Insolvency at Sea (again)—Court of Appeal upholds ‘pay first’ clauses in marine insurance policy (MS Amlin v King Trader)
Commercial analysis: In MS Amlin Marine NV (on behalf of MS Amlin Syndicate AML/2001) v King Trader Ltd & others, the Court of Appeal dismissed the owner’s and P&I club’s appeal and upheld the Commercial Court’s declarations that a ‘pay first’ clause in a charterers’ liability policy defeated a direct claim under the Third Parties (Rights against Insurers) Act 2010 TP(RAI)A 2010. The court (Vos MR, Lord Justice Singh and Lord Justice Males) rejected arguments that the clause conflicted with the insuring clause, that it was ‘onerous’ and insufficiently signposted under the so‑called ‘red hand’ rule, and that it was not incorporated. It reframed the red hand rule as the ‘onerous clause doctrine’, emphasising a high threshold before commercial standard‑form terms will require special notification—particularly where the insured has specialist brokers. For practitioners, the case gives clear guidance on: (i) reconciling alleged inconsistencies, (ii) when hierarchy clauses bite, and (iii) how and when the onerous clause doctrine applies in negotiated commercial insurance. Written by Tom Bell, barrister at Gatehouse Chambers.
MS Amlin v King Trader [2025] EWCA Civ 1387
What are the practical implications of this case?
Pay first clauses. According to TP(RAI)A 2010, s 9(5), the general rule is that ‘pay first’ clauses are disregarded with respect to third-party claims against insurers under the Act. However, section 9(6) preserves the validity of such clauses in marine insurance policies, except when the claim is in respect of death or personal injury. Consequently, if a marine insurance policy contains a valid pay first clause and the insured is insolvent, the 2010 Act becomes largely ineffective.
In MS Amlin, the Court of Appeal dismissed arguments seeking to challenge a pay first clause based on contractual interpretation, affirming that the clause did not conflict with the insured’s primary right to indemnity under liability insurance.
Contractual consistency and hierarchy clauses. The Court of Appeal held that courts strive to read policies harmoniously, not look for conflict. A hierarchy clause giving priority to the certificate/insuring clause over general terms only engages on a true conflict; a ‘pay first’ condition precedent qualifies payment mechanics, without contradicting an indemnity for established liability. This reinforces the approach in authorities such as Septo Trading Inc. v Tintrade Ltd (The Nounou) [2021] EWCA Civ 718, Alexander v West Bromwich Mortgage Co [2016] EWCA Civ 496, and Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565, and should temper reliance on hierarchy clauses where provisions can reasonably be reconciled.
Onerous clause doctrine (formerly ‘red hand’). The court’s reframing underscores a high bar before a term is ‘particularly onerous or unusual’ and thus requires prominent signposting. In marine markets, ‘pay first’ involves a familiar allocation of risk, and where the assured is advised by specialist brokers, the doctrine will rarely (if ever) bite. Insurers should still draft and signpost clearly, but insureds will struggle to avoid standard risk‑allocation terms by invoking ‘red hand’ arguments.
Bottom line: This is now a leading authority on pay first clauses, inconsistency, hierarchy clauses, and the limits of the onerous clause doctrine in brokered placements.
What was the background?
The owner King Trader Ltd time‑chartered the vessel ‘Solomon Trader’ to Bintan Mining Corporation (the Charterer). The Charterer took out a marine insurance policy from MS Amlin Marine NV. In February 2019, the vessel grounded in the Solomon Islands. In March 2023, an LMAA tribunal (Hong Kong) awarded more than US$47m against the Charterer in favour of the owners and their P&I club (Korea Shipowners’ Mutual P&I). The Charterer became insolvent. The owners and club sought to proceed directly against the insurer under the TP(RAI)A 2010.
MS Amlin sought declaratory relief that a ‘pay first’ condition precedent in the policy’s general terms meant no indemnity was payable unless the Charterer first discharged its liability—which was of course impossible given the Charterer’s insolvency. Foxton J in the Commercial Court accepted this and made the declarations: the clause was incorporated and enforceable, not inconsistent with the insuring clause, and its effect survived the statutory transfer under the TP(RAI)A 2010 (given the marine insurance carve‑out for non‑personal‑injury liabilities). The owners and club appealed.
What did the court decide?
No inconsistency and hierarchy clause not triggered. The court applied the orthodox approach of reconciling terms where possible. Although the insuring clause promised indemnity for established ‘legal liability’, the ‘pay first’ clause regulated the enforceability of that right. There was no ‘conflict’ engaging the hierarchy clause that meant the insuring clause trumped the pay first clause.
Onerous clause doctrine (formerly ‘red hand’). The Master of the Rolls renamed the red hand rule as the ‘onerous clause doctrine’: a particularly onerous or unusual term in one party’s standard terms will not bind the other (absent actual knowledge) unless it is fairly and reasonably brought to that party’s attention. On the facts, a ‘pay first’ provision in a marine liability policy did not meet that threshold. Further, where an insured is represented by specialist brokers, the doctrine will rarely apply.
Incorporation and TP(RAI)A 2010. Crucially for insurers, the court saw no reason to doubt that the general terms—and the pay-first condition within them, had been properly incorporated. It also held that TP(RAI)A 2010 does not disapply ‘pay first’ in marine insurance except for death/personal injury claims. Third parties take subject to the same defences and preconditions—consistent with the House of Lords’ approach in Firma C-Trade SA v Newcastle Protection and Indemnity Association and Socony Mobil Oil Inc v West of England Shipowners Mutual Insurance Association (London) Ltd (The Fanti and The Padre Island) [1991] 2 AC 1. In other words, if an insured under a marine policy with a pay-first clause incurs a third-party liability but lacks the means to pay, then the third-party victim cannot recover from the insurer directly under the 2010 Act (unless the claim relates to death or personal injury).
Case details
- Court: Court of Appeal, Civil Division
- Judges: Sir Geoffrey Vos MR; Lord Justice Singh; Lord Justice Males
- Date of judgment: 5 November 2025
Article by Thomas Bell
First published by LexisNexis
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