This case concerned a claim by a demise charterer against a sub charterer, based on the demise charterer’s own liability to the head owner for the demise charterer’s alleged breach of a safe port warranty. It was held that there had been no such breach, which was the end of the matter.

However, the Supreme Court went on to consider whether, had there been a breach of the safe port warranty, the rights of the head owner or the subrogated rights of his insurer against the demise charterer would have been precluded by virtue of the demise charterer’s contractual obligation to insure the vessel to protect the interests of both the head owner and the demise charterer, so that the demise charterer would have had no liability to pass on to the sub charterer.

As to this, there was a divergence of opinion.

Lord Clarke held there to be no preclusion of the rights of the head owner (or his insurer) against the demise charterer. Clear words would be required in order to exempt the demise charterer from liability for breach of the safe port warranty in exchange for paying for hull insurance. As such, the insurance was none of the sub charterer’s business.

Lord Sumption held that the preclusion of the right to claim damages could either be based upon an implied term of the contract between the co-insureds or upon the insurer’s payment having made good the loss as between the co-insureds. Which was the correct analysis in any case would depend upon the particular terms of the particular contract. In this case, Lord Sumption based the preclusion of the rights of the head owner (or his insurer) against the demise charterer upon the insurer having made good the loss as between the co-insureds. However, the fact that the insurer had made good the loss as between the co-insureds did not mean that it had done so as between the demise charterer and the sub charterer, and so, again the insurance payment was none of the sub charterer’s business.

The majority, comprising Lords Mance, Toulson and Hodge, considered the preclusion of the rights of the head owner or his insurer against the demise charterer to be based upon an implied term of the contract between the co-insureds. The commercial purpose of co-insurance is first to create a fund which is the sole avenue for making good the loss and secondly to avoid litigation. It would be nonsensical if those parties who were co insured would nevertheless make claims against one another, whether subrogated or not. In this case, the contractual scheme between the head owner and the demise charterer, whereby the demise charterer undertook to insure the vessel to protect the interests of both the head owner and the demise charterer, precluded any claim by the former against the latter for the insured loss of the vessel, and therefore the demise charterer had no liability to pass on to the sub charterer, and so the insurance arrangements were very much the sub charterer’s business.

This case has important ramifications in the construction industry, where it is common for contracts to provide for co-insurance of employers’, contractors’ and sub-contractors’ interests in contract works.