MS Amlin Marine NV v King Trader Limited & Ors

A pay first clause in a marine liability policy can qualify the insured’s right to enforce an indemnity without negating the insurer’s underlying obligation. The indemnity may fall due when liability is established, while enforcement remains conditional on prior payment.

The onerous clause doctrine applies only to a particularly onerous or unusual term which was not actually known and was not fairly and reasonably brought to the other party’s attention. The threshold is high, especially in commercial insurance. Common market terms and the involvement of a professional broker are important contextual factors.

The insurer issued a marine liability policy to the charterer of a vessel. After the vessel grounded, the owner and protection and indemnity club obtained an arbitral award exceeding US$47 million against the charterer, which was insolvent and had not paid the award. The owner and club acquired the charterer’s rights against the insurer under the Third Parties (Rights against Insurers) Act 2010.

The High Court, in [2024] EWHC 1813 (Comm), declared that the policy’s pay first clause was incorporated, enforceable and survived the statutory transfer of rights. The appeal challenged that conclusion on inconsistency, onerous clause and incorporation grounds. The central issues were whether the pay first clause conflicted with the insuring clause and whether it was sufficiently brought to the insured’s attention.

Appeal dismissed unanimously. The Court of Appeal also dismissed the insurer’s application to adduce further evidence. The parties had chosen a paper-based Civil Procedure Rules 1998 Part 8 procedure and had not adduced evidence at trial about contractual formation, the insured’s knowledge or market usage. It was too late to fill those evidential gaps on appeal.

1. Inconsistency. The hierarchy clause required the specific Class 1 terms to prevail over the general terms in the event of conflict. The case was therefore approached in the same way as Glynn, Pagnan, Alexander and The Nounou. The question was whether the clauses could be read fairly and sensibly together, having regard to practical commercial considerations, the main purpose of the contract and whether the printed term deprived the specific term of practical effect.
2. The pay first clause qualified and supplemented the insuring clause; it did not negate it. The indemnity could fall due when the arbitral award established liability, while enforcement remained conditional upon the insured first paying the liability. The two provisions could therefore operate together. The statutory background supported that conclusion: section 9 of the Third Parties (Rights against Insurers) Act 2010 did not remove pay first clauses from non-personal-injury marine insurance.
3. Onerous clause doctrine. A particularly onerous or unusual term in standard conditions will not bind a party who did not actually know of it unless it was fairly and reasonably brought to that party’s attention. Onerousness, unusualness and sufficiency of notice are questions of fact and degree. The doctrine has a high threshold and should not be reduced to a formal sliding-scale test.
4. The pay first clause was neither unusual nor sufficiently onerous to engage the doctrine. Such clauses are prevalent in marine insurance. The insured was represented by a professional marine insurance broker, and the certificate clearly referred to the attached booklet and its general conditions. The commercial context and broadly equal bargaining position also militated against intervention.
5. Incorporation. The certificate, read with the attached booklet, incorporated Part 5. The absence of an express reference to Part 5 in the Class 1 insuring clause did not alter that conclusion. The High Court’s declarations were upheld.

Lord Justice Males added that the effect of pay first clauses against third parties was ultimately a matter for Parliament.

1. Court of Appeal (Civil Division): in [2025] EWCA Civ 1387, dismissed the appeal on all three grounds.
2. High Court of Justice, Commercial Court: in [2024] EWHC 1813 (Comm), made declarations that the pay first clause was incorporated, enforceable against the charterer and effective after the transfer of rights under the Third Parties (Rights against Insurers) Act 2010.