BY Gregory Pantin, Akeen Lopez
Contracts and agreements form the foundation of many business arrangements. Contractual inconsistencies have the potential to cause significant hardship to business operations, strain commercial relationships and result in costly disputes. The English High Court in MS Amlin Marine NV (on behalf of MS Amlin Syndicate AML/2001) v King Trader Ltd and other companies [2024] EWHC 1813 (Comm) (the ‘Amlin Case’) was tasked with resolving one such dispute. This article seeks to provide a brief overview of the decision in the Amlin Case and the approach taken by the court in navigating conflicting contractual terms.
The Facts and Decision in the Amlin Case
In the Amlin Case, Bintan Mining Corporation (‘BMC’) chartered a vessel from King Trading Ltd (‘KTL’) in 2017. The vessel became grounded in 2019 and BMC eventually went into insolvent liquidation in 2021. In arbitration under the London Maritime Arbitrators Association, BMC was ordered to pay in excess of US$47 million in respect of the grounding.
In 2018, Amlin, the insurer, issued to BMC a policy of charterer’s liability insurance. The policy was comprised of an insurance certificate and the insurer’s booklet entitled “Charterers’ Liability: Marine Liability Policy 1-2017”. The booklet was a single document made up of five parts (parts 1-4 each setting out a specific class of insurance).
Part 1 was headed ‘Charterer’s liability’ and Part 5 was headed ‘General terms and conditions’. Part 1 contained the insurance clause whereby BMC was indemnified by Amlin against legal liabilities, costs and expenses under that class of insurance. Part 5 contained a hierarchy clause whereby the terms and conditions in each class of insurance were to prevail over the general terms and conditions in the event of a conflict between them. Part 5 included what is known as a ‘pay to be paid’ or ‘pay first’ clause which required that the assured first discharge any loss, expense or liability before having any right of recovery under the policy.
Amlin initiated the proceedings seeking to obtain a determination that no indemnity was payable under the policy since BMC had not discharged the legal liability for which indemnity was sought.
KTL and the Korea Shipowners’ Mutual Protection & Indemnity Association advanced an inconsistency/repugnancy argument based on the following elements:
* The insured event is the ascertainment of legal liability by the final judgement of a court, tribunal or judicial body (this is the main purpose of the policy); not the ascertainment of legal liability and the discharge of that liability by payment by the insured;
* The ‘pay first’ clause is repugnant or inconsistent with the main purpose of the policy and should therefore be read down; and
* Where a clause that occupies a lower place in the contractual hierarchy negates or denies the effect of a clause enjoying higher contractual status, the subsidiary clause should not be incorporated into the contract or, alternatively, should be read down to ensure it does not have such effect.
The court rejected the inconsistency/repugnancy argument reasoning that:
* The ‘pay first’ clause was not repugnant to the certificate of insurance as the terms of the overall policy were set out in the booklet and no sensible reader could have expected that all the terms of the policy would have been set out on the certificate;
* The ‘pay first’ clause was not repugnant to the main purpose of the policy since that was exactly what ‘pay first’ clauses were intended to achieve and ‘pay first’ clauses can co-exist with the main purpose of providing liability cover; and
* The ‘pay first’ clause was not inconsistent with the other general terms and conditions such as the provision which allowed Amlin to terminate the policy on BMC’s insolvency but preserve BMC’s right to be indemnified in respect of incidents occurring before termination.
This is because the rules of Protection and Indemnity Clubs (i.e. an association of shipowners who pool their resources to provide insurance to members) generally provide for the termination of membership on a member’s compulsory winding up, the appointment of a receiver or if possession is taken of the member’s assets but nonetheless preserve liability for claims arising prior to termination. Further, the fact that an insured is insolvent does not mean that it is unable to discharge any part of its liability.
The court therefore concluded that the ‘pay first’ clause was not repugnant or inconsistent with the certificate of insurance, the main purpose of the policy or the other general terms and conditions and therefore was not required to be read down.
Interpretation considerations and conclusion
The court noted that arriving at the correct answer in resolving a conflict between contractual terms would depend on the application of the following principles:
1) Where the alleged inconsistency is between a clause specifically agreed for the contract in issue (sometimes referred to as ‘typed’ or ‘bespoke’ terms), and a provision in an incorporated set of pre-existing printed terms (sometimes referred to as ‘printed’ or ‘boilerplate’ terms), it will be open to the court to find that the printed or boilerplate term is not incorporated at all, or, if it is, the court will be more ready to give it a more narrow or restricted meaning (i.e. read it down);
2) Where the alleged inconsistency is between two clauses which appear in a single document, it will be difficult to argue that one of the clauses was not incorporated, and the court will be more likely to conclude that the clauses were intended to co-exist and construe them accordingly;
3) In determining whether and to what extent two clauses can co-exist, it is relevant to consider whether giving effect to the supposedly repugnant clause will leave the more substantive clause with a real and sensible content, and, if the subsidiary clause is to be read down, whether it will be left with a meaningful and sensible content. The combined reading must therefore be tested against the touchstone of commercial commonsense by asking: is this an apportionment of risk which the parties could reasonably be supposed to have intended?; and
3) There will be greater readiness to read down, or if necessary, read out a subsidiary clause which is inconsistent with a provision which forms part of the main purpose of the contract, or which is inappropriate to the main contract into which it is to be incorporated.
Various strategies can be employed to minimize contractual disputes. For example, parties in the manufacturing, industrial machinery, maritime, oil and gas sectors and those who regularly engage with the State/State agencies, can ensure that contract packages are based upon the incorporation of terms and forms set out in RFPs or tenders.
Additionally, more sophisticated contracts can be drafted to expressly provide for the priority of contractual documents/clauses in an order of precedent. However, even with these precautions, the potential for disputes remains as contractual language and commercial interests can still give rise to different interpretations (as aptly illustrated in the Amlin Case).
Although the Amlin Case hinged on an insurance policy in the context of maritime ventures, the court helpfully summarised the general principles applicable to the resolution of inconsistencies in a contract. Given the recency of the Amlin Case, it remains to be seen whether the case (and by extension the proposition of these general principles) would be taken up on appeal. Still, until then, drafters and contractual parties should be guided by these principles in the negotiation, drafting and interpretation of their agreements.
Gregory Pantin is a partner and Akeem Lopez is an associate at M. Hamel-Smith & Co. They can be reached at mhs@trinidadlaw.com
Disclaimer: This column contains general information on legal topics and does not constitute legal advice.
