St Paul Travelers Insurance Company Ltd v Dargan & Anor

An insurer exercising subrogation does not thereby acquire a proprietary interest in the assured’s underlying cause of action. The insurer may require the assured to sue, or may join the assured to proceedings, but cannot sue directly in its own name without an assignment.

For the purposes of section 181 of the Insolvency Act 1986, an applicant for a vesting order must claim an interest in the disclaimed property and be entitled to it. A subrogated insurer’s right to pursue the assured’s claim is insufficient. The existence of an equitable lien over recovery proceeds does not establish a proprietary interest in the antecedent cause of action. The application was therefore dismissed.

Ballast plc, a company in liquidation, had a potential contractual claim against Mott MacDonald Ltd concerning allegedly defective engineering design. St Paul had indemnified Ballast for much of the resulting loss and claimed a right of subrogation.

The liquidators disclaimed Ballast’s interest in the claim under section 178 of the Insolvency Act 1986. St Paul applied under section 181 for the claim to vest in it and sought declarations that the claim remained enforceable despite the disclaimer, insolvency set-off and Ballast’s subsequent dissolution.

The central questions were whether St Paul had the necessary interest and entitlement for a vesting order, and whether section 178(4)(b) preserved its ability to pursue the claim.

1. Application dismissed. St Paul did not have the interest or entitlement required by section 181 of the Insolvency Act 1986.
2. Section 181 requires an applicant to claim an interest in the disclaimed property and to be a person entitled to it. The relevant interest must be proprietary. St Paul’s subrogation rights did not satisfy that requirement.
3. Subrogation does not transfer the assured’s cause of action to the insurer. The cause of action remains vested in the assured unless assigned. The insurer may compel the assured to allow its name to be used, or may join the assured to proceedings, but cannot proceed directly in its own name.
4. The authorities supported a distinction between an insurer’s equitable proprietary interest in proceeds recovered from a third party and the absence of a proprietary interest in the underlying cause of action. The unresolved observations in Napier and Ettrick v Hunter did not establish that the latter interest existed.
5. The court rejected the proposed alternative argument under section 178(4)(b). That provision preserves the rights and liabilities of other persons only so far as the statutory wording requires. It did not preserve St Paul’s subrogated ability to pursue the claim after Ballast’s dissolution. St Paul was not an assignee.
6. The issue concerning the effect of insolvency set-off did not arise. If it had arisen, the disclaimed property would have been the claim subject to any cross-claims. The liquidators’ later letters did not reasonably settle the account in Mott MacDonald’s favour.