Dornoch Ltd & Ors v Westminster International BV & Ors

In Amin Rasheed Shipping Corporation v Kuwait Insurance Co. [1984] AC 50 at page 63, Lord Diplock said:

“The contract of marine insurance is highly idiosyncratic; it involves juristic concepts that are peculiar to itself such as sue and labour, subrogation, abandonment and constructive total loss; to give but a few examples. The general law of contract is able to throw but little light upon the rights and obligations under a policy of marine insurance in the multifarious contingencies that may occur while the contract is in force.”

The parties to this litigation are, with the exception of the Fourth Defendants, parties to a contract of marine insurance and they have contrived to produce a contingency hitherto unprecedented so far as is known. In consequence the court has been asked to address itself to a series of challenging questions.

The mega-size trailer hopper dredger, WD Fairway, to which I shall refer hereafter as ‘the vessel’, became a constructive total loss (“CTL”) as a result of a collision off China in March 2007. The vessel was at the time owned by the First Defendant, one of the companies in the Boskalis Group.

The vessel’s hull and machinery cover was written in two layers. The primary layer of up to €5 million was underwritten by seven insurance companies of which six are incorporated in the Netherlands, Fortis Corporate Insurance NV, HDI-Gerling Verzekeringen NV, Aegon Schadeverzekering NV, Allianz Global Risks Nederland, Generali Schadeverzekering Maatschappij NV, Mutual Insurance Association ‘Munis’ UA, whilst the seventh, BDM NV, Antwerp, is incorporated in Belgium. I shall call them “the Primary Underwriters”. The policy to which these underwriters subscribed is governed by English law but contains a Dutch exclusive jurisdiction clause. The Primary Underwriters are not parties to this action although at one stage they were sought to be joined. They have however agreed to be bound by the outcome, at any rate as between themselves and the excess layer underwriters.

The excess policy, €145 million in excess of €5 million, was written by the fifteen Claimants, predominantly but not exclusively London market underwriters. The excess policy is likewise governed by English law.

The insured value for hull and machinery was €73.5 million. Outfit and/or Disbursements were insured in the maximum amount of €18.375 million.

On 27 March 2007 the owners tendered notice of abandonment to the hull and machinery underwriters. The next day underwriters declined to accept notice of abandonment but agreed to place the assured in the same position as if a writ/claim form had been issued that day. This is time honoured and common if not universal practice.

In August 2007 the wrecked vessel was towed to a naval dockyard in Thailand, where she remains.

By 16 April 2008 all of the hull and machinery underwriters had each for their own proportion paid the insured the amount due in respect of the CTL of the vessel.

In July 2008 all of the hull and machinery underwriters each for their own proportion paid US$19.5 million to Yantai Salvage in settlement of the salvage/wreck removal claim. Payment was made pursuant to the policies. Salvage is covered by the policies as an additional element.

A dispute has arisen between the assured and the underwriters as to the realisation of the value of the wreck. I am told that it is unprecedented in the London market for such realisation to be dealt with on other than a consensual basis. The fact that this has here not so far proved possible has brought into question the precise nature of underwriters’ rights in this regard and, in particular, whether they are such as to entitle underwriters to exercise control over the manner in which the residual value of the wreck is ascertained. It is common ground that underwriters, having paid for a CTL and settled the salvors’ claim against the vessel, are entitled to the residual open market value of the wreck. However there is acute controversy between assured and underwriters as to what is that residual value.

I am not asked at this stage of the dispute to find any facts. When claiming that the vessel was a CTL the assured asserted that the cost of repairs would be about €91 million. Underwriters say that the wreck was in 2008 worth about €75 million “as is, where is”. The assured on the other hand say that the wrecked vessel was then worth of the order of €25 million, which sum they offered to underwriters in August 2008. Underwriters rejected this offer and were anxious that the vessel be put out to global tender with a view to effecting a sale or, at the least, ascertaining the open market value. However the assured have been unprepared to co-operate with this process. They say that permitting access to the vessel for inspection by their competitors would allow those third parties to ascertain confidential information. It is I think common ground that there are currently only two other vessels in the world of comparable size and capability, both of which are fully employed in a buoyant market. The underwriters say that in an open market sale the assured would be bound to be prepared to pay considerably more than €25 million in order to prevent the vessel passing into the hands of one of their competitors. The assured are plainly unwilling to see the wreck pass into the hands of a third party. However without there taking place an open market sale, or at any rate a global tender with concomitant rights of inspection for prospective bidders, it may be difficult or impossible to ascertain the true open market value of the vessel. By the end of 2008 the assured and underwriters had reached an impasse, apparently unprecedented in the experience of those working in the London market. In December 2008 all of the Claimants bar one and all of the Primary Underwriters bar two, representing, respectively, 85% and 77.5% of the market, expressly elected to take over the interest of the assured in what remained of the subject matter insured.

It is against that background that the insured owners of the vessel, the First Defendant, took the equally unprecedented step of selling her, or attempting so to do, without reference to underwriters and, therefore, without their consent. On 9 January 2009 the First Defendant concluded with the Fourth Defendants a Memorandum of Agreement for the sale of the vessel and a Protocol of Delivery and Acceptance of the vessel was likewise executed by both parties. The First and Fourth Defendants are related companies, in the sense that it is conceded that the Fourth Defendant is in the majority ownership of companies in the Boskalis Group. The consideration for the sale was €1,000. The First Defendant admits, it could hardly sensibly deny, that the purpose of the sale was to prevent underwriters from themselves realising the open market value of the vessel. However the First Defendant contends that it was entitled so to do because not all of the underwriters had by the time of the sale exercised their right, under section 63(1) and/or section 79(1) of the Marine Insurance Act 1906, to take over the interest of the assured in the wreck. The First Defendant continues to acknowledge that it is liable to account to the underwriters for the open market value of the wreck but it contends that it is no longer within the power of the assured and the underwriters to bring about an open market sale.

It is against that background that, at the first of two expedited hearings, the parties have sought the resolution of a series of issues upon the basis of an agreed Statement of Facts.

The issues for determination at this stage have been called the Phase 1 Issues. They are:

It is the contention of the Defendants that Issues numbers (1)-(7) are in fact of no practical relevance. That is because at the hearing it was common ground that the relevant system of law for determining the incidence of proprietary interests in the vessel prior to, at the time of, and after the purported transfer of the vessel to the Fourth Defendant is the lex situs. It is common ground that at all material times the lex situs was either Thai law or Dutch law, the latter being the law of the place where the ship was registered before transfer. It is a further unusual feature of the dealings with this vessel that shortly before her purported transfer to the Fourth Defendant her registration in the relevant Dutch Registry was apparently cancelled. The Memorandum of Agreement recites that the vessel is registered at Rotterdam and both that document and the Protocol of Delivery and Acceptance give the Dutch Register number. However, one of the facts on the basis of which I am asked to resolve the Phase 1 Issues is that “at the time of the purported transfer, the vessel was not registered under any flag and remains unregistered” – see Statement of Facts paragraph 14.

The Defendants say that as a matter of English law reference to the lex situs in this context does not include the conflict of laws or choice of law rules of the situs. They say therefore that English law will prove to be irrelevant to the efficacy of the transfer of title from the First to the Fourth Defendants. Even if they are wrong about that, English law would they say only become relevant if the choice of law rules of the lex situs so indicated, which it is said they will not, at any rate so far as Thai law is concerned. I am not sure if any party has as yet asserted a positive case so far as concerns the choice of law rules of the Netherlands, not least because it was only in the course of the hearing before me that the First to Third, but not the Fourth Defendants, expressed an unequivocal preference for the identification of Dutch law as the law of the situs in relation to that period prior to the removal of the vessel from the Dutch register.

For understandable reasons the Phase 1 Issues have been identified in something of a hurry, and by the time of the hearing not all of the parties had thought through the final stance which they might wish to adopt in the light of the resolution of the issues of law. Before me the Claimants said that they were prepared to accept that a court of first instance would be bound to hold that the lex situs is the relevant system of law for determining the incidence of proprietary interests in the vessel. They therefore reserved the right to argue before a higher court that the lex situs is not the relevant system of law. As I understood them, both the First to Third and the Fourth Defendants were inclined to accept that the law is correctly stated at Rule 124 of Dicey, Morris and Collins, The Conflict Of Laws, 14^th Edition:

“The validity of a transfer of a tangible moveable and its effect on the proprietary rights of the parties thereto and of those claiming under them in respect thereof are governed by the law of the country where the moveable is at the time of the transfer (lex situs).”

However after the conclusion of the hearing Mr Iain Milligan QC, for the Claimants, sought to resile from even this limited concession. He said that

“in the light of the indications of Millett J in Macmillan Inc v Bishopsgate Investment Trust plc and others (3) [1995] 1 WLR 978 at 994B-995F, it may be that the relevant system of law is the lex loci actus. The Claimants would not want to be shut out from advancing a case at the next stage of the trial that the relevant system of law is the lex loci actus, given the uncertainty as to the English conflict rule”.

Mr Milligan did not identify what would for this purpose be the locus actus. The locus actus so far as concerns the sale and transfer may I suppose be the Netherlands, which is the place at which the Protocol of Delivery and Acceptance was purportedly made, and this is what is now asserted in the Claimants’ proposed re-amended Particulars of Claim. However at paragraph 58 thereof the Claimants accept that, if valid, the proprietary effect of the sale and transfer must in an English court of first instance be regarded as governed by the lex situs, which the Claimants assert to be Thai law. Mr Milligan is possibly more concerned with the locus actus of the transactions which are said to have given rise to proprietary interests in the vessel short of legal ownership. The proposed re-amended Particulars of Claim assert that the locus actus of the relevant transactions was England, and that “the Claimants reserve the right to contend that the accrual of proprietary rights in the Vessel was governed by the lex loci actus, English law”. The Macmillan case was not concerned with the priority of competing interests in tangible moveable property, in respect of which the lex situs rule appears well-established – see Dicey, Morris and Collins, Rule 124, above. Macmillan was concerned with the priority of competing interests in intangible moveable property, i.e. shares, or choses in action. In Macmillan Millett J thought that there might be good reason for the lex situs rule in the case of tangible moveables, but less in the case of intangibles, where the situs is somewhat artificial. In Macmillan the lex loci actus and the lex situs of the subject matter of each of the transactions in question were one and the same, which as Millett J observed “is probably inevitable in the case of shares”. However when the case reached the Court of Appeal the relevance of the lex loci actus was specifically rejected by each member of the court: by Staughton LJ [1996] 1 WLR 387 at pp 399F-402E and 405D, by Auld LJ at pp 410B-413A and by Aldous LJ at pp 421B and 424F-425A. The Court of Appeal held that the lex situs was the applicable law, holding this to be the general rule for both tangible and intangible moveable property. In the light of this, reliance at the next stage of the trial upon the lex loci actus as governing the accrual of proprietary rights in the vessel seems unlikely to be fruitful.

After the conclusion of the hearing Mr Milligan also reminded me that, whatever might be the law relevant for determination of the incidence of proprietary interests in the vessel, as English law governs the relationship between the assured and the underwriters, so the effect of English law might in any event be relevant to the exercise by the court of its discretion under sections 423-425 of the Insolvency Act, 1986. The question whether the court enjoys a discretion under that section and, if so, should exercise it to order the Fourth Defendants (or any trustees) to transfer the vessel to the underwriters or to their nominee is to be decided at the second hearing in May.

There is at least one further reason which may potentially render irrelevant the answers which English law might supply to some or all of the questions posed. Before stating it I should first set out the agreed Statement of Facts, which is to some extent foreshadowed and to some extent supplemented in the introduction above. I should reiterate that in my introduction I intend to make no findings in respect of any fact which is controversial. The Statement of Facts agreed for this hearing reads as follows:

There are ten appendices attached to the Statement of Facts by reference to which I can, non-controversially, supplement what is set out above as follows:

Mr Tom Weitzman QC, for the First to Third Defendants, indicated at the hearing before me that the assured may seek to argue hereafter that by the endorsement of 10 March 2008 set out above underwriters disclaimed their entitlement to take over the interest of the assured in the vessel. It is equally possible that on consideration of the correspondence exchanged between the parties before and after payment of the CTL further points of this nature may emerge. I do not intend in this judgment to anticipate or to foreclose any such argument, although again there is the possibility that the answers to some or all of the issues which I am asked to resolve may become redundant.

I was told, and readily understand, that resolution of the questions posed in the Phase 1 Issues is of importance to the London market. Since answers to these preliminary questions on the basis of agreed if incomplete facts may also assist the parties in resolving the present dispute, it is I think appropriate that I should attempt to answer the questions as best I can. In any event I should not I think decline to answer them simply on grounds of, as I perceive it, irrelevance since my own view as to relevance is itself susceptible to likely appeal. Furthermore, the effect of the dealings between owners and underwriters can only properly be understood in the context of an analysis of the rights of and available to owners and underwriters respectively in the circumstances which typically arise when a claim is made for a CTL.

In order to place the issues into context, I will for completeness set out below the further issues which the Claimants have provisionally identified as falling for decision at the second hearing, currently scheduled for May 2009. These issues include:

Issues (1), (2) and (4) raise questions to which sections 63 and 79 of the Marine Insurance Act 1906 are relevant. It is convenient however to set out a little of the context in which those sections appear. The Marine Insurance Act 1906, hereinafter “the Act” provides as follows:

“LOSS AND ABANDONMENT

…

57.

Actual total loss – (1) Where the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss.

(2)

In the case of an actual total loss no notice of abandonment need be given.

…

60.

Constructive total loss defined – (1) Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred.

(2)

In particular, there is a constructive total loss—

(i)

Where the assured is deprived of the possession of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or

(ii)

In the case of damage to a ship, where she is so damaged by a peril insured against, that the cost of repairing the damage would exceed the value of the ship when repaired. (Footnote: ¹)

In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired; or

(iii)

In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.

61.

Effect of constructive total loss – Where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss.

62.

Notice of abandonment – (1) Subject to the provisions of this section, where the assured elects to abandon the subject-matter insured to the insurer he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss.

(2)

Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly by word of mouth, and may be given in any terms which indicate the intention of the assured to abandon his insured interest in the subject-matter insured unconditionally to the insurer.

(3)

Notice of abandonment must be given with reasonable diligence after the receipt of reliable information of the loss, but where the information is of a doubtful character the assured is entitled to a reasonable time to make enquiry.

(4)

Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment.

(5)

The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after notice is not an acceptance.

(6)

Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss and the sufficiency of the notice.

(7)

Notice of abandonment is unnecessary where at the time when the assured receives information of the loss there would be no possibility of benefit to the insurer if notice were given to him.

(8)

Notice of abandonment may be waived by the insurer.

(9)

Where an insurer has re-insured his risk, no notice of abandonment need be given by him.

63.

Effect of abandonment – (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 incidental 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 insurer is entitled to a reasonable remuneration for the carriage of them subsequent to the casualty causing the loss.

…

RIGHTS OF INSURER ON PAYMENT

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 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 causing 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 it 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, by such payment for the loss.”

The word abandonment is used in the cases in at least two senses. Sometimes it is used to mean the cession to underwriters by the insured of their property and interest in the ship. Sometimes it is used to refer to the giving of notice of abandonment. See generally per Rix LJ, giving the judgment of the Court of Appeal in Kastor Navigation Co. Ltd v. AGF MAT “The Kastor Too” [2004] 2 Lloyd’s Rep. 119 at page 131, paragraph 53. (Footnote: ²) It is important to distinguish between the two processes. The clearest definition of the concept of abandonment at common law is to be found in the advice of Baron Martin to the House of Lords in Rankin v. Potter [1873] LR 6 HL 83 at 144:

“… a cession or transfer of the ship to the underwriter, and of all his property and interest in it, with all the claims that may arise from its ownership, and all the profits that may arise from it, including the freight then being earned. Its operation is as effectually to transfer the property of the ship to the underwriter as a sale for valuable consideration, so that of necessity it vests in the underwriter a chattel of more or less value, as the case may be.”

Before the Act there was authority to the effect that cession of interest in the sense just discussed was automatic upon payment by insurers for a total loss. As Scrutton LJ explains in Allgemeine Versicherungs-Gesellschaft Helvetia v. Administrator of German Property [1931] 1 KB 672 at 687, it used to be thought that the payment passed the property and rights incidental to it to the underwriter as benefit of salvage. Scrutton LJ continues:

“Lord Blackburn in 1877, before the Marine Insurance Act, in Simpson v. Thomson [1877] 3 App Cas 279 said, at page 292:

‘I do not doubt at all 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 incidental 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.’

He distinguishes the case from subrogation to a right to recover damages against a third party in respect of the thing insured, which he says follows on payment for a total loss, but must be exercised in the name of the assured and in respect of his right.”

Before the Act there was some, although not uniform, support for the view that a valid notice of abandonment of itself, without the need for its acceptance, had the same effect. In the Allgemeine case Scrutton LJ at page 687 said unequivocally that the giving of a notice of abandonment does not in itself pass any property or rights in the thing insured to the underwriter. However if either proposition correctly stated the law, the automatic effect of payment for a total loss or of service of a valid notice of abandonment in respect thereof produced what was for underwriters a most inconvenient result, for the wreck might be a “damnosa hereditas” and the underwriters thereby exposed to liability for wreck removal – see Arnould, Law of Marine Insurance and Average, 17^th Edition, paragraphs 30-06 and 30-35. According to Scrutton LJ in the Allgemeine case at page 688, “before the Marine Insurance Act was passed in 1906, circumstances arose which rendered it necessary to consider whether an underwriter, merely by paying, necessarily became the ‘owner’ of the thing insured. For it might be a damnosa hereditas, whose ownership only imposed liabilities which the underwriter did not want.” Scrutton LJ continues:

“… In 1894, in Arrow Shipping Co. v. Tyne Improvement Commissioners, [1894] AC 508, the question was raised whether underwriters who had paid a total loss were not ‘owners’ liable for the expense of raising the wreck, and Lord Herschell declined to decide the question.”

Scrutton LJ records that it was probably in consequence of this debate that section 63(1) of the Act provides that where there is a valid abandonment, the insurer is entitled (my emphasis) to take over the interest of the assured in whatever may remain of the subject-matter insured and all proprietary rights incidental thereto, “thus apparently leaving it open to the underwriters not to take over the interest of the assured, though entitled to take it over”. Section 79(1) of the Act uses similar language with the same effect, although it should be noted that the later section does not include the reference to “all proprietary rights incidental thereto”. Moreover section 79(1) draws a clear distinction between “taking over the interest of the assured in whatever may remain of the subject-matter” which is an entitlement of which the insurer may choose not to avail himself, and “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” to which, by payment for a total loss, “he is thereby [my emphasis] subrogated”.

Sir Mackenzie Chalmers, the draftsman of the Act, reveals a little more of the legislative process in the first and second editions of his commentary on the Act. In the notes to section 63, there appears the following:

“All authorities agree that abandonment operates as a cession or transfer of whatever remains of the subject-matter insured, from the assured to the insurer. But is the transfer absolute or conditional? In the first place, a valid abandonment may be defeated by a subsequent change of circumstances before action brought, e.g., in the case of capture and recapture: see section 62 and notes. In the second place, can the insurer disclaim an onerous property which is properly abandoned to him? See that question discussed in the note to section 79, and see further, note D on abandonment, post page 166. An amendment made in the Commons Committee to subsection (1) strengthens the view that he can disclaim. The words ‘is entitled to whatever remains’ were altered to ‘is entitled to take over, etc’.”

The note to section 79 reads, in part:

“The authorities fully bear out the proposition that whatever remains of the subject-matter insured vests in the insurer when he settles for a total loss. ‘The assured’, says Lord Cottenham, ‘must give up to the underwriters all the remains of the property recovered, together with all benefit and advantage belonging or incident to it, or rather such property vests in the underwriters.’ (Stewart v. Greenock Marine Insurance Company [1848] 2 H.L.C. at page 183). But is the vesting absolute or conditional, that is to say, can the insurer disclaim the property if it is onerous? Suppose a ship is wrecked in harbour and the insurer pays for a total loss. There may be an obligation to remove the wreckage, the expense of which would exceed the value of the wreckage. The question has been discussed, but not decided, in England. (Footnote: ³) In France, it seems, the insurer can disclaim. See Pothier, Traité d’Assurance, paragraph 136. In Committee the words ‘is entitled to take over’ were substituted for the words ‘is entitled to’, and this amendment strengthens the view that the insurer is not compelled to accept an onerous property.”

Scrutton LJ’s formulation of the effect of section 63(1) was tentative – “…thus apparently leaving it open to the underwriter not to ‘take over’ the interest of the assured, though ‘entitled to take it over’,” and the notes to sections 63(1) and 79(1) in the current, 10^th, Edition of Chalmers still reflect the cautious view expressed in the first and second edition, which is now expressed as “…the result would appear to be that it is left open to the insurer not to ‘take over’ the interest of the assured, though ‘entitled to take it over’.” In the Allgemeine Versicherungs case itself it was held on its special facts that there had been an acceptance of abandonment which passed to the insurers whatever might remain of the subject-matter insured, and all proprietary rights incidental thereto. The insured property, diamonds, had been abandoned to the Swiss insurers by a notice of abandonment in these terms:

“We herewith declare that we abandon the registered letter… for which we claim compensation, and that we are ceding all our rights to the Helvetia…”

That notice was accepted by the insurers who thereafter paid as for a total loss. Moreover on payment the assured signed and gave to the insurers a document stating that they ceded to the insurers all their rights against third parties, and the insurers kept this document, the claim having been paid “against the transfer of rights attached to this claim”. Scrutton LJ expressed the view that payment by the insurers against a cession of the insured’s interest, the document of cession being kept by the insurers and not repudiated, was “an acceptance of abandonment which passed ‘whatever may remain of the subject-matter insured and all proprietary rights incidental thereto’.”

It will be recalled that when agreeing to pay for a CTL in the present case insurers endorsed the claim settlement “net open market residual value of vessel to be accounted to insurers”. It is as I understand it common ground that, having paid for the CTL, insurers are indeed entitled to that value, although no argument has yet been addressed to me on why that is so and what is the legal analysis which leads to that conclusion. Possibly the concession is made because it was on those terms that the insurers agreed to settle the CTL claim and on those terms that the insured accepted payment. I raise the point because on one view of the case underwriters only made an effective election to take over the interest of the assured in what remained of the subject-matter insured after the assured had sold the vessel. In Arnould at paragraph 30-35 it is suggested that an underwriter when paying for a CTL may indefinitely keep open his options so far as concerns taking over the interest of the assured in what remains of the subject matter insured. Arnould also points out, at paragraph 30-36, footnote 198, that the underwriter may pay the loss while declining to accept the abandonment. If he does so, it is suggested by the learned editors that he may be taken to have waived his right to salvage or to the proceeds of sale, or to be estopped from laying claim thereto – cf. White Star SS Co. v. North British and Mercantile Insurance Co. Ltd [1943] A.M.C. 399, an American case. Ignoring for the moment the complication introduced by multiple underwriters, if an insurer elects to take over the interest of the assured only after the assured has sold the vessel, there may be a question what interest remains to be taken over. Possibly the proceeds of sale represent “the interest of the assured in whatever may remain of the subject-matter”. Possibly insurers in any event derive their entitlement to the sale proceeds from their rights of subrogation. Indeed Mr Weitzman suggested in argument that an assured who sells a vessel at an undervalue having been paid for a CTL might be vulnerable to a claim based on his having prejudiced insurers’ rights of subrogation. He also asserts/concedes that the Claimants have an equitable lien on the €1,000 proceeds of the sale to the Fourth Defendants, on the basis, so it would seem, that this is a subrogated recovery and in reliance therefore on the decision of the House of Lords in Lord Napier and Ettrick v. Hunter [1993] AC 713. However this still leaves open the question why an insurer who has not exercised his election under either section 63(1) or 79(1) is entitled to the net open market residual value of an as yet unsold vessel. Mr Weitzman’s concession in that regard may, as I have already recorded, be based on the endorsement to the claim settlement. It cannot be founded on any incident of what I might call “completed abandonment” because on Mr Weitzman’s case underwriters did not exercise their entitlement under either 63(1) or section 79(1) prior to sale of the vessel. The election in December 2008 was he says ineffective because it was not participated in by 100% of subscribing underwriters. The express election by 100% of subscribing underwriters after the sale of the vessel to the Fourth Defendants was made at a time when the assured no longer had any interest in the subject-matter insured which the insurers could take over, other perhaps than the proceeds of sale.

It may therefore be important to determine whether a request to be paid “net open market residual value” amounts to an election, either to take over or conversely not to take over the interest of the assured in whatever remains of the subject-matter insured and, if so, whether such election is revocable or irrevocable. Amongst other things the answer to this question may be relevant to the question raised by Issue 7, whether insurers may require the sale of the vessel or dictate in principle the manner of such sale.

In the case of an actual total loss, no notice of abandonment need be given –section 57(2) of the Act. Where there is a CTL, the assured may either treat the loss as a partial loss or he may treat it as if it were an actual total loss –section 61 of the Act. However the right of the assured to treat a CTL as if it were an actual total loss is dependent on his abandoning the subject-matter insured to the insurer – section 61 of the Act. Where the assured elects to abandon the subject-matter to the insurer he must give notice of abandonment – section 62(1), subject only to the exception provided by section 62(7) where at the time the assured receives information of the loss there would be no possibility of benefit to the insurer if notice were given to him, in which case notice of abandonment is unnecessary. It is I think because abandonment of the subject-matter insured to the insurers is a condition of being entitled to treat a CTL as if it were an actual total loss that it is now well established that preservation of the right to treat a CTL as an actual total loss is dependent upon the assured continuing to be prepared to abandon the subject-matter insured to the insurer – see per Rix J in Royal Boskalis Westminster NV v. Mountain [1997] LRLR 523 at page 557 and per Rix LJ in The Kastor Too at page 137, paragraph 77 of the judgment. In the latter paragraph Rix LJ analysed the matter as follows:

“The notice of abandonment, however, is the normal means by which an election to abandon is notified, and we would suggest, made. … That notice, however, does not effect abandonment, even if it is valid. It is essentially an offer to cede, a formal or even informal recognition that, if the insurer so elects, he will, upon payment, be entitled to a complete interest in the thing insured or what remains of it as from the time of the casualty. If that offer is accepted it becomes irrevocable. If it is rejected, like any offer, it can be withdrawn: Royal Boskalis at page 556. If it is neither accepted nor withdrawn, but nevertheless valid, then in due course a judgment of the Court will confirm its validity, with the consequences provided for under section 63.”

Rix LJ went on to point out that if before payment by the insurer for a CTL the assured does some act inconsistent with a continued preparedness to abandon the subject-matter to the insurer then he will lose his right to treat the CTL as an actual total loss and will be relegated to his claim for partial loss. The paradigm case would be where the assured sells the wreck without reference to underwriters. It is thus clear that had the assured in the present case without reference to underwriters sold the wreck before receiving payment for a CTL then, subject to any argument as to underwriters having waived their rights, the assured would thereby have deprived themselves of their entitlement to recover for a CTL.

It is important to notice certain other features of the statutory scheme. Rejection of the offer to abandon constituted by the notice of abandonment does not destroy the offer. Section 62(4) provides that where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment. As Rix LJ pointed out in The Kastor Too, like any offer, it can at any stage be withdrawn – with the consequences already discussed. However the notice of abandonment need not I think be repeated, in the sense of given over again, indeed in the ordinary case an assured whose notice of abandonment is declined will be treated as continuing to make the offer constituted by the notice unless and until he does some act inconsistent therewith. Furthermore the proper analysis of underwriters declining or declining to accept notice of abandonment is I consider, in agreement with Mr Milligan, ordinarily that they thereby intimate that they do not at that stage accept that the notice is valid. The rejection of the assured’s offer to abandon is not ordinarily without more irrevocable. Conversely however when notice of abandonment is accepted then section 62(6) provides that “the abandonment is irrevocable”. More difficult to understand however is precisely what this means.

Both Mr Milligan and Mr Weitzman attempted to assist me on this point, for which I am grateful, although neither addressed what either they or I would regard as full argument on the point. Notice of abandonment was not here accepted when tendered. It is common ground that on payment for the CTL underwriters had the right, pursuant to section 79(1), to elect to take over the interest of the assured in whatever remained of the wreck, irrespective of the question whether a right under section 63(1) remained available to be exercised. Both counsel therefore approached the matter on the basis that I do not need to decide what would have been the effect of actions which did not take place. This is of course true. On the other hand what is under discussion in this case is the question whether by payment for a CTL the underwriters acquired some equitable interest in the wreck of a nature not dealt with by the Act. What is effectively suggested here by underwriters is that by or on payment for a CTL they acquired some form of security interest, the benefit of which they could enjoy whilst deciding whether or not to take over the interest of the assured in the wreck, the existence of which security interest (i) constrained the assured’s freedom of action (ii) arguably impaired the assured’s ability to give title to the vessel and (iii) would at the least affect a purchaser with notice thereof. This being the nature of the enquiry, it is I think relevant to the analysis to determine precisely what proprietary interests the Act contemplates as being available to insurers, even if in this case insurers did not avail themselves of some or all of the opportunities offered. Furthermore, since the interest for which insurers contend is one which confers benefits upon them but imposes no burden, it is relevant to enquire whether the existence of such a right is compatible with the scheme of the Act. Taking over the interest of the insured in the wreck involves the assumption of liabilities, as already discussed. It may be that the provision to underwriters by statute of a right which confers both benefits and burdens impliedly excludes the creation of a more limited right which is more favourable to underwriters. Mr Weitzman does indeed so contend. To my mind therefore it is relevant to enquire what would have been the position had underwriters accepted notice of abandonment before paying for a CTL. My conclusions on this point, even if necessarily tentative, are likely to inform my approach to the question whether by virtue of paying for a CTL underwriters acquired a proprietary interest in the vessel.

I return therefore to the question what is meant by section 62(6). It seems to me significant that the word used in the sub-section is “irrevocable” rather than “complete” or “perfected” or some other word signifying the crystallisation of the process of abandonment. This approach is consistent I think with the second sentence of the sub-section. That sentence should I consider be regarded as spelling out what is meant by the abandonment becoming irrevocable. By acceptance of notice of abandonment the insurer admits his liability to pay for a CTL and admits that the offer to cede given by the assured is validly made. If however acceptance of notice of abandonment without more achieved cession of interest from insured to insurer, it would hardly be necessary to provide expressly that acceptance of the notice admits its sufficiency. Furthermore it is to be noted that it is the immediately following section 63(1) which provides what it is that the insurer is entitled to take over where there is a valid abandonment. In the light of the logical sequence in which Sir Mackenzie Chalmers addressed the topic, this might be thought a pointer to the process described in section 62(6) not in itself amounting to the exercise of the right which is first described only in the next section.

Mr Milligan’s preferred analysis is that by accepting notice of abandonment the insurer accepts that the notice is validly given and indeed accepts liability to pay for a CTL, but does not thereby elect to take over the wreck. That is a separate right which arises under section 63(1). Mr Milligan did not address the point whether an express or implied election to take over the wreck would, before payment by underwriters for a CTL, bring about cession to insurers of the insured’s interest in the wreck. Arnould puts forward two inconsistent views on this point. At paragraph 30-09 it is stated that transfer of the assured’s proprietary interest in the subject-matter insured takes place automatically on acceptance of the notice of abandonment. This would be a variant on some of the pre-Act thinking to the effect that a valid notice of abandonment of itself achieves the transfer, without the need for acceptance. Arnould’s view expressed at paragraph 30-09 is supported by dicta of Lord Atkin in Attorney General v. Glen Line Limited [1930] 37 Ll L Rep. 55 although the case is not cited in Arnould in this connection. A British ship in port at Hamburg was seized by the German authorities on 4 August 1914 at the outbreak of war. Notice of abandonment was given in January 1915. Notice of abandonment was accepted as at 4 August 1914 and on 9 February 1915 underwriters paid for a CTL. After the war the vessel was recovered and sold and the owners accounted to insurers for the proceeds of sale, which as it happens exceeded the amount paid for the CTL by a factor of three. The Crown’s claim to be entitled to participate in a subsequent recovery from the German Government made under the Treaty of Versailles to compensate the owners for their loss of profits consequent upon the seizure of the vessel was however resisted. It was apparently pursued only by reference to section 63 of the Act – see per Lord Atkin at page 61. After observing “that confusion is often caused by not distinguishing the legal rights given by abandonment (section 63) from the rights of subrogation (section 79) Lord Atkin continued:

“No-one doubts that the underwriter on hull damaged by collision and abandoned as a constructive total loss is entitled to the benefit of the right of the assured to sue the wrongdoer for the damage to hull. But he derives his right from the provisions of section 79, whereby he is subrogated to ‘all rights and remedies of the assured in and in respect of the subject-matter’, very different words from ‘all proprietary rights incidental thereto’. And it is to be noted that in respect of abandonment the rights exist on a valid abandonment, whereas in respect of subrogation they only arise on payment; and that subrogation will only give the insurer rights up to 20 shillings in the pound on what he has paid.”

In the context Lord Atkin’s reference to “a valid abandonment” must I think be to an accepted abandonment. He appears however clearly to envisage that the acquisition of proprietary rights under section 63 occurs independently of payment, payment being required only to generate rights of subrogation under section 79. Moreover, the proprietary rights thus acquired would be the insured’s full interest in the ship. If formalities such as registration are required to perfect transfer of title the transfer would at least be effective to create an equitable interest in the property and would entitle the insurer to require its formal transfer, where possible – see again Arnould paragraph 30-09. Whilst any dicta of Lord Atkin are highly persuasive, I do not regard his analysis of when rights are acquired by acceptance of notice of abandonment as contributing to the ratio of the decision. The case turned on the nature of the claim to compensation, which was not a proprietary right incidental to the ship. The insurer could not rely on rights of subrogation since they had already, in the shape of the proceeds of sale, received more than they had paid out.

Mr Weitzman certainly wished to argue, if it was open to him, that an insurer who accepts a notice of abandonment acquires the full interest of the assured in the vessel pursuant to section 63(1), which is, as he put it, “the best security which he can have. It is better than an equitable lien because he has the full interest”. He accepted that the title thus obtained would normally be an equitable title only, at least until steps are taken additionally to transfer the legal title to the insurer.

The reason why this approach might not be open to Mr Weitzman is that it does not accord with the analysis adopted by Rix LJ in his judgment in the Kastor Too. The relevant passage is at page 136, paragraph 76:

“… The word ‘abandonment’ does not itself appear in section 61, which speaks rather of the choice available to the assured to ‘abandon the subject-matter insured to the insurer’. What is being chosen is therefore a legal concept rather than an act, physical or mental. The legal concept is the cession of the ship to the insurer (see the dictum of Martin B in Rankin v Potter cited above and now sections 63 and 79 of the Act). That cession occurs in both forms of total loss, actual as well as constructive (Kaltenbach v. Mackenzie [1878] 3 C.P.D. 467, see paragraph 58 above). The cession, however, only occurs upon payment, and only if the underwriter is willing to accept the cession: for even in the case of an actual total loss, where the cession operates as a matter of law, the language of section 79(1) speaks of the insurer being ‘entitled’ to take over the interest of the assured: see Allgemeine Versicherungs-Gesellschaft Helvetia v. Administrator of German Property [1931] 1 KB 672 at 687 to 688 per Lord Justice Scrutton. In the case of a constructive total loss, because of the need for a notice of abandonment save in exceptional cases, the underwriter’s decision will effectively occur when he accepts, if he does, a notice of abandonment (see section 62(6)), but even so the abandonment only takes effect on payment. It is then retrospective to the time of the casualty: see section 79(1). That is abandonment.”

This approach is adopted by Arnould at paragraph 30-06 where it is stated:

“In brief, a valid notice of abandonment or election to abandon does not automatically vest the property in the underwriter. As is made clear by sections 63(1) and 79(1) of the 1906 Act, the underwriter is entitled to take over the assured’s interest in whatever remains of the subject matter insured and all proprietary rights incidental thereto when he settles the claim on a total loss basis, but is not bound to do so. He may already have made an irrevocable decision to take over the property if he has ‘accepted’ the assured’s notice of abandonment, but even then it is only on payment of the claim that the cession takes effect. The offer which the assured makes when he elects to abandon is to transfer his interest upon payment. If the underwriter accepts that offer, the transfer takes place when the claim is settled but the underwriter’s title as abandonee of the property vests retrospectively from the date of the casualty.”

There are two points to note about the analysis of Rix LJ in the Kastor Too. First, Mr Milligan suggests that he approaches the matter on the basis that acceptance of a notice of abandonment amounts also to an exercise of the election available under section 63(1). Mr Milligan would prefer the analysis that acceptance of notice of abandonment does no more than is stated in section 62(6), i.e., it is an irrevocable admission of liability or a promise to pay for a CTL, and an irrevocable acceptance that the notice of abandonment is valid, but not an exercise of the separate right given by section 63(1). Second, Rix LJ does not accept the analysis that cession of the assured’s interest in the property occurs upon acceptance of the notice of abandonment. It occurs “only … on payment, and only if the underwriter is willing to accept the cession”. If the insurers have before payment already accepted notice of abandonment then underwriters will have already irrevocably indicated their willingness to accept the cession, but even in such a case the cession [abandonment] takes effect only on payment, and is then retrospective to the time of the casualty. This last proposition is said to flow from section 79(1). It follows therefore that Rix LJ must have thought that the concluding words of section 79(1) “as from the time of the casualty causing the loss” apply equally to the cession of interest which is abandonment as to the acquisition of subrogated rights. Even so, the insurer cannot of course on payment take over any interest greater than that which the insured then retains.

Mr Milligan contended that it was no necessary part of his thesis to suggest that on the first point Rix LJ was wrong, although he submitted that simply as a matter of analysis of the Act, he was. On the second point, Mr Weitzman for his part preferred the analysis that cession occurs on acceptance of notice of abandonment. However he made what he termed a concession that on the hypothesis, if I may respectfully so put it, that on the second point Rix LJ is right, that even after acceptance of notice of abandonment cession only occurs on payment, nonetheless in such circumstances equity would upon acceptance of notice of abandonment impose an equitable lien in favour of insurers. That would arise because of the irrevocable promise to pay for a CTL and the irrevocable election to take over the interest of the assured in the wreck. The equitable lien would secure insurers’ position in the interval between the making of their irrevocable promise and irrevocable election and the transfer of the right on payment, whether legal title or, pending the formalities of transfer of legal title, equitable title.

Although couched as a concession, this approach of Mr Weitzman was of course beneficial to his clients’ overall position since it supports the notion that underwriters have it in their power to obtain a security interest in or over the vessel prior to payment of the claim. Mr Milligan submitted that the “concession” was wrongly made. He submitted that where notice of abandonment has been accepted but payment not yet made, the promise to pay is conditional on the right of election subsisting. The promise to pay is conditional on the assured being in a position to tender the wreck against payment. So, he submits, there is no lien because security is not required. However I do not consider that this analysis is correct. It flies in the face of section 62(6) of the Act. Acceptance of the notice of abandonment conclusively admits liability for the loss – it is not a conditional admission. Dealing with the wreck by the assured in a manner inconsistent with the interests of underwriters after acceptance of notice of abandonment may be unlikely but the present case demonstrates that in unusual circumstances that might occur. It would not in my judgment disentitle the assured from recovering for a CTL, liability for that having already been conclusively admitted. Underwriters do therefore in this situation require security, and in my view Mr Weitzman’s “concession” is rightly made. It is accepted on all sides that payment for a CTL coupled with an express election to take over the interest of the assured in the vessel will be effective to transfer to insurers the assured’s legal or at least equitable title to the vessel. (Footnote: ⁴) In those circumstances, the law would be seriously deficient if it did not provide to insurers upon their irrevocable promise to pay for a CTL and their irrevocable election to take over the interest of the assured in the wreck some form of security interest anticipating the crystallisation of their rights upon payment. It follows I think that for present purposes it does not matter whether the conclusion of Rix LJ on the second point is correct or not, and I need not concern myself with the question whether I can entertain the enquiry or whether strictly I am bound by the observations of the Court of Appeal.

The correctness or otherwise of Rix LJ on the first point is however of more importance to the overall analysis. There is I think some force in Mr Milligan’s argument. However, although important to the analysis, the practical significance of an accepted notice of abandonment is of course slight in modern conditions, since notice of abandonment is rarely if ever accepted. It is rarely if ever accepted because underwriters believe that by acceptance of a notice of abandonment they will assume the burden of ownership. That belief may be in part a throwback to the law as it existed prior to the enactment of the MIA 1906. However if one asks what message would reasonably be conveyed to an assured in the unlikely event of their receiving from their underwriters an unqualified acceptance of notice of abandonment, it would I think be that insurers are irrevocably committing themselves to assume responsibility for the wreck. There is also I think some support for that notion in section 62(6). If acceptance of the notice of abandonment amounts to an unequivocal acceptance of liability to pay for a CTL, of what further interest is it that the insurers additionally and irrevocably accept the sufficiency of the notice unless they also intend to exercise their right to take over the interest of the assured in the vessel.

In the light of these considerations, and on reflection, I am not sure that Mr Milligan is necessarily right to suggest that Rix LJ’s analysis is that by accepting notice of abandonment, the election under section 63(1) is thereby made. That may be his analysis. Equally however his analysis may be that acceptance of a notice of abandonment is properly to be understood as an irrevocable election to exercise the right which on the promised payment for a CTL will become available to the insurer by virtue of section 79(1). Again I do not think it matters for present purposes which of these analyses is to be preferred. On either view, what is demonstrated is that insurers have it within their power to create in their favour proprietary rights in the vessel either by acceptance of notice of abandonment or, if it is different, by irrevocable election to take over, on the promised payment for a CTL, the interest of the assured in the wreck.

This however leaves finally for consideration the case where notice of abandonment has been declined but, on subsequent payment for a CTL, underwriters say nothing which amounts either to express acceptance or to express disclaimer of a proprietary interest in the subject matter. That is arguably this case, but subject to the important point reserved as to the effect of the endorsement on the claim settlement. It is plain that the mere fact that underwriters decline notice of abandonment cannot without more in the ordinary way deprive underwriters of their right to take over the insured’s interest in the subject-matter insured, which right becomes available on payment for a CTL as a result of section 79(1). It is common ground that in the present case underwriters had the right to elect under section 79(1), whatever had happened to their rights under section 63(1). I need not therefore consider further whether declining notice of abandonment amounts to an irrevocable election by underwriters not to exercise their right under section 63(1), although I can see no reason why ordinarily it should. The right to recover for a CTL is in these circumstances dependent on the assured’s continued willingness to cede its interest in the subject matter. Dealing with its interest without reference to underwriters would be inconsistent therewith. After notice of abandonment has been declined, a further future right of election is in any event potentially available under section 79(1) if the insurers in fact pay for a CTL. It might be thought therefore that loss by underwriters of their right of election under section 63(1) is likely to be achieved only by express agreement or by the assured’s reliance upon a very clear representation disclaiming future exercise of the right. Loss of the right under section 79(1) at any time prior to payment is an a fortiori case. What is I think important for present purposes is simply to notice that after declining notice of abandonment underwriters will therefore ordinarily have a further opportunity prior to payment for a CTL to create in their favour a proprietary interest in the vessel. That is because ordinarily, as I think, so long as the assured continues to press for payment for a CTL after underwriters have declined notice of abandonment, the assured impliedly repeat their offer to cede their interest to underwriters and it is open to underwriters to accept that offer, by acceptance of notice of abandonment, with the consequences which I have already described. Mr Weitzman’s preferred analysis is that after declining notice of abandonment an insurer who changed his mind would then have to invite the insured to offer abandonment again. An assured who refused that invitation would be acting inconsistent with its earlier abandonment – or perhaps with its continued request for payment for a CTL. I prefer my own analysis, but both Mr Weitzman’s and my own achieve the same practical result.

Arnould says this, at paragraph 30-06:

“In practice, it is rare nowadays for underwriters to accept abandonment and take over the assured’s proprietary interest unless there is a clear financial advantage in their doing so. In may cases, the property may be a damnosa hereditas, because of potential liabilities for wreck removal, or salvage efforts may simply not seem worth the trouble, from underwriters’ perspective. It is probably not open to underwriters, however, to accept an abandonment in part, seeking to take the plums while leaving the duff behind, or to claim the benefit of salvage at a later date having initially declined the abandonment when the assured’s claim was settled.”

In footnotes to this passage the learned editors refer first to White Star SS Co. v North British and Mercantile Insurance Co. Ltd [1943] AMC 399, where the insurers were held to be estopped from claiming the proceeds of sale of the vessel’s furniture and equipment, having declined to accept the insured’s abandonment and disclaimed any interest in the wreck of the vessel, so as to avoid liability for the cost of wreck removal. The learned editors also point out that the insurer may settle the claim on a total loss basis without either expressly accepting or disclaiming a proprietary interest in the subject-matter, and suggest that in the latter event the insurer’s rights of election under both section 63(1) and 79(1) of the Act continue indefinitely. Reverting to the text, the learned editors observe at paragraph 30-35; in a passage to which I have already referred above:

“As a matter of commercial prudence, no doubt, an underwriter who settles a claim for total loss should make it clear whether he is disclaiming an interest in the property or wishes to take the benefit of any salvage, so as to avoid any risk of its being inferred that he has made his election, in either direction, but in principle it would appear that he can keep his options open indefinitely.”

This last passage again underscores the importance of determining what is meant by underwriters’ endorsement of the claim settlement. I would however point out, I hope uncontroversially, that it is open to underwriters on payment for a CTL to claim their full proprietary interest in a vessel and thereby, subject to the problem of partial interests which I discuss below, to acquire the right to control or to dictate the sale thereof. Underwriters have not I think as yet suggested that their endorsement had this effect. I do not propose to anticipate the parties’ submissions in this regard. However I must first establish and set out clearly the basis upon which I am proposing to address the Issues. At this stage that must necessarily be that underwriters declined notice of abandonment in the conventional manner and subsequently paid for a CTL without either expressly accepting or disclaiming a proprietary interest in the subject-matter insured, by which for the avoidance of doubt I mean the wreck, not the proceeds of sale of the wreck. It follows that the equitable lien under discussion in Issue 1 is a lien potentially unlimited in time, albeit Mr Milligan suggests that for practical purposes it would not in fact be likely to be enforceable indefinitely because equitable considerations would govern the question whether the court would grant relief by reference to it. Against this background and on this basis I turn to the Issues posed.

Issue 1

“As a matter of English law, did the Claimants by virtue of their paying a CTL in April 2008 acquire a proprietary interest in the Vessel in the form of an equitable lien?”

An equitable lien confers a charge upon property and arises by operation of equity from the relationship between the parties. It exists independently of possession and, unlike a legal lien, which is effectively a negative right of retention, it confers positive rights enforceable by means of an order for sale. It may also be enforced by injunction to prevent disposal of the property subject to it without satisfaction of the obligation, the performance of which it secures. The right conferred is a proprietary right in the property which is the subject of the lien, which will not avail against a bona fide purchaser for value of a legal estate without notice of it. Generally speaking, the established examples of equitable lien are between parties in a contractual or a quasi-contractual relationship. See generally: Snell’s Equity, 31^st Edition, paragraph 42-03; Hewett v. Court [1982-1983] 149 CLR 639 particularly per Deane J at 663-664 and Lord Napier and Ettrick v. Hunter, [1993] AC 713 particularly per Lord Templeman at 738C-G; per Lord Goff at 744G-H and per Lord Browne-Wilkinson at 752D-G.

An equitable lien is a security interest. I have already expressed the view above that an equitable lien would arise before payment for a CTL in circumstances where insurers have conclusively admitted liability for the CTL and irrevocably elected to take over the interest of the assured in the wreck. In that example, the equitable lien over the vessel subsists to secure the performance by the assured of its obligation upon the promised payment for the CTL to transfer to the insurer its interest in whatever remains of the wreck, the insurer having already exercised an irrevocable election to take over that interest.

The question now for decision is whether an equitable lien similarly arises where insurers, having declined to accept notice of abandonment, subsequently pay for a CTL but without either expressly claiming or disclaiming the interest of the assured in the wreck. Were they on payment to elect to take over the interest of the assured in the vessel, it is common ground that the insurers would immediately obtain at least equitable title to the vessel, as discussed above.

Mr Milligan submits that an equitable lien does so arise. He suggests that the question can be tested by asking whether the assured would be free to dispose of the vessel after a total loss had been paid but before the underwriters had decided, or even had an opportunity to decide, whether to take her over. The answer to that question he suggests is obviously not, and a court would enjoin the assured from doing so because it would be unconscionable, and unconscionability is the foundation of the equitable lien – see Napier at 738BC per Lord Templeman. However I do not agree with Mr Milligan that the answer to his test question is so obvious as he suggests. An underwriter who pays for a CTL has by definition had an opportunity to decide whether to take over the wreck. Whether it would be unconscionable for an assured to sell the vessel without reference to underwriters must depend on the circumstances. It would hardly be unconscionable if for example underwriters had been pressed for a decision for many months, had failed to come to a decision, and circumstances had arisen in which the assured were desirous of selling the vessel urgently in order to rid themselves of any further or potential liability for wreck removal, pollution etc. I do not suggest that this is such a case. Mr Milligan would say that in such circumstances the court would be unlikely to enjoin the assured from selling, so that the equitable lien would simply be ineffective. However the existence of a lien could of itself hinder the assured’s ability to take steps to protect its own interests. The lien in such circumstances will reserve to the insurers all the benefits which might flow from taking over the interest of the assured in the wreck whilst imposing none of the corresponding burdens of ownership. The insurer is not ultimately entitled to the benefit without the burden, and it can secure the benefit if it wishes on payment for a CTL by electing to take over the wreck. Indeed the insurers can secure the benefit at any time after payment for a CTL provided only that the insured has retained an interest. It is not obvious to me that the situation under consideration is one in which equity will impose a lien in favour of insurers since they can so easily secure their position in the manner contemplated by the Act. Indeed in the ordinary case where notice of abandonment has first been expressly declined and payment made subsequently for a CTL without ownership in the wreck being either expressly claimed or disclaimed, it would I think be arguably unconscionable that equity should impose a security interest over the vessel in favour of insurers.

In Napier the House of Lords held that the proceeds of a recovery action by the assured against a third party tortfeasor responsible for the insured loss are subject to an equitable lien in favour of the insurer who has been paid an indemnity in respect of the loss. Rights of subrogation accrue automatically upon payment of an indemnity, as is reflected in section 79(1) of the Act. It has long been established that the insurer has an enforceable equitable interest in the damages payable by the wrongdoer – the insured person is guilty of unconscionable conduct if he does not provide for the insurer to be recouped out of the damages awarded against the wrongdoer – see Napier at page 738 per Lord Templeman. Equity imposes an equitable lien rather than a trust in recognition of the onerous duties cast upon trustees and because the function of the proprietary right is simply to protect the interest of the insurer in an asset only to the extent that its retention by the assured will have the effect that he is more than indemnified under the policy of insurance – see again Napier at page 738 per Lord Templeman and at page 745 per Lord Goff. The House of Lords left open the question whether the equitable lien would attach also to the rights of action vested in the insured to recover from a third party. Lord Templeman provisionally thought that it would, see pages 736 and 740, but expressed no final view on a point which had not been fully argued and which did not arise for decision.

In Re Ballast plc, St Paul Travelers Insurance Co. Ltd v. Dargan [2007] Lloyd’s Rep. IR 742 Lawrence Collins J had to address the question left open in Napier. The case concerned an application by an insurer under section 181 of the Insolvency Act 1986 pursuant to which a person who claims an interest in disclaimed property may seek an order vesting that property in him as the person entitled thereto. The liquidator of the insured Ballast, who before liquidation had been indemnified by St Paul, disclaimed a cause of action against a third party against whom Ballast arguably had a claim in contract which would have diminished the loss in respect of which Ballast had been indemnified. Lawrence Collins J decided that St Paul’s right of subrogation conferred no proprietary interest in the cause of action as opposed to the proceeds of its successful exercise. He gave six reasons for his conclusion. First, the cause of action belongs beneficially and, unless assigned, at law to the assured. Second, there are decisions the basis of which is inconsistent with the insurer [the text of the judgment says assured but plainly insurer is meant] having a proprietary right in the cause of action. Third, although an insurer may compel the use of an assured’s cause of action against a third party, it is unable to compel the assured not to use those rights. Fourth, an assured may compromise any claim he has against a third party in respect of his insured losses, and may do so without reference to the insurer and in such a way as validly to bind the insurer. Fifth, an assured alone can give a valid receipt and discharge to a third party against whom a judgment has been given following a successful subrogated claim and sixth, the insurer may only recover up to what he has paid the assured. I agree with Mr Milligan that none of those reasons is in itself necessarily inconsistent with the existence of an equitable lien over the cause of action. The compromise and receipt points for example are not inconsistent with there being an equitable lien – a compromise could be reached with any third party acting in good faith without notice of insurers’ rights and the same is true of a valid receipt and discharge. The purpose of an equitable lien would not be to enable the insurer to prevent the assured pursuing a cause of action but rather simply to enable the insurer to compel the assured to lend his name if the insurer wishes but the insured does not wish to pursue the cause of action. At paragraph 108 of his judgment, page 756, Lawrence Collins J said this:

“… The argument for St Paul on this application was that St Paul claimed, and had, an interest in the claim because it was entitled to pursue the claim in Ballast’s name either with its consent, or if it did not consent, by seeking an order that its name be lent to the proceedings; and that St Paul had a proprietary interest, by way of a lien or charge, over the fruits of the claim and ‘possibly’ also in respect of the claim itself as a right of action.”

It seems therefore that the possible existence of a proprietary interest by way of an equitable lien or charge over the right of action may have been a point only faintly pressed. However that may be, Lawrence Collins J after exhaustive examination of the authorities concluded that an insurer had no proprietary interest in the cause of action to which it was subrogated. Although not bound, I should be reluctant not to follow his lead.

No case decides that an insurer does have a beneficial interest in causes of action to the benefit of which he is subrogated, although Lord Goff in Napier at page 745 points out that no less an authority than Lord Blackburn thought than an insurer should have such an interest – see Simpson v. Thompson [1877-78] LR 3 App. Cas. 279 at 292-293. Even if that were the principle so far as concerns subrogated rights, it would not be conclusive of the point which I have to decide, since the acquisition of subrogated rights is automatic, whereas the assumption of interest under section 79(1) is dependent upon election. Still less however does the absence of an equitable lien over subrogated causes of action compel me to the conclusion that an equitable lien is similarly absent in the situation under consideration.

Furthermore, I am not assisted by Mr Weitzman’s concession that the insurers have an equitable lien over the sum of €1,000 paid by the Fourth Defendant to the First Defendant in respect of the sale of the vessel. As I have already mentioned I have not heard argument on the question what is the legal analysis which leads to insurers’ entitlement either to the market value of the vessel or to the proceeds of sale. In the absence of full argument I would certainly not wish to rule on the question whether entitlement to the sale proceeds derives from rights of subrogation. I cannot therefore agree with Mr Milligan that Mr Weitzman’s concession is necessarily inconsistent with his denial of the existence of an equitable lien over the vessel itself. Furthermore, without deciding the point, even if the sale proceeds do not represent a recovery to the benefit of which insurers are subrogated, still I see great attraction in the notion that the sale proceeds should in a situation such as the present be impressed with an equitable lien in favour of insurers by analogy with the position as to subrogated recoveries. The analogy is I think quite compelling.

I do not however regard as compelling any analogy between a cause of action to which insurers are subrogated and a right which they can elect to exercise but which on this hypothesis they have not elected to exercise. Furthermore for the reasons which I have already given I regard the underwriters as having once expressly declined to exercise their right or, if not the same right, a right to similar effect. Whilst that does not preclude later exercise of the same right, or a right to similar effect, it is nonetheless a consideration which cannot be ignored when one is enquiring where the equities lie. My conclusion is that equity does not in this situation impose an equitable lien. Equity will secure the position of an insurer who exercises his election to take over the vessel in the manner which I have already described. After payment for a CTL the obligation upon an insured to cede to underwriters his interest in the wreck is contingent upon underwriters agreeing to assume the heavy burdens of ownership to which the insured is immediately exposed. I can see no reason why equity should intervene to secure insurers’ position whilst they take further time to decide whether they wish to assume those burdens. Furthermore, whilst it is a small point, I note that the Act does not provide that an insured who is paid for a CTL must not dispose of his interest in the subject matter insured without underwriters’ consent. The suggested equitable lien would I think achieve that result. The lien would impose a significant obligation on the assured which is not to be found in the Act and which is unnecessary to the efficacy of the regime prescribed by the Act. The point can of course be dealt with by express agreement between assured and insurers, as no doubt generally it is. However on the basis upon which I am obliged to approach the question and in the light of the agreed Statement of Facts alone, the answer to Issue 1 is in my judgment “no”.

Issue 2

“Did the Claimants impliedly elect to take over the Vessel for the purposes of section 63(1) and/or section 79(1) of the Marine Insurance Act 1906 by paying the salvage/wreck removal claim in July 2008?”

It is agreed that the answer to this question is “no”. The Claimants concede that no implied election arose because Form PC24, incorporated into the primary policy provides, inter alia, “that no acts of the Insurer or Insured in recovering, saving, or preserving the property insured, shall be considered as a waiver or acceptance of abandonment”. It should not be assumed this is the only reason why the question must be answered in the negative. The point has not been argued.

Issue 3

“As a matter of English law, did the Claimants by virtue of their paying the salvage/wreck removal claim in July 2008 acquire a proprietary interest in the Vessel in the form of an equitable lien?”

I am asked not to deal with the Claimants’ argument that by making the payment underwriters became subrogated to the salvors’ rights, including a maritime lien over the vessel. Independently of that Mr Milligan suggested that even if no equitable lien was obtained by payment for the CTL, it would be unconscionable for the assured to retain the benefit constituted by the preservation of the value of the vessel by salvage and, I think, the discharge of the salvors’ lien. Mr Milligan says that this raises an issue of double counting. Not only has the assured been paid for the vessel in the form of the payment for the CTL, so too he retains a vessel which has been “improved” by virtue of the payment for the salvage and he is keeping the benefit of the improvement as well without paying for it. However I see nothing unconscionable in this result. It is simply the consequence of (a) the insurers not electing to take over the wreck and (b) it being an incident of the policy that the underwriters are obliged to pay for salvage. In my view this argument adds nothing to the argument under Issue 1. Subject to the point reserved about a maritime lien, the answer to Issue 3 is “no”.

Issues 4 and 5

“(4)

When, in December 2008, 85% of the Claimants and 77.5% of the Primary Underwriters expressly elected to take over the Vessel, was that election effective for the purposes of section 63(1) and/or 79(1) of the Marine Insurance Act 1906?”

(5)

As a matter of English law, did the Claimants by virtue of either an implied election as set out in (2) above or an express election as set out in (4) above acquire a proprietary interest in the Vessel in the form of either an equitable lien or a beneficial interest under a trust?”

I take these issues together because they cannot be considered independently. The question whether the election is “effective” can only be answered by reference to the rights thereby acquired and the remedies available to enforce them. Here a difficulty arose because at the hearing Mr Milligan proffered an analysis which led to the conclusion that upon deletion of the vessel from the Dutch registry those insurers who had elected in December 2008 to take her over became together with the First Defendant co-owners of the vessel as tenants in common at law, there no longer being any requirement for registration to achieve that result. Before de-registration, Mr Milligan submits, the assured as registered owners would hold the ship on trust for themselves and for those insurers who had elected to take over the vessel in their respective proportions. Issue 5 is framed in terms only of the acquisition of equitable interests, and I am invited therefore at this stage not to come to any conclusion as to the acquisition of a legal interest.

Mr Weitzman submitted that the reference in section 79(1) of the Act to payment for a total loss of the whole of the subject matter insured has the result that an election to take over the assured’s interest in the subject matter insured can only be made by an insurer who pays the “whole” of the loss. He submits that in a subscription market such as the present this requires all subscribing insurers to make the election. Where only part of the market makes the election, the electing insurers will not have paid the whole of the loss but only their proportionate share of that loss.

This argument is I think misconceived. It ignores the fact that each insurer has a separate contract with the insured and that it is with the incidents of each individual contract of insurance that the Act is concerned. I agree with Mr Milligan that as a matter of principle it is irrelevant to the rights of one insurer what another insurer decides to do. I also agree with Mr Milligan that the opening phrases of section 79(1) of the Act simply identify what it is that has been paid for, either a ship as a single entity or goods which may be divisible. Provided that any one underwriter has paid his proportion of a total loss of the ship, or his proportion of a total loss of an apportionable part of or of the whole of the goods, he has a right of election. It is obvious that the process of abandonment must be available, pro tanto, if the insurance extends only to a proportion of the value of the thing insured. Furthermore, even where the insurance is as to 100% of the value, the process must likewise be available if a proportion, perhaps a small proportion, of the market declines or is unable to follow the lead. On Mr Weitzman’s case an insolvency of insurers representing 2% of the cover would prevent the remaining 98% from electing to take over the interest of the assured in what remains of the subject matter insured. That would be absurd – but it is in any event contrary to principle to fail to address the position of each insurer separately and for his own account. The only question therefore is how is effect given to an election. In every case in which there is more than one subscribing underwriter the election by any one underwriter will inevitably be effective only as to a proportion of the assured’s interest in the subject matter insured. The assured for his part must be prepared to cede his whole interest in the thing insured, as far as that interest is covered by the policy – see Arnould paragraph 30-08. An abandonment cannot however extend further than the interest that is covered – see again Arnould paragraph 30-09. In principle therefore partial insurance and non-insured retention throw up precisely the same problem as partial election. The relative dearth of cases in which the point has been discussed would seem to indicate that it seldom gives rise to any practical difficulty.

I agree with Mr Milligan’s analysis that the electing underwriters simply become co-owners of the vessel together with the assured in their respective proportions. As it happens in the present case there was no deductible in the event of a total loss, possibly for the very reason under discussion, i.e. to simplify the process of abandonment – see in that connection Arnould paragraph 30-11 at footnote 56 at which it is said that “it should be noted that the standard deductible clauses in hull and machinery policies do not apply in cases of total loss”. The point was discussed in The Commonwealth [1907] P 216 where at 222 Sir Gorell Barnes P with whom the other members of the Court of Appeal agreed approved a passage in the then current edition of Arnould, the 7^th, to the following effect:

“It appears equally clear that where a ship is only partially insured, so that her owners remain to some extent ‘their own underwriters’, the effect of a notice of abandonment will be to make the owners and the underwriters joint tenants of the property, in the proportion which the amount uninsured bears to the insured.”

If the position were otherwise, the rights discussed in sections 63(1) and 79(1) of the Act would be completely unavailable in cases where there is partial insurance or a self-insured retention. That situation no more defeats operation of the principle of abandonment than does the failure by some subscribing underwriters to exercise their rights of election. Interestingly, as Mr Milligan points out, Whitworth v. Shepherd [1884] 12 Ct. of Sess. Cas. (4^th) 204 on which he relies in this context is cited in Chalmers only in relation to section 81 of the Act, which provides that where an 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. Yet Whitworth was a case concerned with partial election by underwriters, those representing only a small proportion, £500, of the full insured value, £9,000, paying for a CTL whilst those representing the balance successfully defeated the claim for a CTL and in consequence paid only for a partial loss. The Lord Ordinary, Lord McLaren, at 207 proceeded upon the basis that the underwriters who paid for a CTL accepted the abandonment – at one point in his judgment he seems to espouse the pre-Act theory that cession of interest is automatic upon payment for a total loss – see at 206. However this is of no consequence so far as concerns his analysis of the manner in which the right which accrued to underwriters on payment could be given effect. He held that their right was to require the owners to execute a transfer to them which would enable them to be registered as owners to the extent of the interest which they had acquired in the vessel by abandonment. In fact the underwriters concerned had been dilatory in attempting to enforce their right, allowing two years to pass during which time the assured mortgaged the vessel for £13,000, which exceeded her value. In the event therefore the insurers were awarded the value of their interest in the ship before it was encumbered. The judge found that £9,000 represented the real value of the ship when insured and that the damage by stranding in consequence of which these underwriters had settled for a CTL was a 20% depreciation in her value. The underwriters were therefore awarded £400. Arnould, at paragraph 30-11, casts no doubt upon the correctness of this approach, expressing only a doubt how the legal title to a British ship could appropriately be transferred, legal ownership of such a vessel being permitted only in sixty-fourth shares. I referred to this problem in paragraph 41 above at footnote 4. I agree with Mr Milligan that in principle the insurers must be entitled to have the appropriate number of whole one sixty-fourth shares transferred to them to be registered in their name. Any remaining part one sixty-fourth share would be held on trust by the owners for themselves and the insurers in their respective proportions. In Whitworth the insurers had not yet been registered as owners. Consequently their interest in the vessel was equitable only, although not expressly so found. The mortgagee was, presumably, a bona fide purchaser for value without notice of the insurers’ interest and therefore took the mortgage free of that interest.

Whatever may have been the position while the Vessel was registered in the Netherlands, her registration had been deleted before the First Defendant purported to transfer the Vessel to the Fourth Defendant on 9 January 2009. By virtue of the deletion, submits Mr Milligan, those underwriters who had elected to take her over together with the First Defendant became the co-owners of the vessel as tenants in common at law (see Williams’ and Bruce’s Admiralty Practice, 3^rd Edition (1902) pages 30-31), there no longer being any requirement for registration to achieve that result. For the reasons stated above, I express no view at this stage as to whether Mr Milligan is in this regard correct.

Accordingly, the answer to Issue 4 is “yes”. As to Issue 5, as a result of the express election in December 2008 the relevant underwriters acquired a beneficial interest under a trust. They were entitled to have the appropriate number of whole one sixty-fourth shares transferred to them to be registered in their name. Any remaining part one sixty-fourth share would be held on trust by the owners for themselves and for the insurers in their respective proportions.

Issue 6

“As a matter of English law, what is the effect (if any) of 100% of the Claimants expressly electing to take over the Vessel after the purported transfer of legal title to the Vessel to the Fourth Defendant on 9 January 2009?”

On the assumption that the Fourth Defendant was a bona fide purchaser for value without notice of the equitable rights of those underwriters who elected to take over the vessel in December 2008, I believe it is common ground that on the further assumption that the legal title to the vessel was validly and effectively transferred, those underwriters’ equitable rights were extinguished. The subsequent election by the remaining underwriters would on these assumptions be ineffective, since the assured would at the time of the election have no interest in the wreck which could be ceded or assumed. In the event that prior to the purported sale those underwriters who had elected in December 2008 became legal as opposed to beneficial co-owners of the vessel as tenants in common at law, they would as a matter of English law remain legal co-owners after the purported sale, there being no relevant exception to the principle nemo dat quod non habet. In the event that the Fourth Defendant is not a bona fide purchaser for value without notice of the Claimant’s equitable interest as co-owners in equity, those interests would survive the purported sale. However on my findings those underwriters who had not elected before the purported sale enjoyed no equitable interest and so their election after 9 January 2009 is on any view ineffective if by the sale the First Defendant divested itself of legal title.

Issue 7

“Assuming that the Fourth Defendant has the legal ownership of the Vessel but the Claimants have a proprietary interest in the form of an equitable lien or beneficial interest under a trust in the vessel, as a matter of English law what rights do the Claimants have to take possession of or dispose of the Vessel and, in particular, are the Claimants entitled to: (a) require the sale of the Vessel; and/or (b) dictate in principle the manner of such sale?”

This issue presupposes that the Claimants are not, at the time of the purported transfer, the legal owners of the vessel or any part of it. It is however Mr Milligan’s case that the Claimants were at that time legal owners of what under the English (British) system would be a majority of the shares in the vessel.

Mr Milligan submits that where legal ownership in a vessel is divided, the majority interest has an entitlement to the possession of the vessel to the exclusion of the minority. See Williams’ and Bruce’s Admiralty Practice, 3^rd Edition, pages 30-31; The Kent [1862] Lush 495 and contrast The Elizabeth and Jane [1841] 1 W. Rob 278 where the court refused relief to the owner of 32/64ths, i.e. not a majority, of a British ship. I did not understand either Mr Weitzman or Mr Gaisman to contradict these propositions, which seem to me to be correct.

Furthermore, I believe it to be common ground that as majority legal owners, if they were, the Claimants would be entitled to apply under section 188(1) of the Law of Property Act 1925 to have the vessel realised by judicial process. Where there is a judicial sale, no interested party can dictate the manner of such a sale. It is a matter for the court to determine what manner or mode of sale will produce the highest price.

It is also common ground that if any of the Claimants following the purported transfer had a subsisting equitable lien over the vessel, that claimant is likewise entitled to apply to have the vessel realised by judicial process. The Fourth Defendant reserves its position as to whether an order ought in the discretion of the court to be made in circumstances where what it characterises as an offer of payment of the full market value has been made. I have of course already concluded that no claimant did have an equitable lien over the vessel. However I have also concluded, at paragraph 41 above, that an insurer who accepts notice of abandonment does acquire an equitable lien. In that situation therefore the present problem would not arise.

That however leaves for decision what are the rights and remedies of the insurers if their equitable interest as co-owners in equity survives the purported transfer of the legal interest to the Fourth Defendant. Everything that I have said so far about the position of the Claimants presupposes that the proper law of the trust on which the owners hold the vessel for the benefit of themselves and the insurers in their respective proportions is English law. I am not asked to decide whether that is correct. Whether it is depends upon the application of Article 7 of the Convention set out in the Schedule to the Recognition of Trusts Act 1987. It is not common ground that the relevant trust here, if there is one, would be governed by English law.

On the assumption however that the relevant trust is governed by English law, it is not in dispute that if the insurers collectively had a 100% beneficial interest in the vessel, they would be entitled to invoke section 188 of the Law of Property Act 1925 and call for the sale of the vessel. Even if relief under that section is available only to owners at law, equity would treat as done that which ought to be done, i.e. the transfer of legal title. However the effect of my conclusions thus far is that the insurers collectively had a clear majority interest falling short of 100%. The question is how on that assumption they could achieve the sale of the vessel. On this footing the First Defendant prior to the purported transfer and the Fourth Defendant subsequent thereto would have a minority beneficial interest in the vessel.

It would be surprising if the rights of the insurers in this situation were less valuable than if they had had the benefit of an equitable lien, but Mr Gaisman submits that that is indeed the result. He submits that absence of consent on the part of any person interested under the trust will prevent the termination of the trust and the transfer of the legal title, that being the corollary of the rule in Saunders v. Vautier [1841] 4 Beav. 115, that where all possible beneficiaries are in agreement the beneficiaries may dispose of trust property as they see fit.

This point was only very briefly argued before me and it may not arise. It has ramifications going beyond the realms of marine insurance. I have concluded that I should not attempt to grapple with it without further detailed argument and unless it becomes necessary to decide it.

Mr Gaisman submits that the difficulty attaching to this point is reflected in the tentative observations of the editors of Arnould at paragraphs 30-09 and 30-11. At paragraph 30-09 the editors speak of the creation of an equitable interest in the property entitling the insurer to require its formal (i.e. legal) transfer where possible (my emphasis). In paragraph 30-11 the editors say of insurers like those who paid for a CTL in Whitworth v. Shepherd (who they describe as having accepted notice of abandonment) that it would seem that they become “in some way interested as owners of the vessel in the proportion which the amount subscribed by them bears to her full value”, but that “it is not clear what their exact legal position in such a case would be”. I have already indicated my agreement with Mr Milligan’s analysis of the situation but that leaves open the question how practically the insurers can compel the transfer to them of the relevant proportion of the legal title. As Mr Gaisman put it, the substance of this issue is rights of sale.

One point upon which I have heard no argument at all is whether the assured is under some implied obligation to co-operate in enabling the legal transfer to be effected, if required. Footnote 51 to paragraph 30-09 in Arnould suggests that “it would … seem to be implicit in the agreement concluded by the acceptance of notice of abandonment that the assured must co-operate in enabling the transfer to be effected, if required. The Merchant Shipping Act 1995 section 16 preserves the position that interests arising under contract or other equitable interests in a British ship may be enforced in the same manner as in respect of any other personal property”. Here of course notice of abandonment was not accepted, but it may be that, absent countervailing express terms, payment for a CTL and express acceptance of notice of abandonment at that stage or an express election under section 79(1) carries with it some similar implication. Any argument along these lines might assist underwriters as against the assured but would possibly not assist directly as against the Fourth Defendant.

Mr Milligan submits that the position is straightforward and that Mr Gaisman mischaracterises the nature of the trust. He submits that if the nature of the trust is such that it permits a beneficiary to call for an immediate transfer of legal title to be vested in him as co-owner, the court would give effect to that right. Mr Gaisman for his part accepted that in some cases, although not this, there might be some divisible part of the trust to which effect might be given.

Since I do not propose at this stage to address these issues, I need not consider whether relief under section 188(1) of the Law of Property Act 1925 is available to co-owners in equity of a moiety or upwards or only to legal co-owners. Mr Gaisman submits that any construction of the section must be consistent with the rule in Saunders v. Vautier.

I would however just observe that it would be surprising if the resources of our law were unable to render effective the rights which insurers acquire upon payment for a CTL combined with an unequivocal election to take over the interest of the assured in the subject matter insured. The trust analysis adopted by Sir McKenzie Chalmers at page 122 of the first edition of his commentary on the Act (Footnote: ⁵) and now by Arnould at paragraph 30-09 derives from the observation of Lord Truro in the course of the argument in Scottish Marine v. Turner, above, at page 342, footnote 1 that:

“The abandonment does not vest the property. The Registry Acts prevent the passing of the property except in a certain way. The owners, however, become trustees for the underwriters.”

If the effect of that analysis is that the underwriters derive ineffective rights, it may be that the analysis needs to be revisited. Indeed in the light of the approach in Lord Napier v. Hunter, above, the court might feel very ready to classify the equitable proprietary right of the insurers as a lien in circumstances where some act of the assured is required in order to effect a transfer of an appropriate share of the legal title to the insurer and to enable an insurer in whom is vested a majority interest to exercise a power of sale. That would also meet Mr Gaisman’s point that trusteeship may bring with it practical issues and responsibilities which are inappropriate to the commercial relationship under discussion – see also per Lord Goff in Lord Napier v. Hunter at page 744.

It is of course here a matter of concession (see paragraph 41 above) that payment for a CTL coupled with express election to take over the interest of the assured will transfer to insurers legal or at least equitable title. This is the conventional analysis, derived from Scottish Marine v. Turner. However Scottish Marine v. Turner in fact concerned a claim against insurers on freight. It arose out of the facts considered in Stewart v. Greenock Marine Insurance Co. [1848] 2 H.L.C. 159. The owners in the latter case had succeeded in a claim against hull underwriters for a CTL as a result of which they had to account to the hull underwriters for freight earned on the voyage. The owners then sought to recover the freight from separate freight insurers and failed. Lord Truro’s observation concerned the position as between the owners and the hull underwriters in the case first decided, Stewart v. Greenock Marine. I doubt if Scottish Marine v. Turner compels acceptance of the trust analysis.

A further problem which does not here arise but consideration of which may assist the overall analysis is the position of an underwriter who has expressly accepted notice of abandonment and who subsequently pays for a CTL. I have already concluded that upon acceptance of notice of abandonment he would acquire an equitable lien. On payment for a CTL he would on the conventional analysis acquire equitable ownership in the appropriate proportion. Unless the equitable lien and the equitable ownership can co-exist, the underwriter faces the prospect that he is in a less advantageous position after payment for a CTL than that which he enjoyed before payment. This too may be a pointer to the need to reconsider the conventional analysis. All these are considerations for another day.

Issue 8

“What is (or are) the relevant system (or systems) of law for determining the incidence of proprietary interests in the Vessel prior to, at the time of, and after the purported transfer of the Vessel to the Fourth Defendant?

(a)

English law, as the law of the Excess Policy and of the Primary Policy or the lex fori?

(b)

The lex situs?”

As recorded above all were agreed at the hearing before me that the answer to be given to this question, at any rate by a court of first instance, is the lex situs. That is the effect of Dicey, Morris and Collins, Rule 124, set out above. However there is disagreement as to what is meant in this context by the lex situs. The Claimants say that in this context reference to the lex situs includes any choice of law or conflict of laws rules of the situs. The Defendants say that reference to the lex situs in this context is simply to the domestic law of the situs. I am asked to resolve this question as to the applicability of the doctrine of renvoi in the abstract without reference to the content of whatever is the relevant lex situs, of which there may be more than one, and without reference therefore to the question whether the lex situs, in fact, has any relevant conflicts rules, and, if so, what they are. This may be an unsatisfactory approach. Professor Adrian Briggs, in a vigorous contribution to the debate in [2007] BYIL 626 (Decisions of the British Courts in 2007) suggests, at page 629, that the English court should ask itself whether the lex situs rule, which English private international law seeks to apply, is more faithfully given effect by referring to the domestic law of the situs or to the private international law of the situs. Without knowing the content of either, indeed without at this stage identifying the lex situs at all, that enquiry can only be undertaken in a limited fashion. A similar point is made in Dicey at paragraph 4-023 where it is said:

“The doctrine [renvoi] should not therefore be invoked unless the object of the English conflict rule in referring to a foreign law will on balance be better served by construing the reference to mean the conflict rules of that law.”

The starting point in resolving this issue is inevitably resort to Dicey. As it happens the relevant chapters, chapters 4 and 24, are the immediate responsibility of Professor Briggs – see the preface at page xvi.

The point which I must resolve under this Issue as to the applicability of the doctrine of renvoi was identified and expressly left open by Slade J in Winkworth v. Christie [1980] Ch. 496 at 514DE and by Moore-Bick J in Glencore v. Metro [2001] 1 Lloyd’s Rep. 284 at 297. However in two further decisions at first instance it has been held that English law does not in this context apply the doctrine of renvoi. Macmillan Inc v. Bishopsgate Investment Trust plc [1995] 1 WLR 978 was as I have already recorded concerned with an issue as to the priority of competing proprietary and security interests in shares in a New York company. Millett J held that the issues of priority fell to be determined not by the place of incorporation of the company but by the lex loci actus, the law of the place where the transaction took place on which the later assignee relied for priority over the claim of the original owner (Footnote: ⁶). He then had to decide whether the relevant law, in fact there New York law, included its choice of law rules. He held that it did not. At page 1008C-G he said this:

“Whether the second or third solution should be adopted depends on whether English law applies the doctrine of renvoi in this context. There is no authority on the question, but in my judgment the question should be answered in the negative. The doctrine has most frequently be applied in the field of succession. Outside that field it seems that it has been applied only to legitimation by subsequent marriage. It has not been applied in contract or other commercial situations. It has often been criticised, and it is probably right to describe is as largely discredited. It owes its origin to a laudable endeavour to ensure that like cases should be decided alike wherever they are decided, but it should now be recognised that this cannot be achieved by judicial mental gymnastics but only by international conventions.

The determination of a question of priority between competing claims to property is based on considerations of domestic legal policy, since it involves striking a balance between two competing desiderata, the security of title and the security of a purchase. A decision by an English court, based on English principles of conflict of laws, that the question should be determined by the application of the rules of a foreign law is also based on considerations of legal policy, albeit at a higher level of abstraction. It involves a policy decision, at the higher level, that the policy which has been adopted, at the lower level, by English law should not be applied because the considerations which led to its adoption in the domestic law are not relevant in the particular circumstances of the case; and to a policy decision, at a higher level, that the policy which has been adopted, at the lower level, by the foreign law should be applied in its stead. In my judgment there is or ought to be no scope for the doctrine of renvoi in determining a question of priority between competing claims to shares, and in the absence of authority which compels me to do so – and there is none – I am not willing to extend it to such a question.

I should add that all the expert witnesses agreed that the doctrine of renvoi has no place in the modern New York conflict of laws, for much the same reasoning as I have described, and I accept their evidence on this point.”

Eady J followed this approach in Iran v. Berend to which I have referred above. That case was concerned with title to a fragment of an ancient limestone relief taken from Persepolis. The fragment was bought by the Defendant, a French national, in public auction at New York and, according to French law, her title had been perfected on delivery of the fragment to her in Paris following her purchase. Over 30 years later the Defendant delivered the fragment to Christie’s in London for the purpose of it being again sold at auction. The Republic of Iran came to hear of its whereabouts and asserted its title in the English court. It was accepted that title had once vested in the state of Iran – the question was whether the Defendant could rely upon a title acquired in good faith by delivery to her in France consequent upon her purchase which, it was held, would be recognised as a matter of substantive French law as the lex situs of the fragment when the disputed title was obtained. The Republic argued that application of the French conflict rules would bring into play an exception to the traditional French rule and application of the law of Iran as the law of the state of origin of the fragment. Eady J followed Millett J’s approach. He saw no principled reason to draw a distinction for this purpose between the context of title to shares and the context of title to a tangible moveable object. He saw no reason “to hold, for the first time, that public policy requires English law to introduce the notion of renvoi into the determination of title to moveables”.

The decision of Eady J has been trenchantly criticised by Professor Briggs in his contribution to the British Year Book of International Law, 2007, although the decision is simply noted without comment in the Second Supplement to Dicey, 14^th Edition. The decision of Millett J in Macmillan v. Bishopsgate is not cited in Dicey in connection with the law governing the determination of title to moveables situated abroad, although it is cited in other contexts. In the Court of Appeal in that case it was decided, contrary to the view of Millett J, that the relevant issue should be decided either by the law of the place of incorporation or by the law of the place where the shares are situated. As it happens both were New York law which Millett J had selected but for a different reason – it was the lex loci actus. In the Court of Appeal Staughton LJ said, [1996] 1 WLR 387 at page 405B:

“The reference is to the domestic law of the place in question; at one time there was an argument for renvoi, but mercifully (or sadly, as the case may be) that has been abandoned.”

Professor Briggs suggests that in those circumstances the decision of Millett J on the renvoi issue is “an authority, but of a rather weak and remote kind” – see [2007] BYIL 626 at 628 footnote 125, and perhaps that accounts for its non-citation in this connection in Dicey. However that may be, I naturally attach considerable weight to the views of Millett J although they are not binding on me. Mr Jonathan Gaisman QC, for the Fourth Defendants, suggested that in the interests of certainty I should follow the lead of my brethren at first instance unless truly convinced that they are wrong.

I am not sure that there is either a right or a wrong solution to this problem, or one which can confidently be asserted to be appropriate in all circumstances. The High Court of Australia has reached a different solution to that so far adopted by the English court. Neilson v. Overseas Projects Corporation of Victoria Limited [2005] HCA 54; 223 CLR 331 was a case where the plaintiff Australian national was injured in a fall in an apartment in China provided to her by the defendant Australian company pursuant to arrangements made in Australia with her husband, an employee of the Australian company who was required to work in China. Article 146 of the General Principles of Civil Law of the People’s Republic of China provided:

“With regard to compensation for damages resulting from an infringement of rights, the law of the place in which the infringement occurred shall be applied. If both parties are nationals of the same country or domiciled in the same country, the law of their own country of their place of domicile may also be applied.”

A Chinese court would undoubtedly have applied Australian law to determine the rights and obligations of the plaintiff and the defendant, both Australian “nationals” and domiciled in Australia. The High Court of Australia held that, at least where the choice of law rules of the lex loci delicti depended upon a connecting factor other than place, such as nationality or domicile, the lex loci delicti was the whole of the law of the foreign jurisdiction. The lex loci delicti included Article 146. The defendants, who under domestic Chinese law could have relied upon a one year limitation period, contended for a general “no renvoi” principle. Heydon J, at page 418, said that it would be absurd that the regime which the Chinese government enacted for incidents causing injuries of the type which the plaintiff suffered should be set at nought by reason of Australian law, as it would be if the supposed “no renvoi” principle existed. There is, if I may respectfully say so, great force in that observation. However the decision of the High Court of Australia does not accord with the law of England, whether as provided by statute in various contexts other than that with which I am presently concerned or at common law as it has so far been declared to be by courts of first instance. As to the former, Part III of the Private International Law (Miscellaneous Provisions) Act 1995 deals with choice of law in tort and delict. Section 9 provides, so far as immediately relevant:

“9(1) The rules in this part apply for choosing the law (in this Part referred to as ‘the applicable law’) to be used for determining issues relating to tort or (for the purposes of the law of Scotland) delict.

…

(5)

The applicable law to be used for determining the issues arising in a claim shall exclude any choice of law rules forming part of the law of the country or countries concerned.”

In commenting on that section paragraph 35-021 of Dicey, for which Professor Morse is immediately responsible, says:

“Renvoi is therefore excluded in relation to claims in tort which fall within the scope of Part III of the 1995 Act. Section 9(5) would seem to reflect the common law position on this question, but this view has been rejected by the High Court of Australia which has applied the doctrine of renvoi in relation to a foreign tort.”

There are two further areas in which English law has, by enacting into law obligations undertaken by international convention, excluded the doctrine of renvoi. The Contracts (Applicable Law) Act 1990 enacts into law the Rome Convention on the law applicable to contractual obligations. Article 15 of the Convention, under the rubric “Exclusion of renvoi” provides:

“The application of the law of any country specified by this Convention means the application of the rules of law in force in that country other than its rules of private international law.”

The Recognition of Trusts Act 1987 enacts into law the Convention on the Law Applicable to Trusts and on Their Recognition. Article 17 provides:

“In the Convention the word ‘law’ means the rules of law in force in a State other than its rules of conflict of laws.”

Finally, in a slightly different legislative context, Council Regulation EC No. 864/2007 on the law applicable to non-contractual obligations (Rome II) provides, at Article 24, under the rubric “Exclusion of renvoi”:

“The application of the law of any country specified by this Regulation means the application of the rules of law in force in that country other than its rules of private international law.”

I have already dealt with the common law at first instance. I should also make reference to the decision of the House of Lords in Amin Rasheed Corporation v. Kuwait Insurance [1984] AC 50 with a citation from which I began this judgment. At pages 61-62 Lord Diplock gave an exposition of what under English conflict rules is meant by the “proper law” of a contract. He explained, at pages 61-62:

“It is the substantive law of the country which the parties have chosen as that by which their mutual legally enforceable rights are to be ascertained, but excluding any renvoi, whether of remission or transmission, that the courts of that country might themselves apply if the matter were litigated before them. For example, if a contract made in England were expressed to be governed by French law, the English court would apply French substantive law to it notwithstanding that a French court applying its own conflict rules might accept a renvoi to English law as the lex loci contractus if the matter were litigated before it. Conversely, assuming that under English conflict rules English law is the proper law of the contract the fact that the courts of a country under which English conflict rules would be regarded has having jurisdiction over a dispute arising under the contract (in casu Kuwait) would under its own conflict rules have recourse to English law as determinative of the rights and obligations of the parties, would not make the proper law of the contract any the less English law because it was the law that a Kuwaiti court also would apply.”

If therefore I were to decide that as a matter of English common law reference to the lex situs as being the law governing the incidence of proprietary rights in moveable property includes reference to the choice of law or private international law rules of the situs, I would I think be rowing against a strong tide. Moreover, in the commercial context in which the question arises here I should be loath to assimilate the law to that hitherto applicable only in fields such as the formal and intrinsic validity of wills, intestate succession and legitimation by subsequent marriage when in the fields of contract, tort, restitution and trusts a deliberate decision has apparently been taken to eschew the doctrine of renvoi.

I do not find it necessary to decide whether Millett J and Eady J were right to reach the conclusions which they did. Not to follow their lead would introduce uncertainty into our law for no very good reason. At paragraph 4-034 Dicey concludes:

“As a purely practical matter it would seem that a court should not undertake the onerous task of trying to ascertain how a foreign court would decide the question, unless the advantages of doing so clearly outweigh the disadvantages. In most situations, the balance of convenience surely lies in interpreting the reference to foreign law to mean its domestic rules.”

I respectfully agree. It goes without saying that, for the reasons which I gave at the outset of this discussion, I am in no position to weigh the advantages and disadvantages which adoption of renvoi would in this case yield. The High Court of Australia was able so to do in Neilson in the context of the particular tort there under consideration, involving two Australian parties and a local law which made special legislative provision for the case in point. I do not think it appropriate that, as a judge of first instance, I should fashion in the abstract a rule of general application which has never before been applied by an English court in this context.

This notwithstanding, I draw back from giving a definitive answer to the question whether reference to the lex situs in this context includes or excludes reference to the private international law rules, if any, of that system of law. In the light of the illuminating discussion of the point in the High Court of Australia, it would I think be unwise so to do. If the rationale of the English lex situs rule is a policy decision by English law that the policy adopted by the foreign law should prevail, so then in any given case it would in my judgment be unwise to describe in advance that part of the foreign law which is to be applied, because in so doing the English court may adopt distinctions or characterisations unknown to the relevant foreign law. Put differently, one should not answer the question in advance in such a manner as may, inadvertently, preclude application of the policy adopted by the foreign law. In Neilson Heydon J concluded his judgment by pointing out, at page 421, that the result in that case turned on the specific content of Chinese legislation, not on the wider principles that each of the parties to the appeal advocated. It is for these reasons that I do not consider it appropriate or sensible to give a definitive answer to Issue 8 without first examining the specific content of whatever system or systems of law may prove to be applicable in the light of the answer to Issue 9. A further reason for caution in this case is my belief that in relation to the question of legal or registered title to a merchant vessel, many legal systems might well by reference to what we would perhaps characterise as a conflicts rule look to the law of the place of registration. My provisional answer to Issue 8 is therefore the domestic law of the situs, but English law has not in my judgment crystallized to the point where a different answer is simply impermissible. I cannot rule out that, paraphrasing what is said in Dicey at paragraph 4-023, the object of the English conflict rule in referring to a foreign law will on balance be better served by construing the reference to include what to English eyes are the conflict rules of that law but which may do no more than reflect the policy which has been adopted “at the lower level” as appropriate by the foreign law. I also believe that this cautious and issue-based approach broadly corresponds with that enjoined by Mance LJ in Raffeisen Zentralbank v. Five Star Trading LLC [2001] QB 825 at 840-841, paragraphs 26, 29 of his judgment.

Dicey suggests by Rule 120 that subject to exceptions a chattel is situate in the country where it is at any given time. The exceptions are stated to be a merchant ship, which may at some times be deemed to be situate at her port of registry, and a civil aircraft, which may at some times be deemed to be situate in its country of registration. The commentary on these two exceptions is short and I set it out below:

“22-058 A ship is not like an ordinary personal chattel, and there are dicta indicating that a ship is situate in law at her port of registry and not where she is physically situate from time to time. This rule was adopted for a limited purpose by the legislature [in relation to stamp duty on probates, now repealed] and would seem to be both convenient and sound in principle when the vessel is upon the high seas. Where, however, a vessel is within territorial or national waters the reasons for ascribing her a situs at her port of registry are not compelling, and the artificial situs is displaced by the actual situs. Thus the English courts would not recognise the validity of a foreign government’s interference with vessels wearing its flag present within English waters.

22-061 An aircraft is, as is a merchant ship, not like an ordinary chattel, and on grounds of convenience it is arguable that it should be ascribed a permanent situs in the country where it is registered regardless of where it may be physically present from time to time. Such an ascription would avoid difficulties which could arise in the case of an aircraft in flight over the high seas or a territorium nullius. The country of registration is given paramount importance in international conventions dealing with rights of property in aircraft, and this importance is reflected in the provisions of English law relating to the registration of aircraft. However, the reasons for the ascription of an artificial situs are not compelling when the aircraft is either on or over the territory of a country; and it may be that an aircraft is situate where it physically is for the time being unless it is either over the high seas or over or on territory which is not under the sovereignty of any State.”

The learned editors do not explain why they regard arguments which are convenient and sound in principle as nonetheless “not compelling” when the vessel or aircraft is within territorial or natural waters, or on or over national territory. The Claimants say that as the vessel has been in Thai water since before the CTL was paid the lex situs has at all material times been Thai law. As I understood them they contend, with Dicey, that the lex situs will only be that of the place of registration when the vessel is upon the high seas.

Only two authorities are said by Dicey to support the propositions stated in the text for, respectively, ships and aircraft. For ships the authority is one concerned with estate duty, Trustees Executors and Agency Co Limited v. IRC, [1973] Ch 254. A testator died domiciled in Australia. He owned a yacht, “Natalie”, registered in Jersey but usually berthed at Southampton when not in use. It would seem that he used the yacht for only about two months of each year so that the vessel was for about ten months of the year berthed at Southampton. After his death the executors sold the yacht for £40,000. The proceeds of sale were subject to estate duty unless at the date of death the yacht was “situate out of Great Britain”. At the date of death the yacht was berthed at Southampton. Pennycuick VC pointed out that unlike shares in a company, to which an artificial local situation has to be attributed, a ship does not, for the general purposes of the law, possess an artificial local situation, e.g. a situation dependent upon its port of registry. Thus a ship locally situate in England is treated for the purposes of the general law as being in England. Pennycuick VC cited a passage from Dicey & Morris, 8^th Edition, 1967 which is in almost identical language to that from paragraph 22-058 of the current edition which I have set out above, save that whereas in the current edition it is stated that when the vessel is within territorial or national waters the artificial situs is displaced by the actual situs, in the 8^th edition it was said that in such a situation “it would seem” that the artificial situs is displaced by the actual situs. Pennycuick VC expressed his agreement with the statement in the text which he paraphrased as meaning that so far as a ship registered abroad and locally situate here is concerned, the artificial situs is displaced by the actual situs. Pennycuick VC also discounted as unhelpful a dictum from Lord Wright in Compania Naviera Vascongada v. SS Cristina [1938] AC 485. That case was concerned with the efficacy of the requisition of a Spanish registered vessel by the Spanish State. Her owners attempted to arrest her at Cardiff. The arrest was not permitted as it would amount to impleading a foreign sovereign state without its consent, which was not then ordinarily permissible. It was in that context that Lord Wright said, at page 509:

“It must also be noted in the present case that the Cristina, even when in Cardiff docks, may have, as being a foreign merchant ship, a different status from an ordinary chattel on land.”

Of that observation Pennycuick VC remarked that it “does not go very far”. That is no doubt true. On the other hand Lord Wright’s observation does reflect the significance traditionally attached to the circumstance that a ship has a recognisable nationality, whereas most ordinary chattels do not. The same is probably also true of aircraft, although their place of registration may not perhaps be so prominently displayed or so readily recognisable except by the cognoscenti. The reasoning in the Trustees Agency case, unsurprisingly, has no real relevance to the question by what system of law a transfer of title to a ship should be regarded as governed, and indeed Pennycuick VC regarded as unhelpful authorities establishing that the purchaser of a ship acquires ownership irrespective of registration although title might require perfection by registration. Furthermore, whilst being cited in Dicey as support for the statement in the text in which the tentative “it would seem” has now been replaced by the positive “is”, Pennycuick VC did not for his part explain why the reasons for ascribing to a vessel a situs at her port of registry are less compelling when the vessel is in another port.

The authority cited in support of the still tentative proposition with regard to aircraft is Air Foyle Limited v. Center Capital Limited [2003] 2 Lloyd’s Rep. 753. At page 763 Gross J said:

“Although there is a somewhat tentative and limited suggestion in Dicey & Morris, The Conflict of Laws, 13^th Edition, paragraphs 22E-060-061 that an aircraft ‘may at some times be deemed to be situate in its country of registration’, there are overwhelming reasons for treating an aircraft as situate in the State where it physically is for the time being, at least unless it is either over the high seas or over or on territory which is not under the sovereignty of any state. Realistically, Mr Shepherd did not (or not seriously) contend otherwise.”

Gross J for his part did not set out what he considered those reasons to be, not surprisingly given that the point was apparently not seriously argued before him. This is presumably why the relevant paragraph in the 13^th edition of Dicey, which was in the same tentative form as it now appears in the 14^th edition, reproduced above, has not, like paragraph 22-058, been made more positive in tone.

In relation to ships, the choice between the law of the place of registry and the “actual” situs may often be academic. In circumstances where there is likely to be dispute between those with competing interests, ships will often be transferred by judicial sale in proceedings in rem. There is the high authority of the House of Lords in Castrique v. Imrie [1870] LR 4 HL 414 for the proposition that such a judgment will be recognised in this court. In such a case the law of the place of registry has no part to play. If the ship was so situated as to be within the lawful control of the state under the authority of which the relevant court sits, and if the sovereign authority of the state has conferred on that court jurisdiction to proceed in rem rather than simply inter partes, then the adjudication is regarded by this court as conclusive against all the world, irrespective that application of either the law of the place of registry or English law might produce a different result. See per Blackburn J giving the advice of himself as well as of Bramwell, Mellor, Brett and Cleasby JJ to the House of Lords in Castrique v. Imrie at pages 428-429, and per Lord Hatherley LC at pages 445-446. However I do not think that that decision assists in the current debate.

Before me the point not argued before Gross J in relation to aircraft has been argued in relation to ships. Mr MacDonald Eggers, for the First-Third Defendants, contends that I am bound by authority to conclude that for present purposes the lex situs is the law of the place of registration, at any rate of a merchant ship. The position so far as concerns aircraft was not argued before me. Nor however was it suggested that there is any sensible reason why the rule for aircraft should be any different from that for ships. It may be that the Fourth Defendants are unaffected by this debate. When they acquired title to the vessel, if they did, the vessel was unregistered. Everyone agrees that upon deregistration the lex situs became Thai law. Mr MacDonald Eggers, however, submits that at all relevant times before deregistration the lex situs was Dutch law.

The case on which Mr MacDonald Eggers relied as binding authority is Hooper v. Gumm [1867] LR 2 Ch App 282, a decision of the Court of Appeal in Chancery. However I do not consider that the case is authority for the proposition for which Mr MacDonald Eggers contends. An American registered ship was sold in England. The vessel was subject to two mortgages which were duly registered in the US Registry but notice of neither mortgage was endorsed on the certificate of registry. The purchaser in good faith had no notice of the mortgages. The shipbuilders who in fact sold the ship received the sale proceeds and became insolvent before discharging the mortgages. The mortgagees attempted to assert their title as against the purchaser in the English court, but failed as they were found deliberately to have suppressed notice of the mortgages so as to facilitate sale and moreover to have constituted the shipbuilder their agent to conclude the sale. The Court of Appeal held that the law of England governed the effect of the sale but that the question whether the mortgagees could establish legal title to the ship fell to be determined by American law. It is not altogether clear whether American law was regarded as relevant for that purpose because it was the place of registry or because the vessel was physically situate in the USA when the mortgages were executed. Lord Chelmsford LC says simply that the mortgagees’ legal title to the ship “would, of course, be determined by American law”. Turner LJ however said, at page 290:

“… In the case of American ships the laws of the United States provide the means of evidencing the title to them.”

That would seem to be a reference to the place of registration. It was certainly so treated by the Full Federal Court of Australia in Tisand Pty Limited v. Owners of the Cape Moreton (2005) FCA FC 68, (2005) 219 ALR 48 at paragraph 144 of the judgment.

Hooper v. Gumm does not therefore bind me to hold that, when considering the effect of the sale or transfer of a relevant vessel the lex situs which I have already determined is the governing law consists of the law of the place of registration rather than of the place where the ship is physically situate at the time of sale or transfer. Hooper v. Gumm is rather authority for the proposition that the law relevant for this purpose is indeed the law of the place where the vessel is physically situate at the time of sale or transfer. That of course does not preclude the law of the physical situs referring to the law of the place of registry in order to determine questions of pre-existing legal title, particularly where legal title depends on registration. That is precisely what happened in Hooper v. Gumm.

None of this touches the question which is the applicable lex situs to determine the existence of proprietary interests short of registered legal title which interests are said here to have been created in April, July or December 2008. The British Register deals only with legal title. Schedule 1 to the Merchant Shipping Act 1995 provides:

“(1)

Subject to any rights and powers appearing from the register to be vested in any other person, the registered owner of a ship or of a share in a ship shall have power absolutely to dispose of it provided the disposal is made in accordance with this Schedule and registration regulations.

(2)

Sub-paragraph (1) above does not imply that interests arising under contract or other equitable interests cannot subsist in relation to a ship or a share in a ship; and such interests may be enforced by or against owners and mortgagees of ships in respect of their interest in the ship or share in the same manner as in respect of any other personal property.”

It would seem that the position in Australia is the same – see Tisand at paragraph 158, where the relevant provisions of the Australian Shipping Registration Act are set out. There is no evidence before me as to the position in other jurisdictions although I suspect that ship registries generally deal only with legal title and not with other proprietary interests. Indeed as Robert Goff J pointed out in 1 Congreso del Partido [1978] QB 500 at 541 the special English institution of the trust and hence the dichotomy between legal and equitable ownership may form no part of the domestic law of many of the maritime states who are signatories to the Arrest Convention 1952. It follows that reference to the law of the place of registration has in this context no particular logical virtue, notwithstanding that it is natural that it is to the ship’s register that those who are interested first look, whether they be prospective purchasers, potential mortgagees, or insurers. They are likely to find there no trace of proprietary or equitable interests short of legal title.

Tisand was concerned with the question whether for the purpose of the Australian legislation giving effect to the 1952 Arrest Convention a purchaser whose legal title had not been perfected by registration was to be regarded as the “owner” of the ship or whether rather the “owner” was the registered owner who retained no beneficial interest. The ship was registered in Liberia at the date of arrest although her new beneficial owner who had recently purchased her had applied for provisional registration in Hong Kong. At the time of the transaction pursuant to which the purchaser acquired the beneficial interest the ship had been in Brisbane where delivery was effected pursuant to the bill of sale. The Full Court determined that the existence, nature and extent of the rights created or recognised by the sale and transfer of the ship was governed by the lex situs. They then turned to consider what was the situs of the vessel at the relevant date. As it happens, the choice was academic, since no evidence of foreign law had been adduced. The court therefore expressed no concluded view – see paragraph 148. The court nonetheless made the following observations:

“146.

There seem to us to be powerful reasons for giving effect to the law of the country of register as the lex situs in relation to questions of title, property and assignment (subject, of course, to local statute and public policy). The chance location of a working merchant ship in a port within its range of sailing or on the high seas appears to introduce an element of arbitrariness to the legal analysis. This is especially so if, as is likely, the national register and registration laws of the port in question are directed to ships of that country. If a law of a country other than the country of registration is chosen to deal with the assignment of property in a ship, it is likely that there will be no statute dealing with registration that is made relevant.

147.

The relevant choices appear to be the law of the forum, the law of the country of registry as the lex situs (and not merely when the ship is on the high seas), the law of the place of the ship if in another country’s territorial waters, and … the law of the domicile of the registered owner or operator.

148.

… Given the importance of the register in the workings of international maritime law and commerce and the importance of the law of the flag state in many contexts, it would be odd to decline to give effect to a statute of the flag state governing the transfer, or not, of rights created or recognised by the statute of that country. Particularly for reasons of clarity and certainty in commercial dealings and conformity with notions of ship nationality, there is much to be said for regarding the situs of a merchant ship as its country of registry. These circumstances also commend the relevance and admissibility of evidence of the law of the flag state as to the role and effect of the register, in particular whether it gives title or rights by the fact of registration or merely acts as a prima facie record of such matters, and what recognition it gives to rights created by transactions dealing with the ship before registration. One is assisted to these views by the recognition of the fact that, if Australian law governs the questions solely, as the law of the forum, or the lex situs of the ship at the time of delivery, the question of who was ‘the owner’ in the proprietary sense would be determined without regard to any statute dealing with registration and its legal consequences. The Shipping Registration Act would be irrelevant because it only deals with Australian-owned ships. It would be similarly anomalous if the law of the country of domicile of the buyer or seller dealing with the registration of ships (if that were not the flag state’s law) were treated as relevant to the ascertainment of rights passing or created in a transaction by way of assignment.”

Although the Full Court cited Hooper v. Gumm, its preference was therefore for an analysis at odds with the decision in that case that English law governed the effect of the sale concluded when the ship was physically situate in England. Furthermore if my approach to Issue 8 is correct, it cannot be excluded that the lex situs would give effect to a statute of the flag state governing the transfer of rights created or recognised by that statute.

The question I have to decide is whether the lex situs is here to be regarded as Dutch law, the law of the place of registry, for the purpose of determining the incidence of proprietary interests in the vessel prior to deregistration. However it is worth bearing in mind that had the vessel not been deregistered Mr MacDonald Eggers would presumably have been contending that Dutch law likewise governs the effect of the purported sale and transfer of the vessel to the Fourth Defendants. That would involve a departure from Hooper v. Gumm.

Mr Milligan rightly points out that in terms of practical considerations there is little to distinguish a ship’s register from a share register. Adoption of the place where the register of shares in a company is kept as the situs of the shares would have afforded a simple answer to the question debated at such length by Millett J and by the Court of Appeal in Macmillan v. Bishopsgate. The reasoning in Macmillan cannot of course be understood without paying careful attention to the characterisation of the issue to which it was directed. Thus if transfer of shares may be effected only by registration on a particular register, the shares must inevitably be regarded as situate at the place where the register is kept for the purpose of ascertaining the efficacy of any purported transfer. However for the purpose of ascertaining the priority of competing proprietary or security interests falling short of registered ownership, only Auld LJ in the Court of Appeal seemed to regard the law of the place where the register is kept as significant – see [1996] 1 WLR 387 at 411E. In that case however the place of incorporation, the place where the share certificates were at the time of the relevant transactions and the place where the share register was kept were all the same, New York, so the point did not need to be decided.

On the other hand adoption of a rule whereby the lex situs of a registered ship (or indeed aircraft) is always regarded as the law of the place of registration would create an additional exception to the general rule that issues as to rights of property are determined by the law of the place where the property actually is, both in relation to land and in relation to chattels – see per Staughton LJ in Macmillan at page 399G. I am not bound by authority to recognise such an exception. Except in relation to registered legal title, the register itself will probably usually be uninformative. Moreover the place of registration will often have no connection whatever with the ownership, financing, management and insurance of the vessel. The place of registration is in this sense often a most artificial situs. It seems to me likely that, so far as concerns questions of legal title, most systems of law would inevitably, in consequence of their own conflict rule, look to the law of the place of registration. Since however the register would not ordinarily be concerned with interests falling short of legal ownership, I can see no compelling reason for regarding the law determining the incidence of such rights as being the law of the place of registration as opposed to the physical situs of the vessel at the time when such rights are created. That being so, I can see no justification for creating an exception, or a further exception, to the general rule. It is also comforting to reach the same conclusion as the learned editors of Dicey, Morris and Collins. The answer to question 9 is thus Thai law.