Lloyd's Maritime and Commercial Law Quarterly
CARGO INSURER’S CHOICE BETWEEN SUBROGATION, EQUITABLE ASSIGNMENT AND LEGAL ASSIGNMENT IN PROCEEDINGS IN HONG KONG
Catriona Simpson *
There is a widespread practice among those maritime lawyers in Hong Kong who act for the insurers of cargo, automatically to begin proceedings in the name of the insured in reliance upon the insurer’s rights in subrogation. This article explores whether subrogation is always available and whether it is always the best way of proceeding.
The doctrine of subrogation
Simply stated, the doctrine of subrogation is the process by which A is able to stand in the shoes of B and enforce against C rights corresponding to those B had against C in law or equity. A’s right to stand in B’s shoes derives from a payment by A to B which either reduces or extinguishes the liability of C or potentially reduces or extinguishes the liability of C. Whether the benefits to C are actual or merely potential depends on the circumstances of A’s payment to B. Where C authorizes or subsequently ratifies A’s payment to B, C’s liabilities to B will be reduced or extinguished by A’s payment. The authority or ratification enables A to be characterized as C’s agent in the context of the payment. C’s liability to B will also be reduced or extinguished by A’s payment where A is legally compelled to pay B or pays out of necessity or where A has a present interest in C’s property.
If C’s liability to B has been reduced or extinguished, it is clear that C has benefited from A’s payment. If C were permitted to retain this benefit, C would be unjustly enriched at A’s expense. Allowing A to be subrogated to B’s rights against C is a means of preventing C’s unjust enrichment. However, as A’s payment has reduced or extinguished C’s liability to B, B has fewer or no rights against C to which A can be subrogated. Consequently, B’s extinguished rights are fictionally revived for the benefit of A.1 In this instance, subrogation operates so that A may sue C in respect of the revived rights in A’s own name.
Where C has neither authorized nor subsequently ratified A’s payment to B and the payment was made neither under legal compulsion nor as a matter of necessity, the payment to B will not extinguish C’s liability to B.2 Consequently, C does not benefit from A’s payment to B but has only potentially benefited insofar as it is less likely that B will
* Lecturer in Law, City University of Hong Kong.
1. In his leading work, Dr Charles Mitchell, The Law of Subrogation (Oxford, 1994), refers to this type of subrogation as “reviving subrogation”.
2. Mason v. Sainsbury (1782) 3 Doug. K.B. 61, 64, per Lord Mansfield; Yates v. Whyte (1838) 4 Bing. (N.C.) 272, 283, per Tindal, C.J.; Hobbs v. Marlowe [1978] A.C. 16, 34, per Viscount Dilhorne; Lord Napier and Ettrick v. Hunter [1993] A.C. 713, 741, per Lord Goff of Chieveley.
129