Dornoch Ltd & Ors v Westminster International BV & Ors

Under the Marine Insurance Act 1906, payment for a constructive total loss does not, without more, create an equitable lien over the wreck where underwriters have declined abandonment and have neither elected to take over nor disclaimed the wreck. An insurer who makes an irrevocable promise to pay and irrevocably elects to take over may obtain security by equitable lien before payment.

In a subscription market, each insurer has a separate contract and may elect to take over its proportionate interest. A partial election is effective and gives the electing insurers a corresponding beneficial interest. The proprietary effect of a transfer of a vessel is governed by the lex situs. The court provisionally treated that as the domestic law of the physical situs, but declined to decide abstractly whether renvoi may apply.

The vessel WD Fairway became a constructive total loss after a collision. Its hull and machinery risks were insured under primary and excess policies. The underwriters paid the constructive total loss and salvage and, later, most underwriters expressly elected to take over the vessel.

The registered owner then purported to sell the unregistered wreck for €1,000 to a related company without the underwriters’ consent. The parties agreed facts for determination of preliminary Phase 1 issues concerning abandonment, subrogation, equitable liens, beneficial ownership, partial elections, sale rights and the applicable law. The central questions included whether the underwriters had acquired proprietary interests and whether those interests survived the purported transfer.

1. Equitable lien after payment. Payment for a constructive total loss did not itself give the underwriters an equitable lien over the wreck. They had declined notice of abandonment and had not, on the assumed facts, elected to take over or disclaimed their interest. Equity need not secure benefits which the insurer could obtain by electing under sections 63(1) or 79(1) of the Marine Insurance Act 1906. Imposing a lien would give the insurer benefits without the corresponding burdens of ownership and would add an obligation not found in the statutory scheme.

2. Salvage payment. Payment of the salvage and wreck-removal claim did not amount to an implied election to take over the vessel. The policy expressly provided that acts in recovering, saving or preserving the insured property did not waive or accept abandonment. The payment likewise created no equitable lien, subject to an unargued question concerning any maritime lien.

3. Partial election. Each subscribing insurer had a separate contract. An insurer which had paid its proportion of the total loss could independently elect to take over the corresponding proportion of the assured’s interest. It was unnecessary for all insurers to elect. The contrary argument would make an insurer’s rights depend on the insolvency or inaction of another subscriber.

4. The electing insurers became co-owners in equity with the assured in their respective proportions. They were entitled to have the appropriate whole shares transferred and registered in their names, with any residual fraction held on trust for the owners and insurers in their respective proportions. The court expressed no concluded view on whether deletion from the Dutch register made the insurers legal co-owners.

5. An election made after the purported sale was ineffective if the assured had thereby divested itself of legal title. If earlier electing insurers had only equitable interests, those interests were extinguished by a bona fide purchase of the legal estate for value without notice. If they had already become legal co-owners, the transfer could not pass more than the transferor possessed.

6. A majority legal owner could obtain possession to the exclusion of a minority owner and could apply under section 188(1) of the Law of Property Act 1925 for judicial sale. In a judicial sale, the court determines the mode of sale with the aim of achieving the highest price; no interested party may dictate that mode. The court left unresolved the practical rights of equitable co-owners to compel transfer or sale where a minority beneficial interest remained.

7. The relevant law for proprietary interests in the vessel was the lex situs. The court provisionally treated this as the domestic law of the situs, while declining to determine in the abstract whether the reference could include the situs’s conflict rules. The answer depended on the specific content of the applicable foreign law.

8. The vessel was physically in Thai waters when the relevant interests arose and when the purported transfer occurred. The lex situs was therefore Thai law. Registration in the Netherlands did not necessarily displace the ordinary rule for interests falling short of registered legal title.