Llr Insurance & Reinsurance Dornoch Ltd and Others v Westminster International Bv and Others (the

8/10/2019 Llr Insurance & Reinsurance Dornoch Ltd and Others v Westminster International Bv and Others (the

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set aside under section 423 of the Insolvency Act1986, which provides as follows:

423 Transactions defrauding creditors

(1) This section relates to transactionsentered into at an undervalue; and a personenters into such a transaction with anotherperson if:

. . .

(c) he enters into a transaction with theother for a consideration the value of which,in money or moneys worth, is significantlyless than the value, in money or moneysworth, of the consideration provided byhimself.

(2) Where a person has entered into such a

transaction, the court may, if satisfied underthe next subsection, make such order as itthinks fit for:

(a) restoring the position to what it wouldhave been if the transaction had not beenentered into, and

(b) protecting the interests of personswho are victims of the transaction.

(3) In the case of a person entering into sucha transaction, an order shall only be made ifthe court is satisfied that it was entered into byhim for the purpose:

(a) of putting assets beyond the reach of aperson who is making, or may at some timemake, a claim against him, or

(b) of otherwise prejudicing the interestsof such a person in relation to the claimwhich he is making or may make.

Held, by QBD (Admlty Ct) (TOMLIN-SON J), that Nigerian Westminster Dredgingwould be ordered to transfer the vessel to theclaimantsnominee, with a view to her sale.

(1) The reference to the lex situs, Thai law,

was to Thai domestic law and not to Thai privateinternational law rules. In English law the propri-etary effects of a contractual transfer were gov-erned by the lex situs. The rules of Thai privateinternational law were not dissimilar, and a Thaicourt would apply Thai domestic law (see paras5 to 7);

Glencore International AG v MetroTrading International Inc [2001] 1 Lloyds Rep284, applied.

(2) The reservation Net open market residualvalue of vessel to be accounted to insurersdid

not amount to an election by the claimants not toexercise their right to take over the interest of theassured in the vessel.

(a) The endorsement was to be read in con-text, and the communications which the par-

ties exchanged before 10 March 2008 on thetopic of realisation of the value of the vesselproceeded upon the basis that this would be

achieved in the normal way, ie by a coopera-tive arrangement whereby the assured wouldeither assist in facilitating the sale of the vesselto a third party, often for scrap, or, if theywished to retain the vessel, account for theresidual value to underwriters (see para 11).

(b) An insurer who had paid for a total lossbut who had elected not to exercise his entitle-ment under either section 63(1) or section79(1) of the 1906 Act was not entitled to theproceeds of sale. The entitlement of the insurercould not be different whether the assured

repaired the vessel and retained it in his serv-ice or whether he sold it to a third party. Ineither case the insurer had renounced anyinterest in the residual value of the vessel. Theendorsement of 10 March 2008 was actuallyinconsistent with an election not to take overthe interest of the assured in the vessel, butwas entirely consistent with the subsistence ofunderwriters right to take over the vessel asbeing the right underpinning the parties dis-cussion as to how the residual value of thevessel was to be realised, a right to whichresort was unlikely conventionally to be hadbut which remained nonetheless in reserve(see paras, 13, 14, 15 and 18);

Castellain v Preston (1883) 11 QBD380, distinguished.

(c) An effective election had to be commu-nicated to the other party. A document whichdid not at the time lead the other party tobelieve that a choice had been made was at thevery least unlikely to be, viewed objectively,sufficiently clear and unequivocal to constitutean election (see para 19);

Callaghan and Hedges v Thompson[2000] Lloyds Rep IR 125, applied.

(d) The third defendant, Boskalis, wasestopped by convention from reliance upon theendorsement as an election by underwritersnot to take over the vessel. The question ofestoppel was governed by English law, as thequestion of substance under consideration waswhether the insurers exercised a right of elec-tion open to them as an incident of a contractof insurance governed by English law. Refer-ence to the law of the situs might have been

justified if some sort of proprietary estoppelwas in play but it was not. Applying Englishlaw, there was a shared assumption that noelection had been made by the insurers todisclaim their entitlement (see para 21).

2 LLOYDS LAW REPORTS [2010]

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(3) Under Thai law the claimants did notacquire a proprietary interest in the vessel priorto its sale to Nigerian Westminster Dredging (see

para 50).(4) The sale to Nigerian Westminster Dredging

could be set aside under section 423 of the Insol-vency Act 1986

(a) Jurisdiction under section 423 was notexpressly made conditional upon a formalinsolvency (see para 126).

(b) The facts fell squarely within section423. The transaction was at an undervalue.The consideration given was trifling and atbest symbolic 1,000 in respect of a vesselfor which Boskalis had only recently offered

25 million. A purpose of Boskalis in enteringinto the sale was to prejudice the interests ofunderwriters in relation to their claim to beentitled to assume ownership and possessionof the vessel and to sell her. Boskalis had thelike purpose in relation to the like claim whichthey anticipated those underwriters who hadnot yet elected would make. Although it wasnot necessary to go that far, it would if neces-sary be held that Westminster Internationalhad the purpose of putting the vessel beyondthe reach of underwriters. The underwriters

were plainly victims of the transaction. If itstood, it prevented them from exercising theircontractual right to assume ownership and tosell the vessel on the open market so as tomaximise recovery (see paras 129 and 130);

Inland Revenue Commissioners vHashmi [2002] 2 BCLC 489, applied.

(c) The jurisdiction under section 423 wasnot subject to any territorial limitation. Therewas a special need for care when exercising anextra-territorial discretionary power, so therehad to be a sufficient connection to justify the

court setting in motion procedures over a bodywhich prima facie was beyond the limits ofterritoriality. In the present case there was anamply sufficient connection to justify the courtin exercising the jurisdiction. The excess pol-icy was governed by English law and wasplaced in the London market. It contained anexclusive jurisdiction clause which made itarguable that the underwriters were in factrequired to bring proceedings in England (seepara 132 and 135);

Re Real Estate Development Co

[1991] BCLC 210,Re Paramount Airways Ltd[1993] Ch 223, Jyske Bank (Gibraltar) Ltd vSpjeldnaes [1999] 2 BCLC 101,Banco Nacio-nal de Cuba v Cosmos Trading Corporation[2000] BCC 910, applied.

The following cases were referred to in thejudgment:

Bafunke Braithwaite v Folarin, 1938, West AfricaCourt of Appeal;

Banco Nacional de Cuba v Cosmos Trading Cor-poration (CA) [2000] BCC 910;

Beazley v Horizon Offshore Contractors Inc [2005]Lloyds Rep IR 231;

Brooks v MacDonnell (1835) 1 Y & C 500;

Callaghan and Hedges v Thompson [2000] LloydsRep IR 125;

Castellain v Preston (CA) (1883) 11 QBD 380;

Chigbu v Tonimas [2006] 9 NWLR 189;

China National Foreign Trade Transportation Cor-poration v Evlogia Shipping Co SA of Panama(The Mihalios Xilas) (HL) [1979] 2 Lloyds Rep303;

Glencore International AG v Metro Trading Inter-national AG [2001] 1 Lloyds Rep 284;

Hardwick Game Farm v Suffolk Agricultural andPoultry Producers Association Ltd(CA) [1966]1 Lloyds Rep 197; [1966] 1 WLR 287;

Inland Revenue Commissioners v Hashmi (CA)[2002] 2 BCLC 489;

Jyske Bank (Gibraltar) Ltd v Spjeldnaes (No 2)

[1999] 2 BCLC 101;Kammins Ballrooms Co Ltd v Zenith Investments(Torquay) Ltd(HL) [1971] AC 850;

Lawal v Ejidike [1997] 2 NWLR 317;

Lawal v Younan [1961] ANLR 257;

Motor Oil Hellas (Corinth) Refineries SA v Ship-ping Corporation of India (The Kanchenjunga)[1990] 1 Lloyds Rep 391;

Paramount Airways Ltd, Re (No 2) (CA) [1993] Ch223;

Peyman v Lanjani (CA) [1985] Ch 457;

Raleigh Industries v Nwaiwu [1994] 4 NWLR 761;

Real Estate Development Co, Re [1991] BCLC210;

Scarf v Jardine (HL) (1882) 7 App Cas 345;

Sofolahan v Fowler[2002] 14 NWLR 664.

Iain Milligan QC, Guy Blackwood and DavidWalsh, instructed by Stephenson Harwood, for theclaimants; Tom Weitzman QC and Peter Mac-donald Eggers, instructed by Nabarro LLP, for thefirst, second and third defendants; Jonathan Gais-man QC and Patricia Edwards, instructed by Pin-

sent Masons, for the fourth defendant.

Friday, 17 July 2009

3INSURANCE AND REINSURANCE[2010]

Dornoch Ltd v Westminster InternationalQBD (Admlty Ct)]


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JUDGMENT

Mr Justice TOMLINSON:

1. On 29 April 2009 I delivered my judgment onwhat have been described as the Phase 1 issues. Ishall refer to that judgment, [2009] 2 Lloyds Rep191 as the Phase 1 judgment. This second judgmentis to be read with and in the light of the Phase 1judgment. I do not propose to lengthen this judg-ment by repeating the introductory passages in thePhase 1 judgment which outline the disputebetween the parties. I will have to add some narra-tive, and to make some findings of fact additional tothose facts which were agreed for the purposes ofthe first hearing. The facts agreed for the first hear-

ing are in any event uncontroversial.2. In the Phase 1 judgment I recorded that theinsured value of the vessel WD Fairway for hulland machinery was 73.5 million. There was aninterval of very nearly one year between the tenderof notice of abandonment on 27 March 2007 andunderwriters accepting that the vessel was a con-structive total loss, hereinafter CTL. That isbecause it was not until 10 March 2008 that under-writers were prepared to accept that the cost ofrepairing the damage would exceed the relevantagreed value, 73.5 million. Boskalis, by which Iintend a compendious reference to the Boskalis

Group, is critical of underwriters in this regard, andsays that they acted unreasonably in not earlieragreeing that the vessel was a CTL and makingpayment accordingly. I do not have to decidewhether that criticism is well-founded, and no argu-ment has been directed specifically to that issue. Iexpress no view on the issue, not least becauseBoskalis has launched separate proceedings againstunderwriters with a view to the recovery of interestand/or damages consequent upon what it character-ises as underwriters unreasonable conduct. Ishould however record that as a result of the timespent in resolving the question whether the vesselwas a CTL on the figures Boskalis formed the view,rightly or wrongly, that underwriters had adoptedan entrenched position in reliance upon advicewhich was unreliable in that it came from thosewho were not acknowledged experts in the fieldand/or had been commissioned upon an inappropri-ate and misconceived basis: see for example theemail of 29 August 2008 from Mr Oscar Bus, Headof Insurance at Boskalis to its brokers Marsh. Bos-kalis found this frustrating. Once the question of therealisation of the residual value of the vesselbecame an issue between the parties, Boskalis

believed that underwriters were again basing them-selves upon advice from an inappropriately quali-fied source, in this case Mr Geoff Webster of VenerMarine in the United States. Boskalis was in myview wrong to regard Mr Websters experience as

irrelevant to the valuation of WD Fairway. How-ever that may be, it is crucial to a proper under-standing of the events with which I am concerned

that Boskalis felt aggrieved in consequence ofunderwritershandling of its claim for a CTL andfelt that history was repeating itself in underwritersapproach to the realisation of the residual value ofthe vessel following payment for the CTL.

3. I should also record that the total outlay of theunderwriters with whom I am concerned was 150million, comprising 5 million on the primarylayer, 68.5 million excess of 5 million on theexcess hull and machinery cover, 18.375 millionon the excess policy for Outfit and/or Disburse-ments and 58.125 million for the excess layersection B Interest Whatsoever.

Renvoi

4. Before proceeding further I propose first todetermine an issue which I left not conclusivelyresolved in para 89 of the Phase 1 judgment. It isagreed between the parties that at first instance therelevant system or systems of law for determiningthe incidence of proprietary interests in the vesselprior to, at the time of, and after the purportedtransfer of the vessel to the fourth defendant mustbe held to be the lex situs. I have determined that atall relevant times the lex situs was Thai law. With-

out evidence as to the content of the lex situs, I wasunprepared to give a definitive answer to the ques-tion whether reference to the lex situs in this contextincludes or excludes reference to the private inter-national law rules, if any, of that system of law. Myprovisional answer was that reference to the domes-tic law of the situs is alone permissible. I am now ina position to confirm that answer. There is no prin-ciple in Thai private international law application ofwhich will better serve the object of the Englishconflict rule than will application of Thai domesticlaw. The question is however academic. If the Thairule of private international law were to be applied,

a Thai court would nonetheless apply Thai domes-tic law to determine the incidence of proprietaryinterests in the vessel.

5. On the question of principle, Mr Iain MilliganQC for underwriters argued that there should berecognised an exception to the general rule which Iprovisionally embraced at para 89 of the Phase 1judgment. As I understood the argument, it was tothe effect that where the lex situs recognises trans-fer of property by contract alone, as opposed to, forexample, imposing as a requirement for the efficacyof a transfer the completion of physical delivery or

the effecting of registration, and where the contractin question is governed by a law other than that ofthe situs, the English court should apply the conflictrule of the lex situs in order to determine the ques-tion whether a contractual transfer of property was


TOMLINSON J] Dornoch Ltd v Westminster International [QBD (Admlty Ct)


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in fact achieved. On reflection I am not sure thatthis point is open to Mr Milligan in the light of theconcession at Phase 1 and the very limited terms in

which I left the point open at para 89 of the Phase1 judgment. However that may be the argument is,if I have correctly understood it, in my view mis-conceived. Since I consider that the point is in anyevent academic, in view of my findings as to thecontent of Thai law, I do not propose to deal with itat length. It suffices to say that I agree with MrJonathan Gaisman QC for Nigerian Westminsterthat the argument confuses or at any rate appears toconfuse the contractual effects of a transfer, or of atransaction said to confer a legal or beneficial title,with the proprietary effects of the transfer or trans-action see Dicey, Morris and Collins on the

Conflict of Laws, 14th Edition, at para 24-006. Irespectfully agree with the analysis of Moore-BickJ in Glencore International AG v Metro TradingInternational Inc [2001] 1 Lloyds Rep 284 atpages 290 to 295, paras 14 to 32 of his judgment.Moore-Bick J held that the proprietary effects of acontractual transfer are governed by the lex situs,even in a dispute between only the contractingparties. Moore-Bick J adopted a well-known dic-tum of Diplock LJ in Hardwick Game Farm vSuffolk Agricultural and Poultry ProducersAsso-ciation [1966] 1 Lloyds Rep 197, page 236 col 1;[1966] 1 WLR 287, page 330:

. . . The proper law governing the transfer ofcorporeal moveable property is the lex situs. Acontract made in England and governed by Eng-lish law for the sale of specific goods situated inGermany, although it would be effective to passthe property in the goods at the moment thecontract was made if the goods were situate inEngland, would not have that effect if underGerman law (as I believe to be the case) deliveryof the goods was required in order to transfer theproperty in them.

As Mr Gaisman trenchantly put it, resort is onlyhad to the lex situs because the court is concernedwith proprietary rights. If the court were concernedonly with contractual rights, resort would not behad to the lex situs at all. The proposed exception tothe general rule is therefore on analysis somewhatillusory, since it presupposes, wrongly, that thecourt is here relevantly concerned with contractualrights.

6. As to Thai private international law, on exam-ination the relevant rules are not dissimilar to thosein English private international law. The Act onConflict of Laws, BE 2481 (1938) provides:

DIVISION III Obligations

Section 13. The question as to what law isapplicable in regard to the essential elements oreffects of a contract is determined by the inten-

tion of the parties to it. If such intention, expressor implied, cannot be ascertained, the law appli-cable is the law common to the parties when they

are of the same nationality, or, if they are not ofthe same nationality, the law of the place wherethe contract has been made.

When the contract is made between persons ata distance, the place where the contract isdeemed to have been made is the place wherenotice of acceptance reaches the offeror. If suchplace cannot be ascertained the law of the placewhere the contract is to be performed shallgovern.

A contract shall not be void when made inaccordance with the form prescribed by the law

which governs the effects of such contract.. . .

DIVISION IV Things

Section 16. Moveable and immoveable prop-erty is governed by the law of the place where theproperty is situated.

However, in case of exportation of moveableproperty, the law of nationality of its owner shallgovern from the time of exportation.

7. Before the hearing it appeared to be commonground that a Thai court would apply Thai domestic

law to determine the two distinct questions:(i) the accrual of proprietary rights in the ves-

sel by virtue of the dealings between the ownersand the underwriters whilst the vessel lay atSattahip; and

(ii) the proprietary effect of the memorandumof agreement, hereinafter MOA of 9 January2009 agreed between Westminster InternationalBV and Nigerian Westminster Dredging andMarine Ltd, the proper law of which is byexpress choice Nigerian.

This was, in the opinion of the claimantsexpert

witness on Thai law Mr Wutipong, the effect ofsection 16 of the Conflict of Laws Act. After thehearing had begun the two experts on Thai lawproduced a joint memorandum which incorporatedalso certain additional comments of Mr Wutipong.Mr Wutipong attempted to resile from his earlierviews, saying that the relevant paragraphs of hisreport referred to a situation independent of anycontractual agreement. In his subsequent oral evi-dence he attempted to maintain this line, but uncon-vincingly. The relevant passages in his first report,paras 18 to 21 and 105 to 108(c) contained no such

reservation which would in any event be whollycontrary to the sense of the latter group of para-graphs in which a clear distinction was drawnbetween a dispute between the two parties to theMOA arising out of the contract and a consideration


[TOMLINSON JDornoch Ltd v Westminster InternationalQBD (Admlty Ct)]


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of the proprietary effects of the contract. The evi-dence of Mr Chamnian, the expert on Thai lawcalled by the Boskalis interests, was to the effect

that in situations such as the present where there isan overlap between contractual and proprietaryrights and thus superficially between sections 13and 16, which is what I think he meant by someambiguous between section 13 and section 16, inan examination of the proprietary effect of a con-tract the Thai court will apply the choice of law rulecontained in section 16 of the Act on Conflict ofLaws. I accept Mr Chamnians evidence, not leastbecause it accords with Mr Wutipongs firstthoughts but also because his evidence demon-strated a clear awareness of the significance of thedistinction upon which he was being asked to focus.

By contrast Mr Wutipongs evidence on this pointwas confused and unconvincing. Indeed, I am con-strained to agree with Mr Gaisman that Mr Wuti-pongs second thoughts on this issue bore anuncanny resemblance to the unorthodox submis-sions made by Mr Milligan at the hearing as to theapproach of English private international law to theoverlap between contractual and proprietaryissues.

8. It follows that the relevant system of law fordetermining the incidence of proprietary interests inthe vessel prior to, at the time of and after the

purported transfer of the vessel to Nigerian West-minster, the fourth defendant, is the domestic law ofThailand.

9. Before turning to the content of that law Ipropose next to consider the effect of the endorse-ment of 10 March 2008 made by Mr Tony Kerseyof Royal and Sun Alliance, hereinafter RSA, onthe brokersclaim settlement documents. I referredto this endorsement at para 20(3) of the Phase 1judgment but for ease of reference I set it out hereagain:

Agree settle CTL claim on the basis that there

are no circumstances known to the assured thatmay prejudice cover or may otherwise affect theclaim, such payment is made without prejudiceto this reservation.

Net open market residual value of vessel to beaccounted to insurers.

It is the effect of the second sentence of thisendorsement which is under consideration. Mr TomWeitzman QC for Boskalis contends that by theendorsement the excess underwriters elected not toexercise their right to take over the interest of theassured in the vessel, the right conferred by a com-

bination of payment for a CTL and the first limb ofsection 79(1) of the Marine Insurance Act 1906,hereinafter the MIA. Mr Milligan contends that theendorsement does not have this effect but that if itdoes Boskalis is estopped by convention from so

contending. This in turn raises an issue by referenceto which system of law it should be determinedwhether such an estoppel operates.

10. RSA was identified in the excess policy asthe slip leader. The leading Lloyds syndicate onthe policy was XL, Syndicate 1209, represented forpresent purposes by Mr Steve Hill. It is commonground that whilst the claims settlement formssigned by Mr Hill on 10 March 2008 did not bearany similar endorsement to that placed by Mr Ker-sey, Mr Hill had told Mr Street of the brokersMarsh on the previous Friday, 7 March, that hewould be in agreement with and adopt the endorse-ment which would be signed by RSA. The policyidentifies Lloyds Syndicate XL 1209 under the

rubric: OTHER AGREEMENT PARTIES FORCONTRACT CHANGES, IF ANY. Furthermorethe excess policy provides:

CLAIMS AGREEMENT PARTIES

Claims to be agreed by the slip leader hereonand X-changing Claims Services and such agree-ment to be binding on all underwriters.

BASIS OF CLAIMS AGREEMENT

Claims to be managed in accordance withLloyds 2006 Claims Scheme and InternationalUnderwriting Association claims agreementpractices. Underwriters hereon agree to follow in

all respects the claims handling arrangementsand decisions made by the Underlying First LossPolicy led by Fortis Corporate Insurance NV(Policy No 7048726C0015). However, under-writers hereon are not bound to follow for theirown proportions any claim settlement agreementmade by the Underlying First Loss Policy led byFortis Corporate Insurance NV . . . withoutprior consultation and approval by the two lead-ing underwriters hereon.

I do not consider that these provisions have theeffect that the slip leader RSA and X-Changing

Claims Services (the successor to Lloyds ClaimsOffice) or the two leading underwriters, the relevantrepresentatives of RSA and XL, could bind thefollowing market to an election not to take over theinterest of the assured in the vessel after payment asfor a CTL. An election of that nature, which for thereasons discussed hereafter would be most unusualif not in my view extraordinary, goes beyond whatis normally inherent in a claim settlement agree-ment. Indeed it seems to me that if I were to acceptthe argument of Boskalis as to the effect of theterms of the policy in this regard, but to conclude

that as a matter of construction of the endorsementno election was made, it would have to follow thatthe subsequent election of 5 December 2008 towhich I refer at para 19(11) of the Phase 1 judgmentbound the entire following market. That is not a




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conclusion for which anyone contends.1 For alliedreasons it seems to me very difficult to concludethat each of the subscribing underwriters compris-

ing the following market associated themselveswith or impliedly adopted the endorsement. MrWalker of X-Changing, representing the Lloydsmarket, was copied in on an email which Mr Ker-sey sent to Mr Street on 7 March confirming thatRSA, as leaders, were in agreement, subject to anunparticularised endorsement wording, to their pro-portion of the balance of the CTL claim. On 11March Mr Walker countersigned the claim settle-ment form which had been signed by Mr Hill theprevious day, but there is no suggestion that he sawthe RSA endorsement or that he ever indicated anagreement to be bound by it. A copy of Mr Ker-

seys endorsement was sent to the remaining sub-scribing underwriters whose settlements had to beprocessed individually, by which phrase in hiswitness statement I understand Mr Street to meanthe remaining company market. Mr Street was notrequired to attend for cross-examination at the hear-ing, his expression of his subjective belief that allsubscribing underwriters had agreed to Mr Kerseysendorsement being irrelevant. I agree however withMr Milligan that the subsequent payment by thecompany underwriters of their proportion of theCTL is equivocal. It cannot without more beregarded as an acceptance of the endorsement.

11. However I do not consider that the endorse-ment communicates an election by RSA not toexercise their right to take over the assureds inter-est in the vessel. It is common ground that theendorsement must be read in context, that the con-text includes preceding communications betweenthe parties and that the approach, both to construc-tion of the endorsement itself and as to an apprecia-tion of what was conveyed in the precedingexchanges, is objective. The communicationswhich the parties exchanged before 10 March 2008on the topic of realisation of the value of the vessel

proceeded upon the basis, as it seems to me, thatthis would be achieved in the normal way, ie by acooperative arrangement whereby the assuredwould either assist in facilitating the sale of thevessel to a third party, often for scrap, or, if theywished to retain the vessel, account for the residualvalue to underwriters. Underpinning that conven-tional approach is the assumption that underwritersare entitled on payment for a CTL to take over theassureds interest in the vessel and dispose of it asthey see fit but that ordinarily by cooperativearrangement they will be relieved of the need

actually to exercise that entitlement. That this is thenormal approach is borne out by the unchallengedevidence of Mr Kersey. Underlying that approach is

a proper appreciation of the effect of the MIA 1906,in the light of which the objective import of thepartiesrelevant communications should of coursebe ascertained. Mr Kersey referred without chal-lenge to the process of negotiation which occurswhere the vessel is not sold to a third party asinvolving the assured offering to buy the vesselback from underwriters. Obviously this descrip-tion of the process is technically incorrect in theparadigm situation where underwriters have notelected to take over the assureds interest in thevessel. It reflects however the underlying under-standing of properly informed persons in the market

that that is underwriters entitlement. Hence theexpression buy the vessel back from underwritersomits a stage in the process which all understand ormust be taken to understand it is open to under-writers to initiate but which by cooperation willordinarily be rendered unnecessary.

12. I do not propose to set out in extenso theexchanges which preceded the 10 March 2008endorsement but they are in my judgment con-sistent with the foregoing understanding. It is in thislight for example that one must understand RSAsotherwise oddly expressed request of Boskalis of 29

February 2008 for confirmation if it is the inten-tion to retain possession of the vessel after paymentof the CTL, in which case what are the assuredsproposals for accounting to underwriters for hertrue market value?. In the same message under-writers also said this:

As you will appreciate the main issues out-standing relate to the residual value of the vessel.Given the nature of this loss and the specialisednature of the vessel, the residual value is unlikelyto be a simple scrap value. For this reason, detailsof the wreck and decisions as to how the valueremaining therein is to be released to under-

writers benefit is obviously a key issue, espe-cially given the difficulties faced with anyrecovery in the USA. For Underwriters, this isnot an ancillary issue and they consider that thereshould be no reason why these matters cannot betaken forward without further delay, especially inthe light of lead Underwritersdecision. It mustbe accepted that cooperation in this regard willundoubtedly expedite actual settlement under thepolicy.

In part this message reflected the practice, ofwhich Mr Kersey speaks, whereby if the assured

wishes to retain the vessel and both parties agree, itis sometimes possible to deduct the agreed purchaseprice from the amount to be paid in respect of theCTL. By message of 5 March 2008 underwriterssaid this:

1 On 9 December 2008 Mr Street pointed out to Boskalis that the electionof 5 December 2008 was apparently made only on behalf of some but not allunderwriters. He also pointed out that Mr Kersey had stated many timesduring handling of the claim and especially in relation to the sale of wreckprocess that he could not simply invoke the follow clause to bind otherinsurers without consultation.




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It will come as no surprise to Boskalis that,given the high sound market value of this vessel,potential cost of repairs and considerable third

party interest, leading Underwriters will beexpected to look at all options regarding thedisposal/sale of the wreck. Underwriters lookforward to confirmation that they and Boskaliscan move this matter forward together with fullcooperation.

13. In the light of this background it would havebeen unexpected and probably perverse had under-writers on 10 March 2008 irrevocably elected not totake over the interest of the assured in the vessel,since in the absence of agreement taking over thevessel represented the only method whereby under-writers could control the means whereby the value

remaining in the vessel was realised. Given thedifficulties which had so far attended resolution ofthe claim for a CTL, the inevitable strain in therelationship between the parties amounting to apalpable lack of confidence the one in the other, andthe express desire of underwriters to progress thediscussion of this issue before final agreement ofand payment for a CTL, it would in my judgmenthave been doubly unexpected that underwriterswould abandon so valuable indeed so critical anentitlement. Without it, they would lose all controlover the process of realisation of the value in the

wreck.14. Indeed Mr Milligan goes further and con-

tends that without the entitlement under the firstlimb of section 79(1) of the MIA 1906 the under-writers would not in fact be entitled to the residualvalue of the vessel. This raises the point which Idiscussed at paras 30 and 54 of the Phase 1 judg-ment but on which I then heard no argument. It didnot then seem to me obvious that an insurer whohas not exercised his election under either section63(1) or section 79(1) is entitled to the net openmarket residual value of an as yet unsold vessel inrespect of which he has paid as for a CTL. It seems

to me still less obvious that an underwriter who hasexpressly elected not to exercise his entitlementunder either section 63(1) or section 79(1) is enti-tled to the proceeds of sale of the wreck. As Ispeculated at para 30 of the Phase 1 judgment hemight, Mr Weitzman contended at the Phase 2 hear-ing that in the latter case underwritersentitlementto the sale proceeds derives from their rights ofsubrogation acquired on payment for a CTL pursu-ant to the second limb of section 79(1).

15. I do not consider that Mr Weitzman is correctin this submission. Firstly, it is counter-intuitive. As

Mr Milligan put it, if the underwriter says to theassured, without more, I do not want the shipthenthe ship remains in the ownership of the assured. Itseems to me as a matter of principle that the furtherentitlement of the insurer in those circumstances

cannot be different whether the assured repairs thevessel and retains it in his service or whether hesells it to a third party. In either case the underwriter

has renounced any interest in the residual value ofthe vessel.

16. Mr Weitzman perhaps not unnaturally reliedupon Castellain v Preston (1883) 11 QBD 380. Inparticular he relied upon Brett LJs well-knownstatement at page 386:

The very foundation, in my opinion, of everyrule which has been applied to insurance law isthis, namely, that the contract of insurance con-tained in a marine or fire policy is a contract ofindemnity, and of indemnity only, and that thiscontract means that the assured, in case of a loss

against which the policy has been made, shall befully indemnified, but shall never be more thanfully indemnified. That is the fundamental prin-ciple of insurance, and if ever a proposition isbrought forward which is at variance with it, thatis to say, which either will prevent the assuredfrom obtaining a full indemnity, or which willgive to the assured more than a full indemnity,that proposition must certainly be wrong.

Mr Weitzman also relied upon the following pas-sage at page 388:

In order to apply the doctrine of subrogation, it

seems to me that the full and absolute meaning ofthe word must be used, that is to say, the insurermust be placed in the position of the assured.Now it seems to me that in order to carry out thefundamental rule of insurance law, this doctrineof subrogation must be carried to the extentwhich I am now about to endeavour to express,namely, that as between the underwriter and theassured the underwriter is entitled to the advan-tage of every right of the assured, whether suchright consists in contract, fulfilled or unfulfilled,or in remedy for tort capable of being insisted onor already insisted on, or in any other right,

whether by way of condition or otherwise, legalor equitable, which can be, or has been exercisedor has accrued, and whether such right could orcould not be enforced by the insurer in the nameof the assured by the exercise or acquiring ofwhich right or condition the loss against whichthe assured is insured, can be, or has been dimin-ished. That seems to me to put this doctrine ofsubrogation in the largest possible form, and if inthat form, large as it is, it is short of fulfilling thatwhich is the fundamental condition, I must haveomitted to state something which ought to havebeen stated. But it will be observed that I use thewords of every right of the assured. I think thatthe rule does require that limit.

However I do not consider that these passagesassist. Castellain v Preston was a case where a




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house suffered damage by fire in the intervalbetween contract and conveyance. The vendorrecovered from his fire insurers in respect of the

damage and the sale was subsequently completed,with no abatement of the price to reflect the firedamage. Underwriters were held entitled to recoverfrom their assured vendor a sum equal to the insur-ance money which they had paid out. The right toenforce the sale was of course a right which sub-sisted as at the date of the fire. However the casedoes not decide that if, subsequent to being indem-nified for fire damage, an owner of insured propertymanages to sell it at a price which does not appar-ently reflect a discount to reflect the damage, theowner must account to the insurer for a sum equalto the insurance recovery. Except in the wider sense

that at the time of the fire the insured has the rightto sell his property, he at that stage has no legal orequitable right to which the insurer could be sub-rogated. Furthermore I do not consider that resort tothe principle of indemnity assists. On the hypoth-esis under discussion, express disclaimer by under-writers of their right to take over the assuredsinterests in the vessel, it is as a result of under-writersexpress choice that the insured potentiallyreceives more than an indemnity.

17. It follows that I agree with Mr Milligan thathad underwriters elected not to take over the inter-

ests of the assured in the vessel they would not,without more, have been entitled to the residualvalue of the vessel. That appears also to be the viewof the learned editors of Arnoulds Law of MarineInsurance and Average, 17th Edition. At para3032 there appears the following:

. . . But the underwriter, by not accepting theabandonment, or by other acts of the like kind,may lose all title to the ultimate benefit of sal-vage. InBrooks v MacDonnell [(1835) 1 Y & C500] a British ship and cargo were captured bythe Brazilian Government, and condemned asprize for breach of blockade. The underwriters

who had insured the cargo would not accept anabandonment, but compromised the claim for 35per cent. Some time afterwards restitution andcompensation were made by the Brazilian Gov-ernment, and in an action by the insurers toobtain the benefit of this the court held that theywere not entitled to anything.

Brooks v MacDonnell does not really assist sinceabandonment was rejected and the claim for a CTLsettled by a payment of 35 per cent, on payment ofwhich the policy was to be delivered up for can-cellation. It was inherent in the settlement that the

underwriters disclaimed any further interest in theinsured property. Nonetheless I take comfort fromthe tentative view of the editors ofArnouldthat aninsurer may, by not accepting abandonment, lose alltitle to the ultimate benefit of salvage. For the

avoidance of doubt, I do not consider that this canordinarily occur absent an express disclaimer byunderwriters of their entitlement.

18. If this is right, the endorsement of 10 March2008 is actually inconsistent with an election not totake over the interest of the assured in the vessel.Even if it is not right, the endorsement is, in myview, objectively construed against the relevantbackground, entirely consistent with the subsis-tence of underwritersright to take over the vesselas being the right underpinning the partiesdiscus-sion as to how the residual value of the vessel wasto be realised, a right to which resort was unlikelyconventionally to be had but which remained none-theless in reserve. Even if that approach is thought

to be wrong, the endorsement is in my view at thevery least equally consistent with the subsistence ofthe underwritersright to take over the vessel as itis with underwriters having elected not to take overthe vessel. Given the background which I havedescribed, the fact that in the event underwriterstake over a vessel and sell it themselves, this wouldnot involve the insured accounting to underwritersfor the net residual value, is neither here nor there.The objective understanding is that the insured willaccount to underwriters for the net residual valueprecisely because if they do not the underwriterswill exercise their entitlement to realise that value

themselves. Accounting to insurers for the netresidual value of the vessel is therefore synony-mous with buying the vessel back from under-writers. Use of either expression is in this contextconsistent with and indeed posited upon under-writers having a subsisting right to take over thevessel.

19. I am glad to be able to come to this conclu-sion because it is apparent that it occurred to no oneprior to February 2009 that the endorsement of 10March 2008 amounted to an election by under-writers not to exercise their right to take over the

vessel. On the first day of the Phase 1 hearing Iraised with Mr Milligan, without reference to theendorsement on which I had not by then focused,the theoretical possibility that underwriters might,when paying for a CTL, couple their payment withan express disclaimer of their rights of electionunder sections 63(1) and 79(1). Unsurprisingly MrMilligan accepted that in such circumstances theassured would be at liberty thereafter to sell thevessel. Later on the same day Mr Weitzman raisedfor the first time the point that it can be argued, itmight be argued, it may be argued that the

endorsement is inconsistent with any election totake over the vessel or with any reservation of anyright to make an election to take over the vessel see transcript, day 1, pages 5 and 64. Mr Weitzmanraised the point as one which Boskalis may be




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raising. On the following day the point was for-mally reserved, Boskalis wishing particularly tomake enquiries of their broker Mr Street. Neither

Mr Street nor anyone from Boskalis has ever sug-gested that at the time they understood the endorse-ment to have the effect for which Mr Weitzmannow contends. That is a telling point against theendorsement on its proper construction amountingto an election by underwriters not to take over thevessel. Indeed one can go further. As David Steel Jpointed out in Callaghan and Hedges v Thompson[2000] Lloyds Rep IR 125 at page 134, an effec-tive election requires that it be communicated to theopponent party. A document which does not at thetime lead the opponent party to believe that a choicehas been made is at the very least unlikely to be,

objectively viewed, sufficiently clear and unequiv-ocal to constitute an election and in the light of theauthorities there cited by David Steel J is in anyevent ineffective simply because it does not causethe opponent party to understand that a choice hasbeen made. See in particular the passages citedfrom Scarf v Jardine (1882) 7 App Cas 345; Kam-mins Ballrooms Co Ltd v Zenith Investments (Tor-quay) Ltd[1971] AC 850; China National ForeignTrade Transportation Corporation v Evlogia Ship-ping Co SA of Panama (The Mihalios Xilas) [1979]2 Lloyds Rep 303; Peyman v Lanjani [1985] Ch457 andMotor Oil Hellas (Corinth) Refineries SA vShipping Corporation of India (The Kanchenjunga)[1990] 1 Lloyds Rep 391.

20. In the circumstances I have no need to con-sider whether Boskalis is estopped by conventionfrom reliance upon the endorsement as an electionby underwriters not to take over the vessel. Sincethe position emerges from the documents an appel-late court will be as well placed as me to form aview on this point, should it arise, and I proposetherefore to express my conclusion quite shortly.The case for an estoppel by convention is in myview quite overwhelming.

21. Dicey, Morris and Collins, rule 17provides:

All matters of procedure are governed by thedomestic law of the country to which the courtwherein any legal proceedings are taken belongs(lex fori).

The commentary on this rule includes, at para7-031, the following:

Estoppel. For the purposes of English domes-tic law, estoppel is sometimes said to be a rule ofevidence. Whether, for the purpose of this Rule,

it should be regarded as a rule of substance or asa rule of procedure is an entirely open question,the answer to which may well vary with the typeof estoppel under consideration. Thus the ques-tion whether a principal is estopped from deny-

ing the agents authority to deal with a third partyprobably depends on the lex causae. On the otherhand, the question precisely when an estoppel by

record arises probably depends on the lex fori,although, of course that law may distinguish forthis purpose between the effect of foreign anddomestic judgments.

Mr Weitzman submits that the question is heregoverned by Thai law. It is common ground thatthere is no Thai doctrine of or equivalent to estop-pel. However I can see no basis whatever for thissubmission. Even if the question is one of sub-stance, the question of substance under considera-tion is the question whether the insurers exercised aright of election open to them as an incident of acontract of insurance governed by English law. Ref-erence to the law of the situs might be justified ifsome sort of proprietary estoppel were in play but itis not.

22. It is common ground that in order to establishan estoppel by convention in English law the claim-ants must prove to the satisfaction of the courtthat:

(i) The claimants and Boskalis acted on thebasis of a shared assumption as to facts or law.

(ii) The assumption has been communicatedbetween them.

(iii) The claimants and Boskalis should havehad the objective intention that the allegedassumption would be binding on the parties intheir legal relationship and on that basis haveregulated their subsequent dealings.

(iv) It would be unfair to the claimants forBoskalis to resile from the agreed assumption.

The only gloss I would add is that, as Mr Milli-gan in my judgment correctly submitted, it is theshared assumption which is apparent objectivelyfrom the parties communications which is underconsideration, not their subjective intentions,although the two will usually coincide, as here theydid. Mr Bus was aware in general terms of under-writersright to elect to take over the vessel and hedid not suggest that he understood the endorsementof 10 March 2008 to have the effect that under-writers had disclaimed that right. Manifestly nosubscribing underwriter thought that he had dis-claimed the right to take over the vessel. As to thecommunication of the assumption, it is sufficient torefer at this point to two matters only which clearlyestablish a shared assumption that no election hadbeen made by underwriters to disclaim their entitle-ment. I refer hereafter en passant to several other

communications which show quite unequivocallythe shared assumption underlying the ongoing dis-cussion. Perhaps most clearly of all, on 25 August2008 Boskalis told underwriters that they wouldbe prepared to consider buying back the wreck for




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25 million. In the light of my earlier discussionabout the significance of the use of this expressionthis speaks for itself. So too does underwriters

message to Boskalis of 11 June 2008 to the follow-ing effect:

Underwriters are obviously giving serious andurgent consideration to taking over possessionand ownership of the vessel. Again, their rightsare fully reserved in this regard.

23. In truth the correspondence is replete withcommunications of the shared assumption. Plainlythe parties had the objective intention that theshared assumption would be binding on them intheir legal relationship and they regulated theirdealings accordingly. The negotiations between

March/April 2008 and September 2008 proceededupon the basis of the underlying understanding thatthe underwriters retained the right at the end of theday to take over ownership of the vessel. Finally, itwould be manifestly unfair to underwriters to allowBoskalis now to resile from the shared assumption.It is obvious that had Boskalis taken the point at anearly stage that an election had been made on 10March 2008 the subsequent history would havetaken a very different course and these proceedingswould have assumed a very different shape. Thepoint would have been quickly resolved one way oranother and much expenditure avoided.

Did the claimants acquire a proprietary interestin the vessel prior to 9 January 2009?

24. It is common ground that before me thisquestion is to be determined by reference to the lexsitus. That I have held means here the domestic lawof Thailand. I have already dealt in my Phase 1judgment with what would be the position were thequestion governed by English law. It is also con-ceded that, before me, any claim against the fourthdefendant founded solely on a beneficial interestwould be governed by Thai law, as the lex situs, byvirtue of para (d) of article 11 of the Hague Con-vention on the Recognition of Trusts as scheduledto the Recognition of Trusts Act 1987. It is commonground that, as a matter of Dutch law, should thatever be regarded as governing the question ofacquisition of proprietary interests, the underwriterswould have acquired no proprietary interest in thevessel prior to the de-registration of the vessel fromthe Dutch Registry of Shipping on 9 January2009.

Did the claimants acquire a proprietary interest

in the vessel prior to 9 January 2009 under Thailaw?

25. By the end of the case the claimants were, asI understood it, contending for the acquisition of a

proprietary interest in the vessel by two distinctroutes said to be afforded by the provisions of Thailaw. The first route involved application by the

Thai court of the English MIA 1906 as part of Thaidomestic law. It was highly contentious betweenthe parties whether the MIA 1906 should beregarded as part of Thai domestic law. However theclaimants need to go further this argument alsoinvolved that the Thai court would recognise andapply any proprietary rights which English lawwould regard as created by its general law in orderto give proprietary support and effect to the statu-tory rights conferred on insurers by the MIA undersections 63 and 79. This is an ambitious endeavoursince the relevant concepts are virtually unknown inThai law. The second route involved resort directly

to a provision of the Thai Code, which it was saidprovides, in effect, that on payment for a total lossan insurer acquires legal title to the subject matterinsured. In opening as I understood them the claim-ants seemed to couple this with reliance upon provi-sions of English law as importing a right of electionin underwriters. By the end of the argument theclaimants had I think abandoned this latterapproach possibly because they recognised thatit involved reliance upon a renvoi said to be theconsequence of the application of Thai rules ofprivate international law. I must examine each routein turn.

26. The Thai Civil and Commercial Code, here-inafter TCCC, is divided into six Books: Book I,General Principles; Book II, Obligations; Book III,Specific Contracts; Book IV, Property; Book V,Family and Book VI, Succession. Reference wasprincipally made to provisions in Books I, II andIII. Title XX of Book III deals with insurance.

27. Book I, section 4 of the TCCC sets out afundamental four tier order of priority that isapplied when civil and commercial cases aredecided under Thai law. It provides as follows:

The law must be applied in all cases whichcome within the letter or the spirit of any of itsprovisions.

Where no provision is applicable, the caseshall be decided according to the local custom.

If there is no such custom, the case shall bedecided by analogy to the provision most nearlyapplicable, and, in default of such provision, bythe general principles of law.

28. The two experts in Thai law were agreed onthe following propositions:

(i) If there is a provision of Thai law that

addresses a disputed issue in a case, that provi-sion of Thai law decides the issue, and there is noneed to look further to the next three tiers, localcustom, analogous provisions of Thai law andgeneral principles of law. In other words, when




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there are provisions of Thai law that decide anissue, the inquiry ends with those provisions ofThai law, and the other three tiers mentioned in

TCCC are irrelevant.(ii) General principles of law is the last of

the four tiers in the order of priority. This meansthat general principles of law are only relevantwhen: (1) the letter or spirit of Thai law cannotbe used to decide an issue; (2) there is no localcustom that can be used to decide an issue; and(3) there is no analogous provision of Thai lawthat can be used to decide an issue. Under Thailaw, there is no need to make an enquiry into orapply general principles of law if a case can bedecided by employing any of the first three tiersof TCCC section 4.

(iii) Because general principles of law arenot part of the corpus of Thai law, Thai courts donot have to apply general principles of law.Indeed, Thai courts should not adopt foreignprinciples of law when contrary to the principlesof the Thai system of law. Dr Kittisak Prokati, aProfessor of Law at one of Thailands leadinguniversities, Thammasat University, wrote in anarticle called General Principles of Applicationand Interpretation of Law that: principles offoreign law to be applied as a general principle oflaw must not be contrary to the general principles

in the Thai legal system. This particular rule onthe application of foreign law as a general prin-ciple of law has been followed by the ThaiSupreme Court on numerous occasions, includ-ing where reference to the English Marine Insur-ance Act of 1906 was made as a general principleof law.

29. Thus in any given case the search for anapplicable principle of law follows the four tierorder of priority. If an applicable principle by refer-ence to which the case can be decided is found intier two, there is no need to resort to tiers three and

four and indeed such resort is impermissible. Ofcourse, resort must be had to the hierarchy on anissue-by-issue basis self-evidently any givencase may involve more than one legal issue so thatresolution of the case as a whole may require theapplication of more than one legal principle and,therefore, resort to more than one tier in thehierarchy.

30. Section 868 in Book III provides:

Contracts of Maritime insurance shall be gov-erned by the provisions of the Maritime Law.

This is the official translation. It was I think

common ground that a more direct translation of theThai corresponding to the last three words as trans-lated would be the Law of the Sea. However thatmay be, it is common ground that no MaritimeLaw or Law of the Sea has been enacted in

Thailand. There is in Thailand no law specific tomarine or maritime insurance. It is common groundthat section 868 is effectively a placeholder

intended to refer to any Maritime Lawwhich mayeventually be enacted. It seems that a draft law wasprepared in about 2000. The draft bears a strikingresemblance to the English MIA 1906. Howeverthe draft has not been enacted into law and no onesuggested that its existence is of any relevance tothe question I have to decide.

31. In Title XX of Book III there are 22 sectionsof general application to insurance including sec-tion 880 which provides:

If the loss is caused by the act of a thirdperson, the insurer who pays compensation is

subrogated, up to the amount paid by him, to therights of the assured and of the beneficiaryagainst such third person.

If the insurer has paid part only of the com-pensation, he cannot exercise his right to theprejudice of the right of the assured or of the ben-eficiary to claim from the third person for theremainder of the loss.

There are also special provisions for insurance oncarriage (sections 883 to 886), guarantee insurance(sections 887 and 888), and insurance on life (sec-tions 889 to 897). Furthermore in Book II there

appear the following, under the rubricSubrogation:

Section 226. A person who is subrogated tothe rights of a creditor is entitled to exercise inhis own name all the rights which the creditorhad in respect of the obligation including anysecurity for it.

By real subrogation, a property is substitutedfor another property in the same juristic positionas the previous one.

Section 227. When a creditor has received ascompensation for damage the full value of the

thing or right which is the subject of the obliga-tion, the debtor is, by operation of law, sub-rogated into the position of the creditor withregard to such thing or right.

32. It is the claimantscase that because section868 of the TCCC is a specific section of the Codeby which, in terms, contracts of marine insuranceshall be governed, when the Thai court is seized ofa marine insurance dispute it is impermissible for itto have regard to the general provisions of the Codewhich might otherwise be thought applicable to theissue under consideration whether directly or by

analogy. The consequence is, they say, that since noprovision of the Code other than section 868 dealsspecifically with marine insurance, tier one yieldsno applicable provision of law. Since it is commonground that there is no relevant local custom tier




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two yields no applicable provision. Resort to analo-gous provisions under tier three is they say imper-missible and the court must therefore apply the

general principles of law. The claimant says that theThai Supreme Court has on two occasions giveneffect to provisions of the MIA 1906 thereby adopt-ing them as part of Thai domestic law. The claim-ants say that the present inquiry as to the acquisitionof a proprietary interest by underwriters would beresolved in the same manner, giving effect to therelevant provisions of the MIA as if they were partof the Thai domestic law of marine insurance inpreference to provisions of the Thai general law ofinsurance.

33. The defendants by contrast say that there isno principle of Thai law which in a marine insur-

ance case precludes reference to the provisions ofThai law which are of general application to insur-ance. The defendants say that sections 880 and 227of the Code deal with the question of the rightsacquired by insurers upon payment of an indemnity,and that the provisions apply either under tier one,the question at issue falling within the letter or thespirit of those provisions, or under tier three, thosebeing the provisions most nearly applicable byanalogy by reference to which the case shall bedecided.

34. The result for which the claimants contend is

at first sight somewhat remarkable, since the refer-ence in section 868 to the provisions of the Mar-itime Law which does not exist is said to oustreliance upon the entirety of the Thai law of obliga-tions and the Thai law relevant to the acquisition ofproprietary interests, enshrined as it is within asophisticated codified system. The defendants fortheir part contend that resort to the provisions of aforeign law under tier four will only be had wherethere is a gap in the Thai law which cannot be filledby reliance upon analogous provisions of the Code.They also say that when thus applied the relevantforeign law is not being applied as Thai law as such

but rather as general principles derived from for-eign law. I do not need to decide the latter point,which Mr Wutipong himself recognised as still thesubject of debate among Thai scholars.

35. It was accepted by Mr Wutipong that there isno provision in the Code and no pronouncement ofthe Thai Supreme (or any) Court to the effect thatthe existence of a specific provision in the Codedealing with the topic under consideration renders itimpermissible to apply another provision of theTCCC by analogy. The suggested rule is, partic-ularly when examined in the context under con-

sideration, somewhat counter-intuitive. One wouldnaturally expect that contracts of marine insurancebeing contracts of insurance would be governed bythe general law of insurance except in so far as thelatter is modified by express provision applicable to

marine insurance alone. Nonetheless, there is somesupport for the rule in this context in the academicwritings which are as I understand it accorded per-

suasive weight in Thai courts although they mustalways yield to decisions of the Supreme Courtwhich will carry the greater weight.

36. Thus Professor Jamras writes, in his CaseBook on Insurance Law, 3rd Edition, at page 18:

Contracts of Maritime Insurance

There is one point to note in respect of insur-ance law, that is, Civil and Commercial Codesection 868 states that Contracts of MaritimeInsurance shall be governed by the provisions ofthe Maritime Law, which means that provisionsregarding insurance in the Civil and Commercial

Code will not be applicable to contracts of mar-itime insurance, even though in fact, contracts ofmaritime insurance are a type of insuranceagainst loss.

This passage is reproduced verbatim, apparentlywithout attribution, by Professor Chaiyot in hisLawSummary Series, 7th Edition, at pages 6 and 7. It isalso reproduced by Professor Attaniti in anEduca-tional Handbook on International Trade Law onCarriage of Goods by Sea andMaritime Insurance,at pages 219 and 220. Lastly, there is a passage inProfessor Pramual Chancheewas An Explanation

of the Marine Insurance Act 1906 of England tosimilar effect.

37. It became apparent during the examination ofthis and other academic material that in Thailandthe reproduction of the work of others, apparentlywithout attribution, is commonplace, although itmay be that the partial translations with which thecourt was provided give a misleading impression.In any event, I naturally assume that reiteration ofthis sort does not occur save where the secondwriter subscribes independently to the viewexpressed. However that may be, examination of

the two decisions of the Thai Supreme Court uponwhich the view expressed was based showed thatthey do not support it. Reference was made in theseacademic writings to Supreme Court rulings Nos999/2496 and 7350/2537, sometimes called theTrang Kanu and the Roong Taweecases afterthe ships involved. However in neither case was itsaid or even implied by the court that in a marineinsurance case it is impermissible to have regard toany of the provisions of the TCCC which beargenerally upon insurance. In the first case, the pol-icy, written in English, covered loss proximately

caused by perils of the sea. The court had resort tosection 55 of the MIA 1906 for assistance with theconcept of proximate cause and to the general Eng-lish law of marine insurance for assistance with themeaning of perils of the sea, neither being matters




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dealt with by the TCCC. I do not accept Mr Gais-mans submission, which Mr Wutipong contro-verted in cross-examination, that in this case the

Supreme Court also applied section 879 of theTCCC. The court did refer to section 879 whendealing with a very confused and misconceivedargument of the insurers. The insurance was on acargo of cement. The insurers seem to have arguedthat they could escape liability by demonstratingthat the vessel suffered from wear and tear. TheSupreme Court pointed out the fallacy in this argu-ment, the underwriters being entitled to rely onlyupon the inherent vice of the property insured,which was the cement cargo not the carrying vessel.In that regard they pointed out that section 879 ofthe TCCC provides, in part, the insurer is not

liable for loss resulting directly from the inherentvice of the subject of insurance unless otherwiseprovided. The court also pointed out that this pro-vision is in line with English law, in fact with MIA1906 section 55(2)(c). However the Supreme Courthad no need to apply section 879, since the argu-ment was fundamentally misconceived as relyingon the wear and tear or inherent vice in the vessel asopposed to in the cement, and failed on that groundalone.

38. The position was however different in thesecond case, No 7350/2537. The claimant was the

mortgagee of an insured ship which was lost by aninsured peril. The insurers paid the mortgagors theamount due under the policy. The mortgagee bankclaimed against the insurers in respect of the loss.The insurers objected that the mortgagee could notclaim to have suffered loss without proving theamount outstanding on the loan. The mortgageebank relied in turn upon section 231 in Book II ofthe TCCC which provides, in part:

If properties mortgaged, pledged or otherwisesubject to a preferential right, are insured, themortgage, pledge or other preferential right

extends to the claim against the insurer.In case of immoveable property, the insurer

shall not pay the indemnity to the insured until hehas given notice of his intention to do so to themortgagee or other preferred creditor, and hasnot within one month from such notice receivedany objection to the payment, provided alwaysthat the insurer knew or ought to have known ofthe mortgage or other preferential rights; how-ever, any right registered in the Land Registry isdeemed to be known to the insurer. The samerule shall apply to mortgage of moveables

allowed by law.In case of moveable property, the insurer maypay the indemnity to the assured directly, unlesshe knew or ought to have known of the pledge orother preferential right.

The ship mortgage was registered. The SupremeCourt held that the mortgagee bank could bring theclaim directly in reliance upon this section of the

TCCC. The court then had resort to section 33 ofthe MIA 1906 for assistance as to the meaning andeffect of a warranty in the policy. As I have alreadyobserved the court, unsurprisingly, neither said norimplied that resort to provisions of the TCCC otherthan section 868 was impermissible. I found diffi-cult to follow Mr Wutipongs thesis that section231 had been applied only to what he termed aprocedural matter. It seems to me that it was appliedto a matter of substance concerning the ability ofthe claimant to pursue the claim. The academicwriters do not appear to have considered anotherdecision of the Supreme Court given earlier in the

same year as the case just discussed. Case No6649/2537 was concerned with insurance of goodscarried by sea, here rolls of tissue paper carried bysea from Sweden to Thailand. A point arose as towhether the claim had been brought in time. Sec-tion 882 of the TCCC provides:

No action for payment of compensation can beentered later than two years after the date of theloss.

. . .

Section 882 is in the same chapter of the TCCCas section 880. It is as I have already remarked achapter dealing with general provisions applicableto insurance against loss. Discussing the time bardefence, the Supreme Court in this case said:

The Plaintiff insured such goods with theDefendant according to the marine insurance pol-icy . . . Such insurance was marine insurance inaccordance with section 868 of the TCCC, whichis governed by Maritime Law. Nevertheless, atthat moment Thailand had neither Maritime Lawin respect of marine insurance nor local customon this type of contract. The issue concerning theprescription period regarding compensation from

the insurance contract in this case shall be gov-erned by Section 882, paragraph 1, which is inBook III, Title XX, Subtitle 2 headed InsuranceAgainst Loss, since it was the most nearly appli-cable provision to be applied in the case as pre-scribed in Section 4 of the TCCC.

This was of course a clear reference to tier threein the hierarchy prescribed by section 4 of theCode. Mr Wutipongs analysis of this case was thatthe Supreme Court had applied section 882 becauseon examination of the MIA 1906 it found no provi-sion importing a prescription period. He accepted

that there is no trace of this in the report of thecourts judgment. He also accepted in his evidencethat if an applicable law is found in tier three,analogy, the court may not resort to tier four. Hecould not explain how the court had on his analysis




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acted in an irregular fashion in resorting to tier fourbefore tier three. He also suggested that after thisaberrant decision the court had in Case No

7350/2537 returned to the orthodox approach man-dated by precedent. However I do not consider thatthe later case can be regarded as impliedly over-ruling the earlier, as Mr Wutipong suggested. Leav-ing aside the fact that two judges (out of a panel ofthree) were common to both decisions, as I havealready pointed out the court in Case No 7350/2537likewise had resort to a provision of the Code ofgeneral application.

39. An analogy can be drawn between section868 and another placeholdersection of the Code,section 609, second paragraph. This provides:

The carriage of goods by sea is governed bythe Laws and Regulations relating thereto.

Until 1992 there were no provisions in Thai lawspecifically applicable to the carriage of goods bysea. During that period in appropriate cases theThai courts applied other provisions of the TCCCby analogy. In Case No 563/2532 the SupremeCourt applied section 625 of the TCCC. In Case No2930/2537 the Supreme Court applied section 616,expressly under tier three. Mr Wutipong was at onetime inclined to suggest that there was no realanalogy and Mr Chamnian was cross-examined tothe effect that there is some difference in substancebetween the reference in section 609 to the gen-erality of lawsgoverning carriage of goods by seaand the reference in section 868 to a specific law.This was an unconvincing distinction where thereference in each case was obviously to putativeprovisions of specific applicability. By the end ofhis evidence Mr Wutipong had I think accepted theforce of the analogy between these two place-holdersections.

40. A respected commentator, Professor Pantip,commented as follows on the decision of theSupreme Court in Case No 7350/2537, where the

court had resort to section 33 of the MIA 1906 forassistance with the meaning and effect of a war-ranty in the policy:

. . . The court applies the English law in itsbelief that the law in question has the status ofgeneral principles of law. No English law isapplied by the Thai courts as the law of the state,but there may be some dangers in that bothjudgments of the Supreme Court fail to explainhow the English law has become a general prin-ciple of law under section 4 of the Civil andCommercial Code. The issue is under what con-

dition would an English law be regarded as ageneral principle of law. It is impossible thatEnglish law has the status of general principles oflaw. It is a pity that the Supreme Court did notexplain how the parties had asserted in the plead-

ings and the Court then admitted that the Englishlaw has the status of a general principle of law. Itcannot be refused that an acceptance of the appli-

cation by the Thai courts of the use of section 4of the Civil and Commercial Code as a means tosearch for foreign laws for application in the Thaicourts is a good solution to a gap in the law, butit should not be forgotten that the solution hasconsiderable inherent dangers.

In conclusion, it is evident that the Thai courtsare just like internal courts of various states, ienot reluctant to apply foreign laws in civil andcommercial cases if Thai laws give powers to thecourts to do so. Nevertheless, prudence is ofcourse exercised in the acceptance of the applica-tion of foreign laws in the trial of cases in their

courts.

41. The claimants have failed to persuade me thata Thai court would in the present context feel theneed to resort to the MIA 1906 when there isreadily to hand section 880 which is applicable byanalogy and which provides rights of subrogation toan insurer who has paid compensation. Mr Wuti-pong accepted that the rights to which an insurer issubrogated by section 880 are rights against thirdparties and no other rights of the assured. There isalso readily to hand section 227, the effect of whichI must next examine, but which is plainly applic-

able by analogy. Mr Wutipong also accepted thatthere has as yet been no occasion upon which aThai court has in this context given effect to con-cepts such as trust and equitable lien which find noplace in the MIA 1906 but which may be used byEnglish law to support and to give proprietaryeffect to the rights of underwriters which arespelled out in the MIA. Mr Chamnians evidence tothe effect that a Thai court would not recognisesuch concepts was not I think challenged in cross-examination and is fully in line with the approachof Professor Pantip that resort should be had toforeign law only with caution and where necessary

to fill a gap in the domestic law.42. I turn then to the argument which relies upon

section 227. The claimantssuggestion is that sec-tion 227 transfers property in the wreck to theinsurer when he pays for a total loss. It is said thatthis follows from the terms of section 227 itself,which distinguishes between subrogation to thething and subrogation to the right. Furthermoresection 877 provides that an insurer is bound to paycompensation for the actual amount of the loss. It issaid by the claimants that this provision precludesthe assured from receiving the sum insured and

retaining the wreck such that, if the insurer hasalready the sum insured, it inevitably follows thathe is entitled to the wreck. Finally it is said that thisapproach again derives support from the academiccommentaries.




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43. The claimantsapproach certainly finds sup-port from Professor Sopon in his An Explanationof the Commercial and Civil Code with regards to

Obligations at pages 270 to 275. It is similarlysupported by Professor Phraya Tepwitoon in AnExplanation of the Thai Civil and CommercialCode. Both seem to regard the process as auto-matic, which is consistent with section 229 of theTCCC which provides that subrogation takes placeby operation of law. Professor Chaiyot however inhis An Explanation of the Commercial and CivilCode with regards to Insuranceat pages 199 to200 puts forward only a tentative view asfollows:

Rights over the wreck

The question as to who will be entitled to thewreck arises only in relation to a total loss claim.If the insured property is partially damaged, it isnot necessary to consider the issue of the wreck,as such property can still be repaired and put intoa good state.

The reason we should consider the wreck issueis because although there is a total loss of theinsured property, the wreck still remains and hasan ascertainable value. In theory, the assured isnot entitled to both the full amount of compensa-tion and the remaining value of the wreck. If thiswere the case, it would mean that the assuredwould profit, in that the amount of the compensa-tion exceeds the amount of the actual loss. Thisconflicts with the principle of insurance whichsays that a contract of insurance is a contract ofindemnity.

The Commercial and Civil Code (CCC)does not refer to rights over the wreck beinginsured, but it is considered2 that after the insurerpays the full amount of compensation to theassured or the beneficiary until the total loss iscompletely indemnified, the insurer ought tohave a proprietary right over the wreck or may

deduct the price of the wreck from the amount ofcompensation.

This issue had been considered by theSupreme Court as follows: . . .

44. Professor Chaiyot then refers to SupremeCourt decisions Nos 358/2499 and 596/2507 whichI shall examine in a moment. Finally Professor Jittiis in a minority of academic opinion. In his com-mentary on Supreme Court decision No 1913/2520he says this:

The subrogation to rights under section 227does not mean subrogation to rights in the

wrecked car because under section 226 only theright that a creditor has in the obligation may be

subrogated. The right in the obligation is a claim,which is a personal right, not a real right.

45. It is common ground that there is no Supreme

Court ruling in which it has been expressly decidedthat an underwriter acquires ownership of wreckedinsured property by operation of law on paying anindemnity for a total loss. This is to my mindunsurprising. Such a principle would go beyondthat which obtains in English law. In the context ofmarine insurance it would entail that underwritersautomatically become owners of what might be adamnosa hereditas. Mr Wutipong accepted thatthere is no provision of Thai law pursuant to whichan insurer who pays a loss in respect of totallydamaged property is obliged to take over thewrecked property and that to my mind is conclusive

of the point. In Thai law subrogation takes placeautomatically by operation of law. It is not sug-gested that there is any elective principle. If in Thailaw underwriters are not obliged to take over awreck on payment of a CTL then there can be noprocess pursuant to which such a transfer of owner-ship is effected automatically.

46. The Thai cases relied on in the academicmaterial are cases Nos 358/2499 and 596/2507. Inneither case is section 227 mentioned in the report.The first case concerned motor insurance and abadly damaged car. The report is neither full nor

clear but it would seem that there was a term in thepolicy to the effect that the insurers could electeither to repair the car or to pay compensation forits replacement. It is possible that the policy pro-vided also that in the latter event the insurers werebound to take the wrecked vehicle. What occurredis that the insurers did repair the vehicle but it wasquestionable whether following repair the vehiclewas roadworthy. The chassis had been broken andthe repairs involved cutting and joining. Dissat-isfied with the repair, the insured by his lawyerwrote to the insurers asking them to take the wreckand to pay compensation. The Supreme Court held

that as the car could not be repaired to a good andnormal condition the insurers must take the car andpay compensation. The source of the obligation totake the car is unexplained. It was in this specificcontext that Mr Wutipong agreed that there is noprovision of Thai law which imposes such an obli-gation. Mr Wutipong twice agreed with suggestionsthat the decision was to be explained by the pres-ence in the policy of a clause requiring insurers totake over the wreck, but the position is not in factclear from the report.

47. The second case concerned a rice mill. The

buildings and the machinery were destroyed by fire.The mill was insured against fire by three separateinsurers. The proceedings before the SupremeCourt involved only one of the insurers. Thatinsurer is reported to have argued before the

2 I have at this point adopted what Mr Wutipong considered to be thecorrect translation.




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Supreme Court that upon the occurrence of loss ordamage the insured subject matter was required tobe transferred to it. The significance of this argu-

ment was that following the fire the insured hadsold the destroyed mill, realising Baht 42,000.Again this argument may well have reflected someterm in the policy which is not set out in the report,because it is no ones case that Thai law providesthat insured property is to be transferred to theinsurer upon the occurrence of loss and damage.Whatever rights are given by section 227 areexpressly contingent upon payment of the full valueof the thing or right insured. The relevant decisionof the court was simply to the effect that the defen-dant insurer was not, as it contended, entitled tooffset the entirety of the sale proceeds but that the

recovery was to be shared rateably amongst allthree insurers in proportion to the values which theyinsured. The source of the insurersentitlement isagain not explained. Mr Chamnian thought that thecase did no more than illustrate the principle that aninsured is entitled to no more than an indemnity. Hewas unprepared to accept that had the rice mill notbeen sold by the insured the court would haverequired its transfer to underwriters.

48. Three other authorities were said by theclaimants to touch on the point. In none of themwas section 227 discussed and none of them is in

my view of any real assistance. In cases Nos1374/2534 and 117/2540 motor insurers sold awrecked vehicle, in the first case before paying theinsured sum, in the latter after paying the insuredsum. The reports do not indicate whether this wasdone by agreement or pursuant to terms in thepolicy. I do not think that it can be assumed thatinsurers were simply acting pursuant to an entitle-ment conferred by law, which in the first case in anyevent could not be an entitlement generated bypayment of an indemnity. Case No 8010/2548 isequally obscure. I would agree with Mr Milliganthat it may be dangerous to read too much into the

(translated) language the Plaintiff had subrogatedto the rights in the indemnities onlybecause thismay be a reference to the inability of the hotel toreturn to the insurers the pick-up truck which hadbeen stolen from its premises. By the same tokenhowever I cannot read the case as endorsing theview that property in the truck was automaticallyvested in the insurers upon their payment of theinsured owners claim. Mr Chamnian regardednone of the cases cited as illustrating anything otherthan the broad discretionary power of the Thai courtto avoid an insured receiving more than a full

indemnity by offsetting the value of the wreck orother benefits retained by the insured from the com-pensation payable by the insurer.

49. On this point too I am simply unpersuaded bythe claimants, on whom lies the burden of proof,

that Thai law has the effect for which they contend.The automatic vesting for which the claimants con-tend would be surprising and inconvenient and

there is in my judgment no support for it in the twodecided cases which are prayed in aid by thoseacademics who regarded it as part of Thai law. Inmy view the view of Professor Jitti is to be pre-ferred. I would however go a little further. MrChamnian said that the Thai word translated assubrogatedin section 227 carries with it the con-notation that it is rights to which the insurers aresubrogated, and he contrasted it with the Thai wordused in section 226 which has been translated asreal subrogation. This is a point which it is diffi-cult to evaluate if, as I do, one lacks the ability evento recognise the characters of which the Thai words

are made up. Mr Chamnian plainly thought that theEnglish lawyers were being misled by the use of theexpression thing or right in section 227 intothinking that the process of subrogation heredescribed includes a transfer of ownership of aninsured object. Quite apart from the fact that Iregard it as unlikely that Thai law has embraced aninflexible automatic rule which could be seriouslydisadvantageous to insurers, I have come to theconclusion that I can have confidence in MrChamnians views as being well-informed andproperly thought through. Mr Chamnian has 28

yearsrelevant experience practising as a commer-cial lawyer and has been with Messrs Deacons inThailand since 1988, becoming a partner in 1996.He gave his evidence in a careful and thoughtfulmanner. Mr Wutipong did not have such directlyrelevant experience, having initially pursued acareer in the judiciary where his work was at firstless specialised and later more slanted, as it seemsto me, towards intellectual property disputes.Although Mr Wutipong has subsequently beenemployed by various companies as a legal adviserand is currently Executive Vice President, LegalAffairs Division, of a Thai bank he has never I

think been in private practice. There were someunsatisfactory features of the manner in which hisevidence was compiled and given. This may nothave been entirely his fault, but the degree of edito-rial input into his witness statement was such, orapparently such, that the final report discussed con-cepts which Mr Wutipong did not actually under-stand. Moreover it became clear that MrWutipongs experience of marine insurance dis-putes was not extensive although he had no doubtattempted to keep abreast of the subject in a generalway. Mr Wutipong introduced into his evidence at a

late stage a substantial document which he had nothimself prepared. Whilst that is not of itself neces-sarily objectionable, Mr Wutipong had taken insuf-ficient care or perhaps had had insufficientopportunity to study the document to ensure that he




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was familiar with and understood its contents. Theupshot is that Mr Wutipong did not give a goodimpression. On the contrary I derived the impres-

Documents

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