent even it has been transferred from the assured to the
underwriter.36 It is to say that under the equitable doctrine, the payment for
loss from the third party to the assured is considered as an equitable lien or
good for the insurer. The purpose of this consideration is to protect the
insurer’s rights under the subrogation.37
To conclude the subrogation’s nature, in the author’s view, subrogation is

under the equitable doctrine originally; however, it could be modified by
the implied terms in the insurance contract. “The nature of the rights is
such that where the insurance claim has been paid; the insurers are
subrogated to the assured’s rights, whether or not the claim is actually
payable under the policy.”38
35
The case of England v. Guardian Insurance Ltd [2002] Lloyd’s Rep IR 404.
36
The case of White v. Dobbinson (1844) 14 Sim 273.
37
38
Jonh Dunt, Ander W. Baker, QC and Hatty Sumption (ed.), Marine Cargo Insurance,
London: Informa Law Mortimer House, 2009 at para. 16.4, p. 342.
Also can be found in the case King v. Victoria Assurance Company Limited (1896) AC
250 (PC), assuming a bona fide payment under the policy, not merely a voluntary gift.
19
2.5 Purpose of subrogation
Generally speaking, there are two purposes of subrogation in marine
insurance law. On one hand, the assured cannot receive the indemnity
from different persons twice. It means that the assured should not be
doubly recovered. Because the assured can claim indemnity from the
insurer according to the insurance contract and at the same time, the
assured can claim the loss from the third party based upon the tort or
contract. It is possible that the assured will get the indemnity twice or even
more, which means earning money from the accident if there is no right of
subrogation. This situation is unfair, inappropriate and immorality by law
and real life.
On the other hand, the wrongdoer but not the insurer should take
responsibility for his fault at the end of indemnity proceedings legally.
The injured party has the rights to choose whether claiming the indemnity
from any of the insurer or the third party. However the assured usually
sues the insurer from whom he could get the indemnity easier and faster
comparing with suing the third party (for the reason of tort, contract or
unjust enrichment) in reality. Under this circumstance, it is possible to
ignore the liability of third party who really has caused the loss after the
insurer paying the indemnity. There should be the right of subrogation in
order to avoid this situation.
There is a case in Canada named Somersall v. Friedman (2002) 3 SCR 109

and the Judge Iacobucci stated that:
It is possible to keep in mind the underlying objectives of

the doctrine of subrogation which are to ensure (i) that
the insured received no more and no less than a full
indemnity, and (ii) that the loss falls on the person who is
legally responsible for causing it… Consequently, if there
is no danger of the insured’s being overcompensated and
the tortfeasor has exhausted his or her capacity to
compensate the insured there is no reason to invoke
subrogation. Similarly, if the insured enters into a limits
agreement or otherwise abandons his or her claim against
20
an impecunious tortfeasor the insurer has lost nothing by
his inability to be subrogated.39
Based upon the analysis above, there is no right of subrogation in the sum
insurance but only in the indemnity insurance. The ship insurance or cargo
insurance in maritime law belongs to the indemnity insurance.
Nevertheless, an important exception is PPI (Policy Proof Insurance) in
this circumstance. Case John Edwards Co. Ltd. v. Motor Union Insurance
Co Ltd. [1922] 2 K.B. 249 is about PPI. The plaintiff owned a vessel. The
vessel had a collision accident with another vessel and sunk. The plaintiff
had insured the chartered freight with the defendants under the PPI policy.
After the collision, the insurers had the honoured policy and indemnified
the assured, acting in the name of the assured. Then they found themselves
excluded from a fund with the court by the owners of the other colliding
vessel. The issue was raised that if the insurance policy is an honour policy,
what does the underwriter do based upon the subrogation right on the
payment under the insurance contract. In the view of Lord McCardie, this
kind of policy is a contraction of the indemnity contract and it is not the
indemnity contract at all. The insurer pays the indemnity without
consideration for the total loss or the partial loss when the event happened.
The event should be written in the insurance contract. The Section 4 of the
MIA40 cannot be destroyed. There is no legal scope of operating the main
principle of subrogation. The significant principle of the subrogation is not
there. There is also another point stated by Lord:
It is destitute of all legal effect between the parties. If so,

it cannot operate as if it were a valid bargain carrying
39
The case of Somersall v. Friedman (2002) 3 SCR 109.
40
Marine Insurance Act, 1906. Art. 4 “Avoidance of wagering or gaming contracts.”
(1) Every contract of marine insurance by way of gaming or wagering is void.
(2) A contract of marine insurance is deemed to be a gaming or wagering contract-
(a) where the assured has not an insurable interest as defined by this Act, and
the contract is entered into with no exception of acquiring such an interest;
or
(b) where the policy is made “interest or no interest” or “without further proof
of interest than the policy itself,” or “without benefit of salvage to the
insurer,” or subject to any other like term:
Provided that, where there is no possibility of salvage, a policy may be affected without
benefit of salvage to the insurer.
21
with it the legal and equitable results and the body of
jural remedies which ordinarily flow from an insurance
indemnity contract. Legal proceeding to enforce
subrogative rights cannot be based on a document which
41
is stricken with sterility by Act of Parliament.
The right of subrogation could be used in explaining some confused

situations in reality. If the assured claims indemnity from the insurer, it is
unacceptable that the insurer refuses the request and asks the assured to
claim from the third party for loss. The accurate method is that the insurer
should pay at first and claim the expenditure from the third party under the
right of subrogation.42 For the same reason, if the assured chooses to claim
indemnity from the third party, the third party cannot refuse to pay the
recovery under the excuse that the insurer could pay for the total loss or
the partial loss in the first position of recovery.43
41
Also can be found in the case John Edwards Co. Ltd. v. Motor Union Insurance Co Ltd.
(1922) 2 K.B. 249.
42
The case of Collingridge v. Royal Exchange Assurance (1877) QBD 173.
43
The case of Mason v. Sainsbury (1782) 3 Doug 61, Clark v. Tull t / a Ardington
Electrcal Service [2002] Lloyd’s Rep IR 524.
22
3 Overview of right of
subrogation & rights and
obligations of the parties
This chapter is the extension part of chapter 2. There are several kinds of
situations of the right of subrogation under marine insurance that will be
discussed in 3.1. These situations can be classified as recoupment in 3.1.1
and abandonment in 3.1.2. For the right of abandonment, the author
introduced it in 2.3, the development of the subrogation. These two
definitions are confused and hardly to distinguish in some special
circumstance. The Lord Blackburn separated them for the first time.
There is a precondition for the insurer of enjoying the right of subrogation

that when the insurer pays the full indemnity. It will be discussed in 3.2.1.
The main parties of subrogation are the insurer and the assured. They
enjoy rights while burdening the obligations separately at the same time.
These will be discussed in the rest part of this chapter.
3.1 Various situations under the right of

subrogation
In the insurance field, there are three different situations under the right of
subrogation. Firstly, the assured receives the compensation on the insured
subject matter from the third party who causes the loss before the insurer
pays; the insurer may have the right to reduce or to recoup the indemnity.
Secondly, the assured receives amount of money for compensation on the
insured subject matter from the third party who causes the loss after the
insurer’s payment. The insurer could ask for returning. Finally, the rights
of the assured against the third party should be transferred to the insurer.
According to the analysis above, the most complicated and common
situation is the first one. For the second one where the money received
after indemnification by the insurer is a kind of mistake of fact. The
23
insurer is entitled to get the money back from the assured based upon the
fundamental principle of equitable of restitution. For the final situation, the
insurer, as a secured creditor, substitutes the rights from the assured’s right
against the third party based upon the equitable lien. Combination of the
first and second situation is called “recoupment” which is discussed in the
following.44
3.1.1 Recoupment
The situation of recoupment arises when the indemnity is overpaid or the
assured is doubly recovered by the insurer and third party. It means that
the assured is earning benefit from the insured risks. No matter the benefit
happens before or after the indemnification from the insurer, the insurer is
entitled to substitute the position of the assured and get the benefit as well.
When the benefit from the third party happens before the indemnification
paid by the insurer, “the net effect is pro tanto” 45 of reducing the liability
of the assured. Moreover, when the benefit is paid by the third party after
the indemnification from the insurer, the insurer has the right to accept the
benefit. As known, the basic and significant principle in insurance law is
that the assured who faces the loss under the marine policy shall be fully
indemnified in the marine insurance contract, which is a kind of contract
of indemnity. However, the assured should not be more than full
indemnification.46 It could be wrong of the proposition that is preventing
the assured of getting the full indemnity or giving the assured more than
the full indemnity.47
This theory is widely used in reality. However, it also brings some

confused problems such as the voluntary payment or gifts. For instance,
the assured’s house is destroyed in an accident of fire. The insurer pays the
indemnity. Meanwhile, the assured’s friends or families also give some
44
45
Howard Bennett, The Law of Marine Insurance, 2nd. Edition, Oxford: Oxford
46
supra. note 25.
47
There are some words from the Lord in footnote 25.
24
money as compensation to him. Under this circumstance, could the insurer
ask for returning the indemnity back using the reason of recoupment
principle? The right of recoupment of the insurer is used in claiming the
assured if the assured has benefits from the compensation which is
received from the third party for the loss. “The right is usually exercised
by an insurer claiming from the assured a sum equivalent to any sum of
damages paid to the assured by a third party legally liable for the loss.”48
Actually, the insurer is entitled sometimes to pay the assured as ex gratia
to decrease the loss unless the donor wants to give the benefit to the
assured to exclude the insurer.
The intention of benefitting the assured, who does not exclude the insurer
or not diminish the loss, should be expressed as evidence in the agreement
between the donor and the assured. This kind of voluntary payments or
gifts should be excluded from the recoupment. Because the recoupment is
used by the insurer to reduce the indemnification from the assured who has
been paid. The reason is that purpose of the voluntary payment or gift is
not to diminish the loss.49 In the case Burnand v. Rodocanachi (1881-82) 7
App. Cas.777, the insured cargo was destroyed by Confederate cruiser
Alabama during the American Civil War. The underwriters paid the
indemnity for the actual total loss of insured cargo to the owners. In
addition, the American Government paid the compensation to the cargo
owners for the loss as well.50 The problem is that could underwriters be
entitled to get the compensation back based on the reason of subrogation?
The judgement suggested that the underwriters could not get the
compensation, because the compensation from the American Government
was a kind of voluntary payments or gifts but not the payment for reducing
48
49
50
The case of Burnand v. Rodocanachi (1881-82) 7 App. Cas.777.
25
the loss. The government would not pay the money because of reducing
the indemnified loss against the insurer.51
Nevertheless, in the case Colonia Versicherung AG & Ors v. Amoco Oil

Co. [1997] C.L.C 454, the insurer was entitled to recoup. In this case, the
seller (defendant) Amoco sold the oil on the FOB terms to the buyer
(plaintiff) Astra and Astra resold the cargo on the CIF terms to ICI. The
cargo became contaminated after the ship arrival by ICI. However, there
was no dispute about the cargo’s contamination in the Amoco’s shorelines.
Astra bought all risks for the cargo and transferred the policy to ICI on the
terms of CIF. After finding out that the cargo was unqualified, the ICI
claimed the compensation to Amoco. Amoco finally paid because of the
business and legal reasons. ICI transferred the rights against the
underwriter to Amoco in their agreements. Therefore, Amoco then claimed
the indemnity from underwriter as the assignee. However, the underwriter
refused the request based on the reason that the compensation ICI received
was a kind of voluntary payments or gifts. In the court, Lord Hirst did not
agree this point and he stated that:
It follows that the crucial question is whether, on the

construction of the Deeds, and in particular of course the
second Deed, it was the intention of Amoco to benefit ICI
to the exclusion of the Colonia…the first Deed, with its
provisions for release of ICI’s claims against Amoco, and
its express reservation of the underwriters’ subrogation
rights, is fully in line with the second Deed. Thus, as a
matter of pure construction, I am satisfied that the
51
supra. note 49.
Lord Blackburn held: …In the present case, the Government of the United States did not
pay it (the compensation) with the intention of reducing the loss. Lord Coleridge says in
his judgment, and says very truly, that the Government of the United States cannot by any
action of theirs deprive a man, suing this country, of any right which he has. I quite agree
in that; but I think that Lord Coleridge, if he had taken the same view as I do for the
matter, would have seen that an Act of Congress of the United States might effectively
prevent any such right arising. If, once the right has vested to recover any such sum, of
course an Act of Congress could not take it away… ‘We do not pay the money for the
purpose of repaying or reducing the loss against which the insurance company have
indemnified, but for another and different purpose’, it effectively prevents the rights
rising…I should, myself, prefer to use my own phrase expressing the same idea, and to
say that it was not paid in such a manner as to reduce the loss against which the plaintiff’s
has to indemnify the defendants; it is the same thing, but rather differently expressed.
26
intention demonstrated is not to benefit ICI to the
52
exclusion of Colonia.
Based on the analysis above, in the author’s view, if the assured and the
third party who pays the compensation are in the good commercial
relationship, whether before or after the underwriter paying, this “money”
could not be accepted as “voluntary payments or gifts” by the court.
However, the agreement or the evidence between them is also significant.
3.1.2 The abandonment and salvage

The insurer can substitute the right of subrogation from the assured
whether in the situation of total loss (constructive or actual total loss) or in
partial loss. The insurer can subrogate the property and salvage.53 There is
another saying that under this circumstance, the assured abandons the
insured subject matter to the insurer.
Under the circumstance of total loss, the principles of subrogation and

abandonment are different but confused sometimes. Lord Atkin had the
similar statement in the case Glen Line v. Attorney – General [1930] 37
52
The case of Colonia Versicherung AG & Ors v. Amoco Oil Co. (1997) C.L.C 454.
The author put the words of Lord Hirst for the factors of his speech here. The factors can
be found in the case as well.
(1) The recital quote above expressly recors the desire of both parties to “resolve
any disputes that exits or may arise between them as a result of the transactions”,
and this desire is fulfilled by clause 1.2 under which ICI release and discharge
Amoco from “all claims liabilities obligations and causes of action whatsoever
contingent or not contingent, known or unknown, which it now has, had or may
have arsing out of the transaction”…this to my mind fully vindicates Mr.
Thomas’ submission that, irrespective of the question whether there was any
direct liability owed by Amoco to ICI, this was a true commercial settlement of
any possible claims by the former against the latter.
(2) The assignment is expressly qualified by the words “except to the extent of the
insurance underwriter’s subrogation rights.” These words must, for the reasons
given above, be construed in their wide sense, so as to include Colonia’s rights
as against ICI to treat Amoco’s payment as diminishing ICI’s loss.
(3) This construction is underlined by the last sentences of clause 1.2 which
expressly stipulates that the release shall not effect the subrogation rights of the
underwriters which they “have or by virtue of any payment to any person firm or
corporation shall acquire” which words are clearly apt to cover Amoco’s
payment to ICI.
(4) The final words of clause 4.1 stipulating that “no warranty is given express or
implied that Amoco will be able to pursue all or any claims” seems to me to
show that the parties recognised that Amoco might well not be entitled to pursue
their claim against Colonia.
53
supra. note 26.
27
Lloyd’s Rep 55, “confusion is often caused by not distinguished the legal
rights given by abandonment… from the rights of subrogation.” 54
Nevertheless, right of subrogation and abandonment have essential
differences indeed. In MIA Section 63 is about effect of abandonment that
is stated as follows:
(1) Where there is a valid abandonment the insurer is

entitled to take over the interest of the assured in
whatever may remain of the subject – matter insured, and
all property rights incident thereto.
(2) Upon the abandonment of a ship, the insurer thereof is
entitled to any freight in course of being earned, and
which is earned by her subsequent to the casualty causing
the loss, less the expenses of earning it incurred after the
casualty; and, where the ship is carrying the owner’s
goods, the insurers entitled a reasonable remuneration for
the carriage of them subsequence to the casualty causing
55
the loss.
According to this section, the underwriter can take over the property
abandoned in the case of total loss. Moreover, the underwriter may take
over the remains of a ship or cargo. The underwriters can choose if they
want to accept the property or not. It depends on their wishes.56 The
insurer can earn benefit under the abandonment because the value of
salvage of abandoned subject matter maybe higher than the indemnity. At
the same time, the insurer takes over the property as well. On the contrary,
the insurer should not earn benefit from the compensation paid by the third
party according to the right of subrogation. The underwriter must return
the money back if it is overpaid. Accordingly, here is an example in car
insurance. If the insured’s car has an accident or was stolen, this is
governed by the policy. Then the underwriter pays a total loss. Under this
circumstance, the underwriter is entitled to take over whatever remains on
the car. In addition, the underwriter could take the action of disposition on
it and follow the proceedings or accept the recovery on that property. It
54
The case of Glen Line v. Attorney – General [1930] 37 Lloyd’s Rep 55.
55
Marine Insurance Act 1906, Art. 63 “Effect of abandonment”.
56
The case of Blane Steamships Ltd v. Minister of Transport (1951) 2 KB 965.
Also can be found in book: Robert Merkin, Marine Insurance Legislation, 3rd. Edition,
London, Singapore: LLP, 2005 at p.81.
28
should be like that even the value of the property is increased or even more
than the indemnification for the total loss from the underwriter itself.57
In addition, the concept of notice of abandonment and abandonment are

different. The notice of abandonment is when the assured decides to
abandon the insured subject matter to the insurer and he must give a notice
of abandonment.58 In the case Kaltenbach v. Mackenzie (1878) 3 CPD 467,
Lord Brett has the statement about abandonment. The abandonment is not
particular to policy under the marine insurance. It is the part of every
contract of indemnity. It is to say that if there is a claim about an absolute
indemnity under the contract of indemnity, there should be a part of
abandonment among all the claiming of indemnity that is in what he may
receive.59
3.2 Rights of the insurer before and after

full indemnification of the assured
3.2.1 The right of subrogation raised after the
full indemnification
It is very clear in Section 79 (1) of MIA saying that “where the insurer
pays the total loss, either of the whole…and he is thereby subrogated to all
the rights and remedies…”.60 It means that after paying the full indemnity,
the insurer can get the right of subrogation. Moreover, it is easy to find out
this view in the construction of Marine Insurance Act 1906 as well.61 In
addition, there is the reason of Clause 16.2 in Institute Cargo Clause
saying as follow:
It is the duty that of the Assured and their employees and

agents in respect of loss recoverable hereunder
57
Mance, Iain Goldrein and Robert Merkin, Insurance Disputes, 2nd. Edition, London:
Informa Law, 2004 at para.8.70.
58
Marine Insurance Act 1906, Art. 62 (1) “Notice of abandonment”.
59
The case of Kaltenbach v. Mackenzie (1878) 3 CPD 467.
60
supra. note 26.
61
In the Marine Insurance Act 1906, Section 79 (Right of Subrogation), Section 80 (Right
of Contribution) and Section 81 (Effect of under insurance) are in the same chapter
named “Right of Insurer on Payment”.
29
16.2 to ensure that all rights against carriers, bailees or
other third parties are properly preserved and exercised
and the insurers will, in addition to any loss recoverable
hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these
duties.62
Maybe the insurer still needs to research or investigate the situation. There
is no subrogation without the full payment. It is possible to breach the
contract without acting in the name of assured against the third party.
Therefore, it is better to have an express clause about enforcement for the
assured even though there are some cases about protecting the right of
subrogation after paying the indemnity. There is no subrogation unless the
insurer pays the 100 percent indemnity.63 In the case Scottish Union and
National Insurance Company v. Davis [1970] 1 Lloyd’s Rep 1, it says that
there is no subrogation if the insurer denies or recoups the payment which
he should pay under the insurance contract.64 In English law, the most
important point, which the insurer’s liability of paying the full indemnity,
is totally discharged no matter which methods the insurer pays the full
indemnity to the assured. In the case Brown v. Albany Construction Co
Ltd, Lord Stuart- Smith had the words as “a perfectly straightforward case
where the liability under the policy was discharge in the way that was
agreeable to both parties.”65
If the indemnity paid by the insurer is just an ex gratia payment but not the
liability in law, could the insurer subrogate? The reasons of an ex gratia
payment are like breaching the warranties clause in contract by the
assured, or lacking of sufficient evidences of causing the loss. Under this
circumstance, it is safe to have an express clause in the insurance contract
between the assured and the insurer for the possibility that the insurer
wants to claim the subrogation. In the previous cases, the insurer’s ex
62
Institute Cargo Clause, Clause 16 “Duty of Assured.”
It is the duty that of the Assured and their employees and agents in respect of loss
recoverable hereunder, 16.1 to take such measure as may be reasonable for the purpose
of averting or minimising such loss.
63
supra. note 40.
64
The case of Scottish Union and National Insurance Company v. Davis [1970] 1 Lloyd’s
Rep 1.
65
The case of Brown v. Albany Construction Co Ltd (CA 16 June 1995).
30
gratia payment is under condition that the assured must sue the third party
and get the full compensation back. If it was successful, some of the
compensation that belongs to insurer in original must be returned back as
the name of recoupment by trustor.66 However, if the insurer acting in the
name of assured against the third party before the indemnification, the
assured could apply to repeal the insurer’s name and cancel the litigation
to the court. Nevertheless, the insurer may get the ratification from the
assured after the payment even though it expires.67
However, some different situations in the world are not the same as in
English law. For example, in the United States of America, the insurer and
the assured can claim the rights against the third party in the common
name if the insurer pays some of the indemnity. Moreover, it is legal that
insurer can claim the rights of subrogation only with a settlement even the
payment has not been received. On contrary, in China, the insurer can get
the subrogation unless he pays the full indemnity and presents the
evidence of payment.68
3.2.2 The insurers’ rights before the full

indemnification
3.2.2.1 The implied obligations of the assured
It is difficult for the insurer to claim the right of subrogation before paying
the whole indemnification unless there is an implied obligation under the
insurance contract. As known, in the insurance contract there is an
obligation between the insurer and the assured. It means the assured should
not do anything, which could diminish the subrogation right of insurer.
66
The cases of Naumann v. Ford (1985) 2 EGLR 70 and Lonrho Export Ltd. v. ECGD
(1999) Ch 158, 181.
67
The cases of Presentationes Musicales SA v. Secunda (1994) Ch 271 and Victoria
Teachers’ Credit Union v. KPMG (2000) VSCA 23.
68
31
This obligation may be implied by law unless there is nothing expressed in
the insurance contract.69
It is to say that if there is a settlement between the assured and the third
party who causes the loss and the settlement is harmful in the respect of
the insurer, the insurer has the rights to sue the assured.70 However, the
insurer cannot sue the assured if the settlement between the assured and
third party is a bona fide settlement.
3.2.2.2 Express obligations of the assured before full

indemnification from the insurer
In reality, there is an express term in the insurance contract about the

assured’s obligations before full indemnification. The Clause 9 in the
International Hull Clauses named “Duty of the assured”71 is an example of
this express obligation. For marine cargo insurance, there is a Clause 16 in
69
The case of Sola Basic Australia Ltd v. Morganite Ceramic Pty Ltd (1989), refer to
Liangyi Yang, “Marine Cargo Insurance,” (2010), p. 458, CA NSW 1989.
“That is to say, the insurer may enjoin any apprehended breach of the stipulation, may
subsequently sue for any actual breach in damages, may plead the breach as an defence if
the insured claims under the relevant policy of insurance, and may sue for an injunction
or damages any third person who induces a breach of that stipulation.”
70
The cases of Commercial Union Assurance Co. v. Lister (1874) LR App 483, West of
England Fire Insurance Co. v. Isaacs (1896) 2 QB 377 and Horse, Carriage and General
Insurance Co. v. Petch (1916) 33 TLR 131.
71
International Hull Clauses (01/11/03), Clause 9 “Duty of the Assured (Sue and
Labour)”:
9.1 In the case of any loss or misfortune it is the duty of the Assured and their agents and
agents to take such measures as may be reasonable for the purpose of averting or
minimising a loss which would be recoverable under this insurance.
9.2 Subject to the provisions below and to Clause 15, the Underwriters shall contribute to
charge properly and reasonable incurred by the Assured their servants or agents for such
measures general average, salvage charges (except as provided for in Clause 9.4), special
compensation and expenses as referred to in Clause 8.5 and collision defence or attack
costs are not recoverable under this Clause9.
9.3 Measures taken by the Assured or the Underwriters with the object of saving,
protecting or recovering the subject – matter insured shall not be considered as a waiver
or acceptance of abandonment or otherwise prejudice the rights of either party.
9.4 when the Underwriters have admitted a claim for a total loss and the vessel under this
insurance and expense have been reasonably incurred in saving or attempting to save the
vessel and other property and there are no proceeds, or the expense exceed the proceeds,
then this insurance shall bear tis pro rata share of such proportion of the expenses, or of
the expenses in excess of the proceeds, as the case may be, as may reasonable by regarded
as having been incurred in respect of the vessel. Excluding all special compensation and
expenses as referred to in Clause 8.5.
32
Institute Cargo Clause named “Duty of Assured”72 that is also an express
obligation for the assured in insurance contract. The insurer can claim the
assured if he does not take proper action before expire time according to
this clause. Moreover, the insurer could apply the injunction from the court
to force the assured to take some action against the third party. There is
another method that the insurer pays the full indemnity as soon as possible
and then subrogates the rights on the subject matter against the third party.
3.2.2.3 Limited explanation from courts on the

express obligations
This express term is arguable in reality. The case Noble Resources and
Unirise Development v. George Albert Greenwood (The Vasso) (1993) 2
Lloyd’s Rep 309 is an example of the argument. The plaintiff’s cargo was
insured with the defendant under an open cover subject to the Institute
Cargo Clause (A). The cargo was on the vessel named “Vasso” shipped to
Qingdao. The cargo was lost when the vessel sank. The insurer declined
that the payment was on the basis that the assured (plaintiff) breached the
Clause 16, the duty of assured clause. In addition, the assured should have
applied for the Mareva injunction to prevent the ship owner from
removing the proceeds from the jurisdiction. However, the court held that
“it was necessary for the insurer to show that a step was a proper one
which a reasonable assured, having regard to the interests of itself and the
insurers and to the provisions of the policy, should have taken.”73 It is to
say that if the application of Mareva injunction fails, it does not establish
the fail performance that is affected by Clause 16. The assured’s acting
was reasonable and proper.74
72
supra. note 62.
73
The case of Noble Resources and Unirise Development v. George Albert Greenwood
(The Vasso) [1993] 2 Lloyd’s Rep 309.
74
ibid.
33
In conclusion, the courts would like to take the limited or strict explanation
on express terms like “Duty of Assured” to the insurer. Lord Dillon said in
the case Svensk Exportredit v. New Hampshire Insurance Co:
it cannot be right, where there are difficult tactical

decision to be made, for the insurers to be able to stand
on the sidelines and dare (assured) to take the step that
they think reasonable, against the chance that the insurers
will be able say ‘oh well, they should have done
something else, so we’re let off the hook’: I do not regard
that as a commercially viable way of construing this
75
contract.
3.2.3 The insurer’s rights after the full

indemnification
3.2.3.1 Sections 80 and 81 of the MIA
According to the MIA, there are three rights of the insurer after paying the
full indemnity in general. First one is the right of contribution in the
Section 80 of the MIA:
80 (1) Where the assured is over-insured by double

insurance, such insurer is bound, as between himself and
the other insurers, to contribute rateably to the loss in
proportion to the amount for which he is liable under his
contract.
(2) If any insurer pays more than his proportion of the
loss, he is entitled to maintain an action for contribution
against the other insurers, and is entitled to the like
remedies as a surely who has paid more than his
proportion of the debt.76
This section is about the right of contribution under double insurance

where there are concurrent policies from the same assured and the same
interest. The underwriter and the contractual indemnifier are to be
considered as at the same position. Therefore, if the underwriter paid the
assured, underwriter could be entitled to contribute from the contractual
75
The case of Svensk Exportredit v. New Hampshire Insurance Co, arefers to Liangyi
Yang, “Marine Cargo Insurance,” (2010), p. 460, CA 30 March 1988.
76
Marine Insurance Act 1906, Art. 80 “Right of contribution”.
34
indemnifier, but no subrogation. The right of contribution is the right
under the equity. However, it is governed by the insurance contract that is
about the underwriter that cannot be liable to the contribution against the
assured.77 However, if a policy contains that the underwriter is liable only
for its rateable proportion of the loss but he does not pay the full amount of
the loss in the event, there is no right of contribution.
Second situation is dealing with the under insurance in the Section 81 of

the MIA and reads as follows:
Where the assured is insured for an amount less than the

insurable value or, in the case of a valued policy, for an
amount less than the policy valuation he is deemed to be
his own insurer in respect of the uninsured balance.78
This section is about the effect of under insurance. This average principle
of under insurance described in this section is exercised automatically in
the total loss. The assured, who recovers to the financial limits under the
policy, at the same time, shall bear the uninsured part of loss on his own.
This principle is significant in the partial loss. Under this circumstance, the
assured is considered as a part of the insurer and the assured is required to
share the loss with the insurer. The basis of the share part is the proportion
of the value on the subject matter.79
3.2.3.2 Section 79 of the MIA
The final situation is in Section 79 of the MIA that has been stated
earlier.80 Apparently, the insurer receives the right of subrogation against
the third party who causes the loss after paying the full indemnity.
However, the plaintiff is still the assured according to English law, which
may cause some problems.
77
2005 at p.101.
78
Marine Insurance Act 1906, Art. 81 “Effect of under insurance”.
79
2005 at p.102.
80
supra. note 26.
35
The first problem is that the right of insurer against the third parties is
based upon the assured’s rights. Because of the insurer should act in the
name of assured under subrogation after paying the full indemnity. It is to
say that the insurer’s subrogation right might be affected if there is a
limitation of liability or limitation of compensation in the contract between
the assured and the third party. There is a clause named “knock- for -
knock” in the TOWCON and SUPPLYTIME 2005.81 This principle is
from the car insurance industry. If there is an accident like collision
between the two cars on land, the two assureds, as well as the owners of
cars claim the indemnity from their own insurers separately without suing
each other. Obviously, the purpose of this action is to diminish the cost of
litigation proceeding and administrative cost. This principle is widely used
on the charter party or the industry of oil exploration in the ocean.
Therefore, it deprives the right of subrogation of the insurer after paying
the full indemnity. It is possible that the assured should disclose the
situation into the underwriter. However, there is no obligation of
disclosure if this principle should be well known by the insurer.82
The second problem is that the settlement between the assured and the
third party might affect the subrogation of insurer. The settlement whether
it is a bona fide settlement or not, is agreed after the loss but before paying
the full indemnity between assured and the third party.83 The insurer can
81
TOWCON standard form, Clause 25 “Liability and indemnity” and SUPPLYTIME
2005, Clause 14 (b) “knock- for- knock”.
The full vision of these two clauses are in the supplement.
82
Marine Insurance Act 1906, Art. 18 (3) (b).
Section 18 Disclosure by assured
(3) In the absence of inquiry the following circumstances need not to be disclosed
namely-
(a) Any circumstance which diminishes the risk;
(b) Any circumstance which is known or presumed to be known to the insurer.
The insurer is presumed to know the matters of common notoriety or knowledge,
and matters which an insurer in the ordinary course of his business as such, ought to
know;
(c) Any circumstance as to which information is waived by the insurer;
(d) Any circumstance which it is superfluous to disclose by reason of any express or
implied warranty.
83
The case of West of England Fire Insurance Co. v. Isaacs (1896) 2 QB 377.
The landlord covenanted to insure the dismissed premises against fire and expend any
money received under the insurance on reinstatement of fire damage. A fire occurred as a
36
claim the compensation from the assured if he could improve that it is not
a bona fide settlement or harmful to his subrogation.84
The third problem is about the arbitration clause in the contract between
the assured and the third party. The right of subrogation might be affected
by the arbitration clause in the contract.85 This arbitration clause is very
common and significant in marine cargo insurance. The insurer should pay
attention to it. It is the first time to have it in the Clause 19 named “Law
and Arbitration” in the Congebill 94.86 Moreover, most arbitration clauses
are governed and construed in accordance with English Law. If there are
some disputes arising in this clause, it should be referred to arbitration in
London. It is to say that if the insurer wants to sue the ship owner, the
insurer should go to London for arbitration process, not China or
somewhere else. It is possible for the insurer to face the Mareva injunction
from the English courts if he ignores this arbitration clause.87
The forth problem is that there is an impossibility that the third party lets
the insurer involve into the litigation, because the assured is the plaintiff
result of which the tenant had the choice of calling upon either the landlord under the
covenant or upon his own insurer. Having chosen the latter course of action and the
insurer having paid, the tenant then renounced his rights as against the landlord, thus
destroying the insurer’s subrogation rights. As a result, the insurer was held entitled to
restitution from the assured of the indemnity paid.
84
85
In the cases of Schiffartsgesellschaft Detlef von Appen GmbH v. Wiener Allianz
Versicherungs AG [1997] 2 Lloyd’s Rep 279; The Front Comor [2005] 2 Lloyd’s Rep.
257;
Starlight Shipping Co. v. Taiping Insurance Co. [2008] 1 Lloyd’s Rep. 230.
86
Congebill 94, Clause 19 (a).
(a) This Charter Party shall be governed by and construed in accordance with English law
and any dispute arising out of this Charter Party shall be referred to arbitration in London
in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or
re-enactment thereof for the time being in force. Unless the parties agree upon a sole
arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed
shall appoint a third arbitrator, the decision of the three-man tribunal thus constituted or
any two of them, shall be final. On the receipt by one party of the nomination in writing
of the other party's arbitrator, that party shall appoint their arbitrator within fourteen days,
failing which the decision of the single arbitrator appointed shall be final.
For disputes where the total amount claimed by either party does not exceed the amount
stated in Box 25 the arbitration shall be conducted in accordance with the Small Claims
Procedure of the London Maritime Arbitrators Association.
87
37
although in name. The insurer is the real plaintiff who is behind the
assured. The third party cannot doubt whether the payment from the
insurer is adequate for claiming.88
The final problem is that the insurer may lose the right of subrogation if
the assured becomes bankruptcy before or during the litigation unless the
insurer wants to restore the assured. It could be explained in the
circumstance of assignment. The person who has the assignment can bring
the action against the debtor or the wrongdoer through being a part of
assignor. If the assured becomes bankruptcy during the proceeding, the
insurer cannot do anything because he has no reason on himself against the
wrongdoer. The only thing that the insurer can do is to apply to restore the
assured in register.89
It is to say that the insurer is worried about the economic situation of the
assured. Under this circumstance, the insurer could claim to assign the
rights against the third party to the assured. The insurer can act in his own
name as the assignee to sue the third party. Therefore, the effect, which has
been discussed above, will not affect the insurer anymore.
88
supra. note 34.
89
In the case of M H Smith Ltd (Plant Hire) v. Mainwaring [1986] 2 Lloyd’s Rep 244.
38
4 Associated conceptions and
definitions relating to
subrogation
4.1 Comparison between subrogation
and assignment
At the end of last chapter the author mentions that if the insurer is
unsatisfied with the economic situation of the assured, it is better that the
insurer could claim the assignment rights against the third party. In the
case M H Smith (Plant Hire) Ltd v. D L Mainwaring, the insurer has no
right of subrogation in the name of the assured against the third party
because the assured became bankruptcy. If the insurer wants to get the
right of success, it is better to restore the assured to register. In reality, it is
possible to avoid the assured’s terrible economic situation by taking the
action of assignment instead of subrogation.90
4.1.1 A brief view on the law of assignment
There are two kinds of assignments: one is the equitable assignment and
the other is legal assignment.
The definition of equitable assignment is “If the rights were equitable, the
assignee could sue in his own name, but it is necessary to make the
assignor a party to the suit if he retained any interest in the subject matter,
for instance if the assignment was not absolute but conditional or by way
of charge…”91
90
91
Hugh Beale, Chitty on Contracts, 30th. Edition, London: Sweet & Maxwell, 2010 at
para. 19-002.
39
Moreover the definition of legal assignment must fulfil three legal factors92
and the insurer could sue the third party in his own name without making
the assignor be a party of the suit proceeding. It is to say that there are
three conditions to be satisfied. The first one is the assignment that must be
absolute and clear. The second one is that the notice of assignment must be
in writing. The last condition is that the notice in writing must be delivered
to the debtor. If these three conditions are satisfied, the assignee can sue
the debtor in his own name instead of being a joiner of the action. It is
possible that the assignee could sue in his own name in case where he must
sue in the assignor’s name.93
The equitable assignment requires making the assignor be a party in the

litigation as the common defendant or the common plaintiff. It depends on
the attitude of assignor. The reason is clarifying the payment from the
debtor and it should be given to the assignor or assignee if the assignment
is not absolute. Therefore, the obligations on the debtor are discharged
after paying. Additionally, the three conditions under the legal assignment
are confirming that the assignment is absolute and the notice must be in
writing from the assignor. It is to say that the status of creditor transfers
from the assignor to the assignee and the assignee could sue the debtor in
his own name.
92
Law of Property Act, 1925. Section 136:
(1) Any absolute assignment by writing under the hand of the assignot (not
purporting to be by way of charge only) of any debt or other legal thing in
action, of which express notice in writing has been given to the debtor, trustee or
other person from whom the assignor would have been entitled to claim such
debtor or thing in action, is effectual in law (subject to equities having priority
over the rights of the assingee) to pass and transfer from the data of such notice-
(a) the legal rights to such debt or thing in action;
(b) all legal and other remedies for the same;
(c) the power to give a good discharge for the same without the concurrence of
the assignor;
(2) This section does not affected the provisions of the Policies of Assured
Act,1867.
(3) The country court has jurisdiction (including power to receive payment of
money or securities into court) under the provision to subsection 1 of this section
where the amount or value of the debtor or thing in action does not exceed.
93
Hugh Beale, Chitty on Contracts, 30th. Edition, London: Sweet & Maxwell, 2010 at
paras. 19-006 and 19-007.
40
Under the circumstance of insurance contract, if the third party such as the
carrier or the ship owner who causes the loss and needs to pay the
compensation to the cargo owner or the assured, the ship owner is called
debtor and the cargo owner is called the assignor under assignment. The
cargo owner assigns the rights of claiming the compensation to the insurer.
Therefore, the insurer becomes the assignee. The right of claiming
compensation is a kind of contract benefits and can be transferred without
the permit of the debtor. There is another similar example. The liquidator
who is responsible for collecting all sum of belonging to the company
under the circumstance of liquidation that is based on the benefit of the
creditors of the company. “He will therefore wish to ensure that the
assignment is not merely a device to prevent the recovery falling into the
general assets of the company for distribution among the creditors.”
Therefore, in order to avoid this situation, it should have the action of
assignment, which the insurer could be entitled to recover based on the
principle of subrogation under English law.94
The words following are about the advantages of the assignment. Firstly,
as mentioned before, the insurer could lose the subrogation rights if the
assured becomes bankruptcy before or in the duration of litigation.
Because of the insurer is acting in the name of the assured to claim the
rights against the third party.95 However, the insurer could sue the third
party in his own name under the circumstance of legal assignment without
considering about the limited economic situation of the assured.
Secondly, the compensation received from the third party should be paid to
the insurer directly without asking the assured under assignment.
Moreover, if the compensation from the third party is more than the
indemnification from the insurer, the insurer does not need to return the
94
Mance, Iain Goldrein and Robert Merkin, Insurance Disputes, 2nd. Edition, London:
Informa Law, 2004 at para.8.73 in the 1st footnote.
95
supra. note 89.
41
part of overpaid back to the assured like the rate benefit.96 It is different
from the subrogation.
Thirdly, the assignee could get the rights without the full payment.
However, the insurer could get the subrogation rights unless he pays the
full indemnity. The action of assignment could be taken in advance if the
insurer and the assured agree it.
Finally, another advantage is that the object of assignment is the benefits

such as the contract benefit but not the liabilities. However, under the
subrogation, the insurer might face the counter claim from the third party.
The reason is that the insurer sues the third party acting in the name of
assured.
4.1.2 Subrogation compared with assignment

Based on the analysis above, it is obvious that the assignment is better than
subrogation. There is a saying in the case Compania Colombiana de
Seguros v. Pacific Steam Navigation Co. (The Colombiana) (1963) 2
Lloyd’s Rep 479, Lord Roskill: “…Whereas by subrogation they could
only recover up to 100 per cent of their loss…” 97 However in the
following, the insurer would like to subrogate but not assign.
Firstly, there is a main disadvantage in legal assignment that requires the

express notice in writing under the hand of the assignor and the notice
needs to be given to the debtor. However, the insurer could have the
subrogation rights automatically from the assured after paying the 100
percent indemnity. In addition, the notice in writing is not easy as well
since the insurer and the assured must recognise who is the debtor. In
marine cargo insurance field, the debtor is usually the carrier under the
policy. Whereas it is difficult to identify who is the carrier, the ship owner
96
The case of Lucas Ltd v. Export Credit Guarantee Department (1974) 2 ALL ER 889.
97
The case of Compania Colombiana de Seguros v. Pacific Steam Navigation Co. (The
Colombiana) [1963] 2 Lloyd’s Rep 479.
42
is the carrier sometimes. The bareboat charter is the carrier and the voyage
charter or the time charter is the carrier.98
Secondly, the insurer does not want to sue the third party in his own name
since he is considering about the trade reputation. In the author’s view, the
insurer is usually a renowned company and dealing with a lot of
commercial business. The other business might be affected badly by the
litigation that is under the insurer’s own name. In fact, the insurer must
sue the assured or the third party in his own name that might have a
welcome dissemination. This might be the top consideration of influence
against the wide usage of assignment, which is the alternative of
subrogation.99
Thirdly, there is an arbitration clause in the policy especially on the

London arbitration clause. It brings an ambiguous issue that the assured
has begun the action of ship arrest or even the arbitration process to the
ship owner or carrier before the insurer pays the 100 percent indemnity.
The start of the action of ship arrest or the arbitration proceeding is
allowed by law. This action is accordance with the Institute Cargo Clause,
Clause 16 named “Duty of Assured”.100 It is obvious that the assured who
acts as the plaintiff and the ship owner (or the carrier) who acts as the
defendant are the two parties of arbitration process. Under the
circumstance of subrogation, the real plaintiff is the insurer but he should
act in the name of the assured. The lawyer will report to the insurer instead
of the assured. However, under the circumstance of assignment, the
assured cannot be the plaintiff anymore. The plaintiff is the insurer at that
moment of assignment. Lord Phillips held that it was a problem in law
since the nature of arbitration agreement was personal.101 In the following
98
The case of Homburg Houtimport BV v. Agrosin Private Ltd (The Starsin), also known
as: Owners of Cargo Lately Laden on Board the Starsin v. Owners of the Starsin [2000] 1
Lloyd’s Rep. 85.
99
Merkin Robert, Colinvaux’s Law of Insurance in Hong Kong, Hong Kong (China):
Sweet & Maxwell, 2009 at para. 11- 004.
100
supra. note 62.
101
The case of London Steamship Owners Mutual Insurance Association Ltd v. Bombay
Trading Co Ltd. (The Felicie) [1990] 2 Lloyd’s Rep. 21.
43
case Montedipe SpA v. JTP- RO Jugotanker (The Jordan Nicolov), Lord
Hobhouse had a lord speech about the effect of arbitration clause in right
of subrogation and assignment.102
The final complicate point is that the applicable law of assignment. Does it
apply the law of the insurance contract based upon the subrogation, or
does it apply the law of debtor as in the carriage contract or the storage
contract? In the case, Compania Colombiana de Seguros v. Pacific Steam
Navigation Co. (The Colombiana) held that claiming the bill of lading
contract should be in accordance with the English law. However, to choose
the claiming assignment under the insurance contract should be in
accordance with the Colombia law. In addition, the regulations about the
absence of evidence are different under these two legal systems. Therefore,
there should be a notice of application of law before the action is brought.
The action might fail and the claim is time barred if there is no notice to be
given.103
4.1.3 Distinction of subrogation and

assignment discussed in case law
There is a typical case about the differences between subrogation and

assignment. The case of Central Insurance Co Ltd v. Seacalf Shipping
Corporation (The Aiolos) [1983] 2 Lloyd’s Rep. 25 highlights the main
disadvantage in assignment, which is needed of notice, or in the absence of
notice, the presence of the assignor before the court. In this case, there was
a deal of cargo (soya bean meal), which is insured for carriage aboard.
The cargo was found of shortage at the destination. The insurer paid the
102
The case of Montedipe SpA v. JTP- RO Jugotanker (The Jordan Nicolov) [1990] 2
Lloyd’s Rep. 11.
The fact of that arbitration…had tripartite charter, involving claimant, respondent and
arbitrators, did not invalidate Ps’ argument that if P2 were the legal assignees they could
enforce the arbitration agreement in the same manner as P1 so long as notice of the
assignment was given both to the other party to the dispute and to the arbitrators (as in the
present case).
103
supra. note 97.
Also in the book: Jonh Dunt, Ander W. Baker, QC and Hatty Sumption (ed.), Marine
Cargo Insurance, London: Informa Law Mortimer House, 2009 at para. 16.7, p. 343.
44
shortage fee and got the subrogation receipt that is titled by the Taiwanese
law. The insurer could claim from the ship owner based on the right of
subrogation according to the insurance contract. At the beginning, the
insurer claimed that the proper claimant should be the assured.
Nevertheless, on the court, the insurers were allowed to amend the
pleading. The insurers appealed that the action has been assigned to them
and the insurers themselves who were the proper claimants. However, this
appeal was doubted. Finally, the court held that the amendment was
allowed on the condition that the insurer should join the cargo owners as
the joint defendants. The reason is that they were considered as the
assignors before the court.104
In conclusion, the right of subrogation and assignment are almost the same
in some respects. Nevertheless, subrogation and assignment have their
own advantages and disadvantages separately from the analysis above.
Subrogation is better for the parties in sometime. On the contrary,
assignment is better than the subrogation in some cases because it depends
on different reality and cases.
4.2 Co-assured and waiver clause of

subrogation
4.2.1 The insurer cannot exercise subrogation
right against the co-assured
The case Simpson v. Thompson (1877) LR 3 App Cas 279 was about two
sister ships had an accident of collision. The insurer cannot claim the ship
(wrongdoer) which belongs to the same ship owner (the assured as well)
after paying the indemnity. This problem was solved in the Clause 7 of
International Hull Clauses (01/11/03) reading as follows:
Clause 7 Sistership
104
45
Should the insured vessel come into collision wit or
receive salvage from another vessel belonging wholly or in
part to the same Owners or under the same management,
the Assured shall have the same rights under this insurance
as they would have were the other vessel entirely the
property of owners not interested in the insured vessel; but
in such cases the liability for the collision or the amount
payable for the services rendered shall be referred to a sole
arbitrator to be agreed upon between the Underwriters and
the Assured.105
For the co-assured, the insurer cannot have the right of subrogation to
claim one assured who causes the loss after the insurer paying another
assured. This is based upon the theory of the co-assured considered as one
assured. It is like the circuitry of action.106 In the case National Oilwell
(UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582, the company
named National Oilwell (NOW) had a contract with another company
named Davy Offshore (DOL) on supplying the engineering equipment in
order to build an oil production platform in the North Sea. However, there
was a dispute between the two companies about over quality of the
workmanship. In addition, it had resulted in a totalling in excess of 13
million pounds of work by NOW being unpaid in invoices. The DOL had
paid the builders all risks policy for the whole project and the DOL had
been indemnified the policy for the losses caused by the defective
equipment from NOW. “When NOW sued the DOL over the unpaid
invoices, the insurers, by way of subrogation, in the name of DOL, counter
claimed for their loss.”107 There was a problem of the co-assured that the
NOW was a party of the insurance that was brought by the DOL. The
court had no doubt that the insurer could not exercise the right of
subrogation in the name of one co-assured against another co-assured.
There is an exception when the other co-assured is guilty of wilful
misconduct or not covered by the policy against the risk under the
indemnity that has been paid. It is possible to breach the implied terms in
the contract if the insurer sues the other co-assured based on the right of
105
International Hull Clauses (01/11/03), Clause 7 “Sistership”.
106
The case of Petrofina (UK) Ltd v. Magnaload Ltd [1983] 2 Lloyd’s Rep 91.
107
46
subrogation. In addition, this kind of right is excluded by the principle of
circuitry of action. The insurer cannot exercise the right of subrogation
against one of the co-assured according to the insurance contract, which
the co-assured has the benefits under the policy on it. At the same time, the
insurance contract must cover the loss and protect the co-assured against
the loss on the insured subject matter that the insurer seeks by the way of
subrogation.108 The reason is that the insurer would breach the implied
term in the policy and might widen the circuitry action that can exclude the
claim.
Beside the theory of circuitry action, there is another saying of implied

terms that the insurer cannot sue one co-assured by the way of subrogation
in the case National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2
Lloyd’s Rep 582. Lord Colman explained that:
The explanation for the insurers’ inability to cause one co-

assured to sue another co-assured is that in as much as the
policy on goods covers all the assureds on an all risks basis
for loss and damage, even if caused by their own
negligence, any attempt by an insurer after paying the
claim of one assured to exercise rights of subrogation
against another would in effect involve the insurer seeking
to reimburse a loss caused by a peril (loss or damage even
if caused by the assured’s negligence) against which he has
insured for the benefit of the very party against whom he
now sought to exercise rights of subrogation. That party
could stand in the same position as the principal assured as
regards a loss caused by his own breach of contract or
negligence. For the insurers who had paid the principal
assured to assert that they were now free to exercise rights
of subrogation and thereby sue the party at fault would be
to subject the co-assured to a liability for loss and damage
caused by a peril insured for his benefit…it is necessary to
imply a term into the policy of insurance to avoid this
unsatisfactory possibility…the purported exercised by
insurers of rights of subrogation against the co-assured
would be in breach of such a term and would accordingly
provided the co-assured with a defence to the subrogation
claim.109
108
109
The case of National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582.
Also in the book: Jonh Dunt, Ander W. Baker, QC and Hatty Sumption (ed.), Marine
Cargo Insurance, London: Informa Law Mortimer House, 2009 at para. 16.5, p. 344.
47
Moreover, there is another evidence of implied theory in the case of Stone
Vickers Ltd v. Appledore Ferguson Shipbuilder Ltd.110 In these two cases
above, it is clear to say that the implied term should be covered by an
insurance policy. “If the insurer were permitted to bring subrogated
proceedings in respect of a loss against which it had previously agreed to
insure him, which would be inconsistent with the terms of the policy.”111
This implied term depends on each different individual contract. However,
in the cargo insurance contract, generally, the fundamental rule is that
there is no subrogation against the co-assured.
4.2.2 The reason for the existence of co-

assured
The phenomenon of co-assured is very common in the insurance field. The
purpose is that the principal assured wants to bring the relative companies
and people into the same insurance contract in order to get more
protections. In addition, the principal assured could avoid to be sued by the
insurer after paying the indemnity if there are relative companies or people
110
The case of Stone Vickers Ltd v. Appledore Ferguson Shipbuilder Ltd.[1991] 2
Lloyd’s Rep 288, reversed on a different point [1992] 2 Lloyd’s Rep 578.
Lord Colman held that: “ where a policy is effected on a vessel to be constructed and it is
expressed to be for the benefit of sub-contractors as co-assured, if a particular sub-
contractor negligence causes loss of or damage to the whole or part of the vessel which
has been insured under the policy and the sub-contractor has an insurable interest in the
vessel, it is not open to underwriters who have settled the insured shipbuilder’ claim to
exercise rights of subrogation in respect of the same loss and damage against the co-
assured subcontractor. To do so would be completely inconsistent with the insurer’s
obligation to the co-assured under the policy. The insurer would in effect be causing the
assured with whom he had settled to pursue proceedings which if successful would at
once cause the co-assured to sustain a loss arsing from loss or damage to the very subject-
matter of the insurance in which that co-assured has an insurable interest and a right of
indemnity under the policy. In my judgement so inconsistent with the insurer’s obligation
to the co-assured would be the exercise of rights of subrogation in such a case that there
must be implied in to the contract of insurance a term to give it business efficacy that an
insurer will not in such circumstances use rights of subrogation in order to recoup from a
co-assured the indemnity which he has paid to the assured. To exercise such rights would
be in breach of such a term. In such a case the law recognizes the rights of the co-assured
by enabling him to rely on his rights under the policy by way of defence in the
proceedings which the insurers have caused to be commenced in breach of their implied
obligation under the policy. This is an effective means of enforcing the co-assured’s
rights and makes it unnecessary for him to join the insurers as third parties in the action.”
111
48
under the same insurance contract. This action was admitted in the Section
23 (1) in MIA stating like: “a marine policy must specify the name of the
assured, or of some person who affects the insurance on his behalf.”112
There is also some words from Lord Lloyd in the case Petrofina (UK) Ltd
v. Magnaload Ltd [1983] 2 Lloyd’s Rep 91. He held that the principle
contractor should be able to insure the whole contract works in his own
name. The names of all the sub-contractors are just like the baliee or the
mortgagee. One of the sub-contractors could be able to recover the full
loss of the insured subject matter and he should hold the over benefit
beyond his own interest in the trust of the other sub-contractors.113
For the marine cargo insurance, the London market open covers give a
wide definition about the assured: “ABC Limited, and / or as agents and /
or subsidiaries and / or associated companies and / or for whom they may
have instructions to insurer.” It protects the assureds who may have their
own carriers (particular the carrier by road and the also the carrier by sea),
or the warehouse keepers who are involved in the carriage and storage of
the cargo. If there is no wider definition about the assured, the express
clause waiver of subrogation could be the alternative method. The waiver
clause: “Insurers waiver all rights of subrogation and / or recourse against
the Assured and / or subsidiary companies of the Assured engaged in the
carriage of and / or storage of the subject – matter insured.” The wider
definition about the assured includes the CIF buyer sometimes. It means
that all the companies in a group are considered as the assured. However,
there is an extension in the definition that includes the CIF buyers of cargo.
Therefore, “the original insured, in the case ABC Limited, acts as ‘agent’
on behalf of a buyer of the cargo ‘for whom they may have instructions to
insure.’”114 In addition, these words are revised in the Institute Cargo
Insurance named “Benefit of insurance” as following:
112
Marine Insurance Act 1906, Art. 23 “What policy must specify”.
113
supra. note 109.
114
49
15.1 covers the Assured which includes the person
claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an
assignee,
15.2 shall not extend to or otherwise benefit the carrier or
other bailee.115
It is clear that the CIF buyer could be the assignee based on the insurance
contract or the certificate of insurance; otherwise, the buyer could be the
co-assured to claim the indemnity to the insurer. The co-assured’s rights
should be limited based on the insurance contract since the policy is a joint
policy but not the composite policy.
4.2.3 Exclusions on co-assured

In the case of National Oilwell (UK) Ltd (NOW) v. Davy Offshore Ltd
(DOL) [1993] 2 Lloyd’s Rep 582, the principal assured was the DOL who
was the main contractor in a North Sea oil project. The DOL had an
insurance contract with the insurer and brought the NOW as a co-assured
into the insurance contract. There was a section in the contract saying that
“Other Assureds: Any other company, firm, person or party (including but
not limited to contractors and / or sub-contractors and / or supplies) which
whom the Assured have entered into agreement and / or contracts in
connection with the subject matters of this Insurance, and / or any work
activities, preparation etc., connected herewith.” The benefits of the other
assured shall be covered for the whole project period under the policy and
should be full coverage, unless there is an opposite position section in the
contract. It should be limited under this circumstance.116 Moreover, in the
sale of goods contract between NOW and DOL, there is a term saying that:
“The Purchaser shall on behalf of and in the joint names of the Purchaser
and…the Supplier and all sub-contractors insure on ‘All Risks’ basis the
Work and materials in the course of manufacture until the time of delivery
in the amount of the Contract Price…”117
115
Institute Cargo Clause, Clause 15 “Benefit of insurance”.
116
supra. note 109.
117
ibid.
50
From the terms in the insurance contract and sale of goods contract, it is
obvious that the policy period under the insurance contract may cover the
whole project. The policy period should be the same on the principal
assured and the other co-assured. Nevertheless, the insurer does not want
the same policy period of all the co-assured. Because of some sub-
contractors such as NOW, join the project only for short period but not the
whole project period. Therefore, there are words like “until the time of
delivery” in the sale of goods contract between NOW and DOL. It means
that NOW is not the co-assured after delivering the goods to DOL
anymore. The engineering equipment was destroyed in the sea because of
the defective of quality when it was installed. The DOL raised counter
claim when NOW claimed the payment of goods. Actually, the right of
counter claiming is the subrogation right of the insurer against the NOW
after the insurer paying DOL. The court agreed that the insurer was
entitled to subrogate since NOW was no longer the co-assured when the
accident happened and even there was an express waiver clause in the
policy.
In conclusion, one co-assured should pay attention to the policy period

whether or not it is the same period with the other co-assured even there is
an express waiver clause of subrogation in the policy. If the period is
different, the co-assured cannot apply the right of subrogation against the
insurer when he is not covered by the policy.
There is another example in the case Stone Vickers Ltd v. Appledore

Ferguson Shipbuilder Ltd [1991] 2 Lloyd’s Rep 578.118 The supplier Stone
Vickers had a sale of goods contract on the subject matter of propeller to
the AS (Appledore Ferguson Shipbuilder Ltd). The AS bought the
insurance of Institute Clause of Builder’s Risks for one and half years and
the Stone Vickers was a party of the co-assured. As the statement in the
contract: “Agreed included…sub-contractors as additional co-assured for
their respective rights and interests, without recourse against any co-
118
supra. note 107.
51
assured.”119 The AS claimed the indemnity from the insurer because of the
defective of the propeller. The insurer paid the indemnity and then
subrogated against the supplier. However, the Stone Vickers, as well as the
supplier raised the counter claim based upon the reason of co-assured. The
problem was brought whether they were the co-assureds or not. It is
similar with the “Himalaya clause”120. In this case, the Lord Parker said:
“all sub-contractors unidentified and incapable of identification at the time
were automatically covered. It can only mean that declarations naming or
properly describing sub-contractors would be accepted”121
Lord Parker declared that there were four requirements that need to be
satisfied if the AS wanted to be the co-assured.
(a)The policy must make it clear that the sub-contractor is

intended to benefit from the provisions in the policy; (b)
The policy must make it clear that the main assured, in
addition to contracting for the insurance provisions on his
own behalf, is also contracting as agent for the sub-contract
that these provisions should apply to the sub-contractor; (c)
The main assured must have authority from the sub-
contractor to contract on his behalf, although perhaps later
ratification by the sub-contractor would suffice; and (d)
and difficulty about consideration moving from the sub-
contractor would have to be overcome.122
Lord Parker held that the first and second requirements were not fulfilled
and the last two requirements did not need to be talked about. The
insurance documents do not make it clear whether or not the supplier
intended to be protected by its provision. Moreover, it is obvious that the
AS was not acting as agent of the supplier.
119
120
The case of Midland Silicones v. Scruttons [1961] 2 Lloyd’s Rep 365, Lord Reid
stated about the “Himalaya clause”: I can see a possibility of success of the agency
argument if (firstly) the bill of lading makes it clear that the stevedores is intended to be
protected by the provisions in it which limit liability, (secondly) the bill of lading makes it
clear that the carrier, in addition to contracting for these provisions on his own behalf, is
also contracting as agent for the stevedore that these provisions should apply to the
stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later
ratification by the stevedore would suffice, and (fourthly) that any difficulties about
consideration moving from the stevedore were overcome.
121
ibid.
122
ibid.
52
4.2.4 The waiver clause of subrogation
It is common in the oil industry. The oil companies or the subsidiaries are
the owners of the tankers used to transport the oil. Under this
circumstance, if there is an accident on the tanker at sea and the cargo
owner claims the loss from the insurer. The cargo owner’s insurer who
pays the indemnity of the loss would have the rights of subrogation against
the carrier. In a roundabout way, the same company would have stood the
loss. Moreover, if the carrier and a seller of cargo are fundamentally the
same, the similar issue is in where the cargo is sold under the CIF term.
The CIF buyer could refuse the documents if it is not in order and the
buyer could avoid paying price in the contract. Under this circumstance, if
the buyer rejects to accept the document and the cargo loss at this time, the
seller should bear the loss under the CIF term. If the seller claims the loss
from his insurer and then the insurer pays the indemnity of the loss, the
insurer could have the right of subrogation against the wrongdoer.
Therefore, if the company has both interests in the cargo and the carriage
of the cargo, “it makes good commercial sense, when insuring the
shipment, to employ, in policy of insurance, a ‘subrogation waiver
clause.’”123 This kind of waiver clause could prevent the insurer from
pursuing (using the right of subrogation) after the insurer paying the
indemnity to the assured. In the case Enimont Supply SA v. Chesapeak
Shipping Inc, (Surf City) [1995] 2 Lloyd’s Rep 242 the clause was
employed. In February 1990, the tanker Surf City, which was carrying a
cargo of naphtha and gas oil, exploded and caught fire. The fire was
brought under the control by the salvors operating under Lloyd’s form.
Gulf Insurance indemnified Enimont, the CIF buyers of part of the cargo
of naphtha, for their loss and then sought, by way of subrogation, to
recover their loss from Chesapeake Shipping, the owners of Surf City.
Chesapeake Shipping contended that Gulf Insurance had no rights of
subrogation because of a term in policy of insurance and cl 16 of the Bulk
123
53
Oil Clause (1962). In addition, it was stated: “it is agreed that no right of
subrogation expect through general average, shall lie against any
vessel…belonging in part or in whole to a subsidiary and / or affiliated”124
Gulf Insurance accepted that cl 16 precluded them from claiming against
the original assured, the CIF sellers. However, contended that, as Enimont
were CIF buyers, they were not a party to the original insurance, and as
they were assignees to the policy of insurance, ci 16 did not apply.125
The court declared that the Chesapeake Shipping was entitled to apply the
waiver clause of subrogation. Since the clause 16 applied not only on the
original assured (CIF seller) but also to the CIF buyer whom the policy
had been assigned. Lord Clarke held that:
…It does not seem to me to follow from those

considerations that because the assured’s subsidiary will be
protected where assured is paid under the policy, the clause
means that it is not to be protected where the insurer pays
the CIF buyer and not the original insured… The same is, I
think, true if the matter is viewed from the point of view of
the insurer. The clause shows that the insurer is willing to
waive his rights against the carrying ship where a CIF
buyer procures the carriage in a vessel owned by a
company in his group. I see no good commercial reason
why he should not be willing to do so throughout the
carriage. It makes no commercial sense to say that the
waiver applies only so long as the loss is sustained by the
assured and not when it is sustained by the buyer.126
124
There would be no subrogation waiver clause in the current version of the Institute
Bulk Oil Clauses (1/2/83).
125
The case of Enimont Supply SA v. Chesapeak Shipping Inc, (Surf City) [1995] 2
Lloyd’s Rep 242.
126
ibid.
54
5 Litigation issues concerning
to the third party under
subrogation
The third party plays a significant role in right of subrogation. Since the
third party is the person, who causes the loss and the insurer could claim
the compensation from them under the subrogation. However, the insurer
could sue the third party and the assured could join the litigation as joined
defendant if he refuses to give the authority of certification. The assured
could forfeit the rights against the third party in different periods during
the proceeding. It could lead different results according to the different
time.
5.1 Who is controlling the rights to claim

recovery from the third party under
subrogation
It is common that the assured stops controlling the right against the third
party if he is indemnified well. The right transfers to the insurer based
upon the subrogation. The assured must allow the insurer to act in the
name of assured for suing the third party according to the right of
subrogation even though the litigation has not begun. However, the
assured might reject to use his name or to give the authority certification
because the assured and third party have the common commercial benefit
or other reasons. Under this circumstance, the insurer could bring the
assured and the third party together as the joined defendant.127 If the
assured refuses the permit of using his name in the proceeding, the best
method should be the joined co-defendant with the insurer. The purpose of
this action is to make sure the assured being in the part of the action so that
the judgement could be given. The “subject of course to the imposition of
127
The case of Esso Petroleum Co. Ltd v. Hall Russell & Co. Ltd (The Esso Bernicia)
(1989) AC 643.
55
a charge on the proceeds of the action for the benefit of the insurer” is the
good explanation of this issue. 128
On the contrary, the insurer and the assured usually take a period to get the
agreement on the indemnity amount. The common method is that the
assured begins to claim the loss from the third party during negotiation
time with the insurer on the amount. The assured might encounter a
difficult situation if the claiming under insurance contract fails and the
time limit is about to expire. In marine cargo insurance, this subject is
taken one-step further in Clause 16 of the Institute Cargo Insurance. It is to
say that if the insurer rejects to pay the indemnity under the insurance
contract, the assured should have a positive duty to take recovery
proceeding to the third party.129 In the case, Netherland Insurance Co. Est
1845 Ltd v. Karl Ljungberg & Co AB (The Mammoth Pine), there was a
cargo of plywood voyaged from Singapore to Esbjerg in Denmark. The
cargo was insured in the Institute Cargo Insurance (All Risks) for the
carriage. Some of the goods were short loaded or delivered damaged. The
insurer refused to pay the indemnity and without prejudice to denial of
insurance liability, the assured was under the Baliee Clause’s 130
obligations that should take action to protect the time limit and preserve
the rights against the carrier. The court held that the insurer was entitled to
do that. The assured could ask the cost of the proceeding to be returned
from the insurer based on the implied terms in the insurance contract. It is
clear that the assured could claim to recover the costs of proceeding even
though it is unsuccessful for him. 131 “Such costs have, under general
principle of subrogation. Been held to include costs of pre-trail
investigations and other related costs reasonably directed at attempting to
reduce the loss.”132
128
129
The case of Netherland Insurance Co. Est 1845 Ltd v. Karl Ljungberg & Co AB (The
Mammoth Pine) [1986] 2 Lloyd’s Rep. 19.
130
The predecessor of Duty of Assured Clause of the Institute Cargo Insurance.
131
supra. note 129.
132
56
However, could the assured have the rights to control the claiming
recovery from the third party ultimately? As the author said earlier, the
assured would like to transfer the right of claiming the third party after
paying full indemnification by the insurer. Nevertheless, the assured would
like to have the right of claiming the recovery from the third party if he is
paid only on a part of the loss or the uninsured loss in the circumstance of
under insurance. Under this circumstance, the assured always wants to
take the rights against the third party and needs to return the money back
to the insurer while insurer has paid to the insurer. In the case Commercial
Union v. Lister (1874) LR 9 Ch App 483, there was a mill destroyed by
the gas explosion which was caused by the mistake of the gas supplier.
The insured value of the mill was 33,000 pounds. The assured appealed
that his uninsured loss was 56,000 pounds. On this basis, the assured
claimed that it was a under insurance. Moreover, he also claimed 6,000
pounds for the loss of benefit, which was obvious, the uninsured part. The
insurer would like to pay the 33,000 pounds but he was worried about if he
did so the assured might accept the balance from the gas supplier to end
this litigation. Therefore, the insurer applied the injunction and declaration
to the court which are “(1) they were entitled to the benefit of the assured’s
right of action; (2) that the assured be restrained from processing the action
for anything less than the whole amount of the claim; and (3) that the
assured be retrained from refusing to allow the insurers to use his
name.” 133 The court held that the assured was entitled to control the
proceeding. It is to say that the assured is the real dominus litis of the
proceeding of claiming the recovery from the third party. There is only one
condition, which is the assured should not reduce the amount of money
and the assured should act as the trustaor and return the money back to the
insurer. The assured is entitled to have the rights of controlling the
litigation against the third party after the payment from the insurer even
when the assured is insured partly. This clause is considered as the
133
The case of Commercial Union v. Lister (1874) LR 9 Ch App 483.
Also can be found in book: Jonh Dunt, Ander W. Baker, QC and Hatty Sumption (ed.),
Marine Cargo Insurance, London: Informa Law Mortimer House, 2009 at para. 16.18, p.
349.
57
contraction of contractually subrogating the interests from the assured to
the insurer although the shortage results from the deductible.134
In conclusion, the right of claiming the recovery against the third party
belongs to the assured because of the insurer claiming is also in the name
of the assured as well even if the assured fails in the proceeding. In
principle, the assured is the owner (dominus litis) of the rights claiming
against the third party because it is the claiming recovery proceeding of the
assured in original.
5.2 Assured forfeits the right of

subrogation to the third party
This situation is that the assured voluntarily forfeits his rights of claiming
the recovery from the third party when the assured receives the
indemnification from the insurer. It is obviously destroying the insurer’s
right of subrogation. Under the principle of freedom of contract, the words
about this issue can be written as the third party could have the benefit of
the insurance from the assured.135 The case Canadian transport co Ltd v.
Court Line Ltd (1940) AC 934 was about a charter party. The “ship owner
to give time charters the benefit of the Protection and Indemnity Club
Insurances as far as club rules allow.”136 However, the court held that this
provision did not apply because the most common situation was that the
third party could not share the benefit from the P&I Club. Nevertheless,
Lord Atkin said that a person who might have the contract with the insurer
on the terms is injured by other. If the insured risk happens, the assured, he
will look to the insurer at first instead of the wrongdoers.137
134
135
Here the assured does not bring the third party as co-assured of the insurance contract.
136
The case of Canadian transport co Ltd v. Court Line Ltd (1940) AC 934.
137
ibid.
58
In the International Convention for the Unification of Certain Rules of
Law Relating to Bills of Lading, 1924, the article 3 (8) that means that is
invalid when in the policy, it reads as follows:
Any clause, covenant, or agreement in contract of carriage

relieving the carrier or the ship or the ship from liability for
loss or damage to, or in connexion with, goods arising
from negligence, fault, or failure in the duties and
obligations provided in this Article or lessening such
liability otherwise than as provided in this Convention,
shall be null and void and of no effect. A benefit of
insurance in favour of the carrier or similar clause shall be
deemed to be a clause relieving the carrier from liability.138
In order to avoid the carrier and ship owner exploiting an advantage, there
is a clause 15.2 in the Institute Cargo Clause stated: “This insurance…shall
not extend to or otherwise benefit the carrier or other bailee.”139 If there is
a clause about the ship owner who could have the benefit from the cargo
insurance as long as the policy allows in the charter party contract, it will
have no influence under the circumstance of the Clause 15.2. However, if
the provision in the contract is like the ship owner to have the benefit of
the cargo insurance, it means that the assured of the cargo deprives the
right of subrogation from insurer.
The result of forfeiting the right of claiming recovery to the third party is
different depending on the different moment of forfeiture. The time of
forfeiture of the right of subrogation can be divided into four parts that will
be introduced in the following.
5.2.1 Assured forfeits the subrogation rights

before insurance contract
This situation is that the assured and the third party have the contract about
giving up the subrogation before the insurance contract is made which
means there is no opportunity of exercising the right of subrogation. Under
this circumstance, the only remedy of the insurer is claiming the assured
138
International Convention for the Unification of Certain Rules of Law Relating to Bills
of Lading, 1924, there is an Article 3 (8).
139
supra. note 115.
59
breach the duty of disclosure. In the case Marc Rich & Co AG v. Portman
[1996] 1 Lloyd’s Rep 430140, it was about the Marc Rich (MR) bought the
demurrage liability insurance for his oil trade. This kind of insurance
covers the demurrage of the vessel which is charter party from the MR.
“This insurance extend in respect of above vessels/trading area only to
include all which the assured shall be liable to pays as charters including
costs and expenses due to loading/unloading beyond the agreed
period…”141. The insurer rejected to pay the indemnification and asserted
that the assured did not disclose that the payment under insurance contract
could not be subrogated to the third party. In the contract between the MR
and the third party, MR took the responsibility of the delay that caused the
demurrage. However, Lord Longmore did not agree on this point and
declared that the insurer who could prove this insurance did not need to be
disclosed in fact. “The underwriters have not discharged onus of showing
that in the comparatively new and rarely used market in which demurrage
was insured it was material for a prudent underwriter to be informed about
either actual or assumed recoverability from the third party.” 142 This
disclosure was not adequate and the third party was not disclosed at all.
It is difficult for the insurer if he wants to use the excuse of disclosure to

deraignment. Because of the court would like to refuse this kind of
technology excuse. It is not essentially significant to decline the right of
subrogation and salvage of insurer unless the insurer can prove it has bad
influence to the indemnification such as reducing the amount of money.
The fact, which reduces the right of subrogation and salvage of the insurer,
is prima facie. Moreover, it requires to be disclosed only when the assured
should know the premium rating under this circumstance.143 In addition,
Section 18 (3) (b) of the MIA is about that there is no duty of disclosure if
140
The case of Marc Rich & Co AG v. Portman [1996] 1 Lloyd’s Rep 430, also known as
Glencore International AG v. Portman.
141
ibid.
142
ibid.
143
60
the knowledge is in ordinary course of the insurer,144 such as the “knock-
for-knock” clauses in the TOWCON and SUPPLYTIME 2005
separately.145 Therefore, the insurer presumes to know the matters and he
could not refuse to pay the indemnification using the excuse of disclosure.
5.2.2 Assured forfeits the subrogation right

before the loss after the insurance
contract
In this period, there are no remedies for the insurer if the assured has
contract with the third party about forfeiture of subrogation rights, unless
there is a clause about forbidding this action in the insurance contract. The
reason is that the assured could increase the insured risk if it is not
forbidden in the policy under the English insurance law that allows the
assured to take some action except changing the essence of insured risk.
The assured has an agreement with the third party which discharges the
obligations of the third party in the duration time before the loss occurred
but after the insurance contract. It is to say that the insurer cannot reject
the policy. “It is clear that the insurer’s contingent subrogation rights come
into existence as soon as the policy is entered into.”146 It means that there
is no implied obligation on the assured about refusing to have an
agreement with the third party that restricts the third party’s liability.147

before the indemnification from insurer
after the loss
It could say that there is no right of subrogation in this period because the
insurer has not paid the full indemnification. It is not easy for the insurer to
control the action between the assured and the third party such as the
assured claiming the recovery or making the settlement. The assured does
not allow depriving the subrogation right of insurer that is implied by
144
supra. note 82.
145
supra. note 81.
146
supra. note 143.
147
The case of State Government Insurance v. Brisbane Stevedoring Pty Ltd (1969) 123
CLR 228.
61
law.148 The assured could be sued if he does so.149 Moreover, there is
another case refers to the under insurance. 150 The assured has the
settlement with the third party paying the balance of the under insurance as
recovery. It is obviously destroying the subrogation right of insurer since
the insurer is also bounded on the settlement. It is very common in reality
that the assured claims half of the loss from the insurer and at the same
time, claims another half of the loss from the third party who causes the
loss. However, this kind of action breaches the implied obligations in
law.151

after the indemnification
In this period, there is a existence of subrogation right. However, the
assured is the donimus litis of the rights claiming the recovery from the
third party.152 It is because the assured still has some parts of loss that have
not been indemnified by the assured. Under this circumstance, the best and
most safe method is to get the permission from the insurer about the
settlement between the assured and the third party. Nevertheless, it maybe
not enough for the parties even though the settlement between the assured
and the third party contains the well-meant.153 It is possible for the insurer
to apply the Mareva injunction to stop the settlement between the assured
and the third party.
In conclusion, the assured can take action of forfeiting the right of

subrogation during the proceeding at any time. It results in different
outcomes. The insurer should pay attention to the moment that the assured
gives up the subrogation rights because it can destroy the whole
proceeding of indemnification that is extremely significant to the insurer.
148
supra. note 33.
149
supra. note 70.
150
The case of Law Fire Assurance Co. V. Oakley (1888) 4 TLR 309.
151
This has been talked in the 3.2.2.1, “The implied obligations of the assured.”
152
This has been talked in the 5.1, “Who is controlling the rights to claim recovery to
third party under subrogation.”
153
supra. note 33.
62
6 Right of subrogation under
Chinese law
The subrogation doctrine is one of the most complicated and significant
theories in insurance law. There are some arguments about subrogation
under Chinese law. Such as the legal foundation, limitation and
bereavement of subrogation and the defence rights of the third party. There
are some cases in the English law that bring issues about subrogation, such
as the unexpected benefits from the currency rate,154 the insurer’s rights
against the sistership.155 Comparing with English law, there are not so
adequate and proper provisions about the right of subrogation before the
Insurance Law of People’s Republic of China and the Maritime Code of
the People’s Republic of China.156 There are not so many claims about
subrogation right in the maritime court in China. In this chapter, the author
wants to have a comparison study between the Chinese law and English
law in the right of subrogation in order to figure out some problems and
give the possible suggestions.
6.1 The definition of subrogation under

Chinese law
In English law, there are two main theories about the nature of subrogation.
They are the principle of unjust enrichment and implied term of contract.
Actually, there are some arguments on this issue. The nature of the right of
subrogation is that the insurer is entitled to subrogate the assured’s rights
when the insurance claim has been paid, no matter the claim is actually
payable under the policy.157 As the author talked about earlier, the nature
of subrogation is under the equitable doctrine originally but can be
modified by the implied terms in the insurance contract. However, the
154
The case of Yorkshire Insurance Co. Ltd v. Nisbet Shipping Co.Ltd [1961] 1 Lloyd’s
Rep. 479.
155
supra. note 22.
156
It enters into force as of July 1, 1993.
157
supra. note 38.
63
right of subrogation in China was written in Law (In the Insurance Law
and Maritime Code as mention before). The subrogation right was
considered as the express terms in the insurance contract or the agreed
subrogation in the certification in the international practice. The Article
252 of the Maritime Code is the first time to have the legal definition of
subrogation in China, which reads as follows:
Where the loss of or damage to the subject matter insured

within the insurance coverage is caused by a third person,
the right of the insured to demand compensation from the
third person shall be subrogated to the insurer from the
time the indemnity is paid. The insured shall furnish the
insurer with necessary documents and information that
should come to his knowledge and shall endeavour to
assist the insurer in pursuing recovery from the third
person.158
Although in English vision of Maritime Code, it uses word of “subrogate”.

In the Chinese vision, the real meaning of the word is “transfer”. There is
confusion about the subrogation and legal assignment. However, in the
Insurance Law the real meaning of the word is similar with the meaning of
subrogation in English Law, it reads as follows:
If an insured risk occurs due to the damage of the objects

insured by a third party, the insurer shall, starting from the
date of paying the indemnities, subrogate the insured to
exercise the right to indemnities from the liable third
party.159
In the view of author, the right of subrogation under Chinese law is neither
the implied subrogation nor the legal assignment. The right of subrogation
and the assignment are very different conceptions. Under the circumstance
of legal assignment, the insurer could act in his own name in the claiming
recovery from the third party by fulfilling the three legal requirements
even though the payment is more than the indemnity that he pays to the
assured. On the contrary, under the circumstance of subrogation, the
insurer should recoup the part of overpaid. Under English law, the assured
158
Maritime Code of the People’s Republic of China, Art. 252.
159
Insurance Law of People’s Republic of China, Art. 45 (1).
64
always has the right of controlling the claims recovery from the third party
even though he is not full indemnified. The insurer must act in the name of
the assured to exercise the right of subrogation. Nevertheless, under
Chinese Law, the insurer could sue the third party about the recovery
where he has paid the assured without acting in the name of assured. The
insurer exercising the right of subrogation “shall not affect the right of the
insured to the claim for indemnity from the third party on the part not
compensated for.” 160 It deprives the assured’s rights of claiming the
recovery of the part that cannot be indemnified if the definition of legal
assignment and subrogation is confused. Furthermore, under the Maritime
Code and Insurance Law, the insurer could subrogate the right that is
claiming the recovery of the loss from the wrongdoer. The insurer could
not subrogate the right, which is the remedy to diminish the loss of assured.
In addition, the insurer could not get the money as gifts or voluntary
payment of the assured whether or not it reduces the loss. The case of
Castenllain v. Preston161, under Chinese law, the insurer could not have
the right of subrogation if the assured received the payment from the third
party voluntary.
In addition, it is clear in Chinese law, the pre-condition of subrogation is

paying the full indemnification. The insurer could not take any action to
protect the rights before the full indemnification. In English law, there are
some arguments about the right of subrogation whether or not, should
begin with the contract. There is another saying that the subrogation
should begin at that moment of signing the policy.162
6.2 The insurer’s claiming rights

It has been argued for a long time about whether or not the insurer could
claim the recovery from the third party of using his own name or acting in
160
Insurance Law of People’s Republic of China, Art. 45 (3).
“The subrogation of the insurer to exercise the right to claim for indemnities according to
the provisions of the first paragraph of this article shall not affect the right of the insured
to claim for indemnity from the third party on the part not compensated for.”
161
supra. note 25.
162
The case of Boag v. Standard Marine Insurance Company, Ltd (1937) 2 K.B. 113.
65
the name of the assured. As the author mentioned earlier, the right of
subrogation is considered as the international practice before it comes into
law. In the litigation of subrogation, the subrogation certification is
required under Chinese law. There is a trend that the claiming right of the
assured is “transferred” to the insurer after the full indemnification paid by
the insurer. It is obvious that the insurer is entitled to sue the third party
directly without acting in the name of assured. In addition, the claiming
right of insurer is in accordance with Civil Procedure Law of the People’s
Republic of China, Article 108 (1) 163. At the same time, the purpose of
legislation prefers to accept the insurer who could sue the third party in his
own name directly.
It is different under English law. The English law does not recognize the
rights of the insurer suing the third party in his own name unless the three
requirements of legal assignment are satisfied. The insurer should “stand
in the shoes” of the assured and the insurer does not have the time against
the wrongdoer directly. To exercise the rights of suing the wrongdoer, the
insurer must act in the name of the assured not in his own name.164 Under
the principle of privity of contract, the insurer is not being a part in the
relationship between the assured and the third party. Therefore, the insurer
cannot claim the third party about the recovery in his own name. It is
different under Chinese law that the insurer is entitled to sue the third party
directly. The insurer exercise the right of subrogation “shall not affect the
right of the insured to the claim for indemnity from the third party on the
part not compensated for.”165
Nevertheless, the insurer’s right of suing the third party without acting in
the name of the assured has brought some problems in practice especially
under the situation of ship arrest. If the party who takes an action of ship
163
Civil Procedure Law of the People’s Republic of China, Article 108 (1).
The following conditions must be met before a lawsuit is filed:
(1) The plaintiff must be a citizen, legal person, or an organization having a direct interest
with the case.
164
supra. note 25.
165
supra. note 160.
66
arrest is the assured, it is not clear whether the insurer could sue the third
party in his own name instead of the assured. If the answer is the insurer
could not do so and he needs to take an action to begin another
independent lawsuit proceeding in order to be compensated. In addition,
the assured will not be the person who has the “direct interest” after he is
paid full indemnification by the insurer. As a result, the ship will be
released without any conditions. On the view of author, the insurer could
subrogate the rights from the assured suing the recovery from the third
party. Therefore, he could be a party of the joined plaintiff with the
assured to exercise the rights.
6.3 The scope of subrogation under

Chinese law
In English law, the insurer could subrogate the rights and remedies that
could diminish the loss. However, under the Maritime Code and Insurance
Law166 in China, the object of subrogation is the right of claiming the
compensation from the third party or the wrongdoer. Therefore, the right
of subrogation is only related to the liability in tort or in breaching the
contract of the third party. Firstly, the scope of subrogation is concerning
to the assured’s rights which have been discharged or deprived. It means
that the insurer has no right to claim the gifts or voluntary payment from
the third party whether or not it diminishes the loss of the assured.
Secondly, the lost is caused by the third party or wrongdoer. The right of
subrogation excludes the assured’s right, which might be implied by law or
under the insurance contract. In the case of Castenllain v. Preston,167 the
assured received indemnification from the insurer and received the
payment of selling the house after the house was destroyed in a fire. The
insurer had no right to claim the payment of selling the house. It means
that the insurer could not recoup the payment that is gift or a voluntary
payment from the third party. Furthermore, the definition of the third party
is not clear under Chinese law. Under the situation of marine cargo
166
supra. note 158,159.
167
supra. note 25.
67
insurance, the scope of third party does not include the sistership or co-
assured. If a vessel has collision with her sistership, the insurer could not
have the right of subrogation after paying the full indemnification.
In addition, the Chinese law limits the insurer’s right of subrogation to the
assured’s families or members.168 There are no clear explanations about
whether or not there is the limitation of rights to claim the co-assured. In
practice, the court would like to limit the insurer’s right of subrogation to
the co-assured and sistership that is accordance with the English law as
mention in the part 4.2 of this thesis. Moreover, the insurer could not
exercise the right of subrogation if the policy is invalid.
According to Chinese law, the right of subrogation raised “from the time
of indemnity is paid.”169 However, there is one point not clearly that is
after the full indemnification or the actual loss is paid to the assured, could
the insurer have the right of subrogation? In the situation of under
insurance, the insurer is entitled to subrogate the rights where he has paid
according to the policy. “In the case of under insurance, the insurer shall
acquire the right to the subject matter insured in the proportion that the
insured amount bears to the insured value.”170 Under this circumstance, the
insurer has the subrogation right which is covered by the indemnification
that pays to the assured against the third party; meanwhile, the assured has
the right of claiming the recovery of uncompensated part to the third party.
However, the insurer is entitled to sue the third party in his own name
directly and the assured has the rights to claim recovery of un-indemnified
part of the loss. It might bring the situation that there are two different
judgements under the same claims. To solve this problem, in the view of
author, it is better to define the joint lawsuit proceeding. Once the assured
168
Insurance Law of People’s Republic of China, Art. 47.
Except the family members or other members of the insured deliberately cause the
insured risk to occur as provided for in the first paragraph of Atr. 44 of this law, the
insurer shall not subrogate the family members or other members of the insured to
exercise the right to indemnity claims.
169
supra. note 158.
170
68
or the insurer claims the loss from the third party, the other one could
automatically join the proceeding as the joint plaintiff for their own loss
separately. This method could protect the assured and the insurer at the
same time and they could contribute the recovery based on the proportion.
If the insurer pays the indemnification based on ex gratia, it is not clear if

he could have the right of subrogation under Chinese law. However, the
insurer could have the right of subrogation once he pays the good
indemnification.171 Under the same principle, the insurer is entitled to have
the right of subrogation unless the loss is caused by the exception
liabilities.
6.4 The obligations of assured to protect

the right of subrogation
It will infract the right of subrogation of the insurer if the assured has the
right of claiming the recovery from the third party no matter before or after
he is paid by the insurer. The result of infracting the subrogation is
different and depends on the purpose of the action. “Where the insured
waives his rights of the claim against the third person without the consent
of the insurer is unable to exercise the right of recourse due to the fault of
the insured, the insurer may take a corresponding reduction from amount
of indemnity.”172 There are no words about the assured abandons the
claiming rights to the third party after he is paid by the insurer in this code.
Meanwhile, there are no words about whether the insurer is bound to the
settlement, which contains the clause on forfeiture the claiming rights
before the indemnification is paid, but after the casualty of the loss. The
Insurance Law makes reparation of this defective in the Article 46 read as
follows:
If, after an insured risk occurs, the insured has forfeited the
right to claim for indemnities from the third party before
171
supra. note 38.
In the case of King v. Victria Assurance Company Limited (1896) AC 250.
172
69
the insurer pays insurance money, the insurer shall not
undertake to indemnities.
If, after the insurer has paid indemnities to the insured, the
insured forfeits the right to indemnities from the third party,
without the insurer’s consent, the act is invalid.
If, due to that fault of the insured, the insurer cannot
subrogate the insured to exercise the right to claim for
indemnities, the insurer shall reduce the payment of
insurance money correspondingly.173
The legal effect of the assured who forfeits the rights of claiming the
indemnity from the third party has a conflict in the Maritime Code and
Insurance Law. In the Maritime Code, it is said that the insurer could
reduce the amount of money if the assured forfeits the right of claiming the
recovery from the third party before the indemnification is paid. However,
in the Insurance Law, it is said that the insurer cannot take over the
liability of paying the indemnification if the assured forfeits the rights
before paying the indemnification but after the loss happened. It is not
clear in Chinese law whether the insurer’s subrogation is deprived or not
when the assured and the third party have the settlement. Meanwhile it is
forbidden that the assured claims the recovery from the third party after he
is paid indemnification fully. The action of forfeiture from the assured is
invalid after he is paid the full indemnification by insurer. The insurer pays
a part of the loss if it is under insurance and it does not deprive the rights
of the assured to claim the un-indemnified part from the third party. It
cannot be judged whether the settlement is valid or not, which contains the
clause about the total loss including the indemnified part and the un-
indemnified part. Under English law, the insurer is bound to the settlement
about discharging the liabilities of the third party between the assured and
the third party. However, under Chinese law, it does not recognize this
point. In the view of author, if the insurer pays the partial loss of the
damage, the insurer should bound to the settlement no matter it is about
recovering the total loss or the partial loss. Nevertheless, the third party is
given another hard job that is to check whether the insurer has paid the full
indemnification to the assured. If the assured is not paid the full
173
Insurance Law of People’s Republic of China, Art. 46.
70
indemnification, the third party might be sued by the insurer based on the
right of subrogation, even the third party has paid the full recovery. It is
unfair to the third party obviously.
If the assured forfeits the right of claiming the recovery from the third
party before paying the full indemnification by the insurer, the insurer is
entitled to reduce the amount of money both in the Maritime Code and in
Insurance Law. However, it is not clear whether the obligations of
protecting the right of subrogation including the protection of limit time or
the ship arrest. In practice, there is a clause about the assured should
ensure “all the rights against carriers, bailees, or other third parties are
properly preserved and exercised.”174 It is easily to say that the assured
breach the contract if he does not protect the limit time well. There is no
entitlement of ship arrest under the assured’s obligations.
The time of forfeiting the claiming right is after the insured risks occurring
under the Art. 46 in Insurance Law. However, there is no article about
whether the insurer is bound to the forfeiture action by the assured before
the insured risks occurs. In the author’s view, the insurer is entitled to
reduce the amount of payment but the forfeiture action is still valid. If the
assured breaches the duty of disclosure to the insurer, the insurer could
refuse to pay the indemnity or reduce the payment.
Furthermore, if the assured gets the recovery from the third party and get
the indemnification from the insurer, could the insurer ask for returning?
There are no words about this issue under Chinese law. However, under
English law, the insurer is entitled to ask for returning money back. The
purpose of subrogation is avoiding the double recovery. If the indemnity
that the assured received is more than the loss, the overpaid part should be
returned to the insurer. However, if it is the under insurance, “the insurer
shall acquire the right to the subject matter insured in the proportion that
174
supra. note 62.
71
the insured amount bears to the insured value.”175 It is to say that if the
assured has the settlement with the third party about the total loss, the
insurer could ask for returning based on the proportion of the
indemnification.
In conclusion, it is clear that there are many problems of subrogation rights

under Chinese law in respect of the definition, the claiming rights, the
scope of the subrogation right and the obligations. Based on the analysis
above, the definition of subrogation is not clear under Chinese law, in the
Maritime Code, it is more similar with assignment. However, in the
Insurance Law it is similar with the meaning of subrogation under English
law. Moreover, the Chinese law allows the insurer to sue the wrongdoer
directly in his own name that is totally forbidden in English law. The scope
of subrogation under Chinese law is included by the scope of subrogation
under English law. The obligations of assured to protect the subrogation
right are separately stated in the Maritime Code and Insurance Law. They
are consistence on some parts while some points are inconsistent.
175
supra. note 172.
72
7 Conclusion
Through the analysis in previous chapters, it is clear to see that this thesis
contains right of subrogation and the relative situations under subrogation
including the rights of the insurer before and after paying the full
indemnification, the assignment, the co-assured, the waiver clause and the
third party. At the last part of this thesis there is the extend part based upon
all the previous chapters. Comparison between the Chinese law and
English law is straightforward to figure out the disadvantages to the
business of Chinese law. However, it is not to say that English law is a
kind of perfect and there are still some critics arguments in English
legislation as well.
As known it has been argued for a long time in English court about the
nature of right of subrogation, whether the subrogation is a “child” of
equity or the implied terms in the contract? As Lord Huttin said that “the
doctrine of subrogation applies in a variety of circumstance where the
defendant has been unjustly enriched …defendant to retain that
enrichment.” 176 However, the principle of equity is that the one who
claims the remedies cannot be the wrongdoer. In the following cases, this
issue was discussed quite a lot. In the author’s view, the nature of
subrogation is under the equity from the original but can be modified by
the implied terms in the contract between the parties. It is saying that the
insurer could have the right of subrogation when the indemnification is
paid no matter the claim is payable under the policy. The purpose of
subrogation is avoiding the double recovery from the insurer and the third
party, because the assured is entitled to choose whom he will sue freely.
The situation of double recovery or earing profile from the risk is
inconsistent with the principle with law. Therefore, the right of
subrogation rose.
176
supra. note 7.
73
The right of recoupment is under the situation of overpaid. Recoupment is
restitution under equity. The insurer is entitled to ask the overpaid part of
money back from the assured. However, it brings another issue. If there is
the gift or voluntary payment, could the insurer exercise this recoupment
right? In the author view, it is impossible for the insurer. In the chapter 6,
this issue is compared between English law and Chinese law. The
regulations about this issue have the same legislation purpose.
The following question is about when the insurer could have the right of
subrogation. According to English law, it is very clear that “where the
insurer pays the total loss, either of the whole…he is thereby subrogated to
all the rights and remedies…”177 It is to say that the insurer could have the
right of subrogation after paying the full indemnity. However, in Chinese
law, it is clear that when should the insurer have the right of subrogation.
The confused point is the pre requirements of the subrogation. Does the
assured need to be paid full indemnification under the policy or the assured
need to be indemnified the actual loss? In the author’s view, it is better to
have clear explanation about it. Moreover, the author prefers after paying
the full indemnification the insurer could have the right of subrogation.
Concerning to the difference between the subrogation and the assignment,

it is main point is that under the legal assignment, the insurer could claim
the recovery to the third party in his own name and do not need to return
the overpaid. However, as known, the insurer must act in the name of the
assured and need to return the overpaid part back. This point is mixed in
Chinese law. In the Insurance Law, it is more like the real definition of
subrogation as in English law. However, in Maritime Code, it is more
similar with the definition of assignment. Actually, these two definitions
are totally different. In the author view, it is better to change the definition
about subrogation in Maritime Code in order to make it clearly and legally.
There is saying that subrogation will replace the assignment one day. In
the author view, it is not correct. They have their own advantages and
177
supra. note 26.
74
disadvantages. The assignment is better than the subrogation, but it is
converse sometimes. Therefore, the application of subrogation or
assignment depends on the different reality. The insurer could not exercise
the subrogation rights against the co-assured in general. The reason is that
it is a circuitry of action under this circumstance. It wastes the money and
energy to pursue this kind of claim. However, some exclusion for the co-
assured means the insurer could exercise the right of subrogation to the co-
assured, such as the co-assured has different policy period with each other.
The rights of controlling the proceedings to claim from the third party, in
the author view, should belong to the assured. Because the third party
whom is causing the loss should bear the compensation for the loss.
Therefore, the right of claiming the recovery belongs to the assured in
original that is based on the contract (in tort). Under the circumstance of
subrogation in English law, the insurer must act in the name of assured to
claim the rights. Therefore, the real owner of the right is still the assured.
There is a significant difference between Chinese law and English law.

The insurer is entitled to claim the recovery directly in his own name
under Chinese law that is not recognized under English law. The insurer’s
right about suing the third party without acting in the name of the assured
has brought some problems in the practice especially under the situation of
ship arrest. If the party who takes an action of arrest the ship is the assured,
it is not clear whether the insurer could sue the third party in his own name
instead of the assured. The answer is the insurer could not do so and he
needs to take an action to begin another independent lawsuit proceeding.
In addition, the assured will not be the person who has the “direct interest”
after he is paid full indemnification from the insurer. As a result, the ship
will be released without any conditions. On the view of author the insurer
could subrogate the rights from assured suing the recovery to the third
party. Therefore, he could be a party of the joined plaintiff with the
assured to exercise the rights.
75
Supplement
1: TOWCON, Clause 25:
(a)
(i) The Tugowner will indemnify the Hirer in respect of any liability
adjudged due or claim reasonably compromised arising out of injury or
death of any of the following persons, occurring during the towage or
other service hereunder, from arrival of the Tug at the pilot station or
customary waiting place or anchorage at the Place of Departure
(whichever is sooner), until disconnection at the Place of Destination,
however such geography and/or time limits shall not apply to sub-clause
25 (a)(i)2. Below:
(1) The Master and members of the crew of the Tug and any other servant
or agent of the Tugowner; (2) The members of the riding crew provided by
the Tugowner or any other person whom the Tugowner provides on board
the Tow; (3) Any other person on board the Tug who is not a servant or
agent of the Hirer or otherwise on board on behalf of or at the request of
the Hirer.
(ii) The Hirer will indemnify the Tugowner in respect of any liability
adjudged due or claim reasonably compromised arising from out of injury
or death occurring during the towage or other service hereunder to of any
of the following persons: (1) The Master and members of the crew of the
Tow and any other servant or agents of the Hirer; (2) Any other person on
board the Tow for whatever purpose except the members of the riding
crew or any other persons whom the Tugowner provides on board the Tow
pursuant to their obligations under this Agreement.
(b)
(i) The following shall be for the sole account of the Tugowner without
any recourse to the Hirer, his servants, or agents, whether or not the same
is due to any breach of contract, negligence or any other fault on the part
of the Hirer, his servants or agents:
(1) Loss Save for the provisions of Clause 16 (c), loss or damage of
whatsoever nature, howsoever caused to or sustained by the Tug or any
property on board the Tug. (2) Loss or damage of whatsoever nature
caused to or suffered by third parties or their property by reason of contact
with the Tug or obstruction created by the presence of the Tug. (3) Loss or
damage of whatsoever nature suffered by the Tugowner or by third parties
in consequence of the loss or damage referred to in (i) and (ii) above. (4)
Any liability in respect of wreck removal or in respect of the expense of
moving or lighting or buoying the Tug or in respect of preventing or
abating pollution originating from the Tug.
76
The Tugowner will indemnify the Hirer in respect of any liability adjudged
due to a third party or any claim by a third party reasonably compromised
arising out of any such loss or damage. The Tugowner shall not in any
circumstances be liable for any loss or damage suffered by the Hirer or
caused to or sustained by the Tow in consequence of loss or damage
howsoever caused to or sustained by the Tug or any property on board the
Tug.
(ii) The following shall be for the sole account of the Hirer without any
recourse to the Tugowner, his servants or agents, whether or not the same
is due to any breach of contract (including as to the seaworthiness of the
Tug), negligence or any other fault on the part of the Tugowner, his
servants or agents:
(1) Loss or damage of whatsoever nature, howsoever caused to or

sustained by the Tow. (2) Loss or damage of whatsoever nature caused to
or suffered by third parties or their property by reason of contact with the
Tow or obstruction created by the presence of the Tow. (3) Loss or
damage of whatsoever nature suffered by the Hirer or by third parties in
consequence of the loss or damage referred to in 1. and 2. above. (4) Any
liability in respect of wreck removal or in respect of the expense of
moving or lighting or buoying the Tow or in respect of preventing or
abating pollution originating from the Tow.
The Hirer will indemnify the Tugowner in respect of any liability adjudged
due to a third party or any claim by a third party reasonably compromised
arising out of any such loss or damage but the Hirer shall not in any
circumstances be liable for any loss or damage suffered by the Tugowner
or caused to or sustained by the Tug in consequence of loss or damage,
howsoever caused to or sustained by the Tow.
(c)
Save for the provisions of Clauses 17, (Permits & Certification); 18, (Tow-
worthiness of the Tow); 19, (Seaworthiness of the Tug); 22 (Termination
by the Hirer) and 23 (Termination by the Tugowner), neither the
Tugowner nor the Hirer shall be liable to the other party for:
(i) any loss of profit, loss of use or loss of production whatsoever and
whether arising directly or indirectly from the performance or non
performance of this Agreement, and whether or not the same is due to
negligence or any other fault on the part of either party, their servants or
agents, or
(ii) any consequential loss or damage for any reason whatsoever, whether
or not the same is due to any breach of contract, negligence or any other
fault on the part of either party, their servants or agents.
(d)
77
Notwithstanding any provisions of this Agreement to the contrary, the
Tugowner shall have the benefit of all limitations of, and exemptions from,
liability accorded to the Owners or Chartered Owners of Vessels by any
applicable statute or rule of law for the time being in force and the same
benefits are to apply regardless of the form of signatures given to this
Agreement.
2: SUPPLYTIME 14 (b), Knock-for-knock:
(i) Owners-Notwithstanding anything else contained in this Charter Party

excepting Clauses 6(c)(iii), 9(b), 9(e), 9(f), 10(d), 11, 12(f)(iv), 14 (d), 15
(b), 18(c), 26 and 27, the Charterers shall not be responsible for loss of or
damage to the property of any member of the Owners’ Group, including
the Vessel, or for personal injury or death of any member of the Owners’
Group arising out of or in any way connected with the performance of this
Charter Party, even if such loss, damage, injury or death is caused wholly
or partially by the act, neglect, or default of the Charterers’ Group, and
even if such loss, damage, injury or death is caused wholly or partially by
unseaworthiness of any vessel; and the Owners shall indemnify, protect,
defend and hold harmless the Charterers from any and against all claims,
costs, expenses, actions, proceedings, suits, demands and liabilities
whatsoever arising out of or in connection with such loss, damage,
personal injury or death.
(ii) Charterers-Notwithstanding anything else contained in this Charter

Party excepting Clause 11, 15(a), 16 and 26, the Owners shall not be
responsible for loss of, damage to, or any liability arising out of anything
towed by the Vessel, any cargo laden upon or carried by the Vessel or her
tow, the property of any member of the Charterers’ Group, whether owned
or chartered, including their Offshore Units, or for personal injury or death
of any member of the Charterers’ Group or of anyone on board anything
towed by the Vessel, arising out of or in any way connected with the
performance of this Charter Party, even if such loss, damage, liability,
injury or death is caused wholly or partially by the act, neglect or default
of the Owners’ Group, and even if such loss, damage, liability, injury or
death is caused wholly or partially by the unseaworthiness of any vessel;
and the Charterers shall indemnify, protect, defend and hold harmless the
Owners from any and against all claims, costs, expenses, actions,
proceedings, suits, demands, and liabilities whatsoever arsing out of or in
connection with such loss, damage, liability, personal injury or death.
78
Bibliography
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79
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80
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81
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82
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83

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What is the purpose of the thesis?

What is the purpose of the thesis?

What are the main topics covered in the document?

What are the main topics covered in the document?

FACULTY

Chapter 2 History and development of subrogation in marine

Chapter 3 Overview of right of subrogation & the rights and

Chapter 5 Litigation issues concerning to the third party under

Chapter 6 Right of subrogation under Chinese Law

Marine insurance is one of the oldest forms of protection methods against

The purpose of this thesis is to examine the law of subrogation under

FOB Free on Board

MIA Marine Insurance Act, 1906

P&I Club Protection and Indemnity Club

PPI Policy Proof Insurance

SUPPLYTIME 2005 Time Charter Party for Offshore

Service Vessels Code

TOWCON International Ocean Towage

USD United State Dollar

As between the underwriter and the assured the underwriter

1.2 The purpose of the thesis

1.3 Structure of the thesis

Chapter 5 provides some litigation issues concerning to the third party. At

Chapter 6 is about the right of subrogation under the Chinese law. As

1.4 Research methodology

Subrogation is a crucial principle in the field of insurance, which appears

The theories of unjust enrichment and subrogation are confused sometimes.

2.2 The proper fields of subrogation

There are many situations where two parties are liable to

Finally, the third situation of how subrogation works in reality is explained

2.3 Development of subrogation in

As time passed and law evolved, the doctrine of subrogation and

Where the owners of an insured ship have claimed or been

Lord Chancellor made a statement in this case about the right of

Now it seems to me that in order to carry out the

2.4 Nature of subrogation in marine

The doctrine of subrogation applies in a variety of

…it is a mistake to regard availability of subrogation as a

To conclude the subrogation’s nature, in the author’s view, subrogation is

There is a case in Canada named Somersall v. Friedman (2002) 3 SCR 109

It is possible to keep in mind the underlying objectives of

It is destitute of all legal effect between the parties. If so,

The right of subrogation could be used in explaining some confused

There is a precondition for the insurer of enjoying the right of subrogation

3.1 Various situations under the right of

This theory is widely used in reality. However, it also brings some

Nevertheless, in the case Colonia Versicherung AG & Ors v. Amoco Oil

It follows that the crucial question is whether, on the

3.1.2 The abandonment and salvage

Under the circumstance of total loss, the principles of subrogation and

(1) Where there is a valid abandonment the insurer is

In addition, the concept of notice of abandonment and abandonment are

3.2 Rights of the insurer before and after

It is the duty that of the Assured and their employees and

3.2.2 The insurers’ rights before the full

3.2.2.1 The implied obligations of the assured

3.2.2.2 Express obligations of the assured before full

In reality, there is an express term in the insurance contract about the