Protecting the rights of the insurers

Dornoch Ltd v Westminster International BV (No 2) [2009] EWHC 1782 Admlty concerned a blatant attempt by the insured to use an intra-group transaction to keep its vessel out of the hands of its insurers who had made payments for a constructive total loss. In this ‘Phase 2 judgment’ of Mr Justice Tomlinson, the insurers successfully invoked the jurisdiction under s423 of the Insolvency Act 1986 to frustrate the attempt. The case is discussed by Roger Stewart QC and Jonathan Hough of 4 New Square.

Dornoch Ltd: the facts

The case concerned a mega-size hopper dredger, WD Fairway, owned by the first defendant, which was damaged off the coast of China in March 2007. The Claimants were the excess layer underwriters of a hull and machinery policy. After notice of abandonment had been tendered and declined, the dredger was towed to a dockyard in Thailand. The primary and excess layer insurers made payments for constructive total loss in their respective proportions at an early stage, but did not at that point elect to take over the vessel.