The Complexities of Legal Business and Challenges for HOL and Courts - Essay Example

Introduction: In the Fanti and the Padre Island cases, two autonomous applicants filed an appeal to the House of Lords (HOL) to seek remedy in opposition to protection and insurance organizations. These cases highlighted the connection between the ‘pay to be paid’ clause and the Act of 1930. Coming first to the Fanti Case, the holders of the Fanti were associates of an insurance society. The document of insurance consisted of the ‘pay to be paid’ rule. In 1983, during an expedition, the vessel Fanti started to drown and was rescued by a pick up tug. Later the vessel and the tug were cast off to the salvors. Since no amount was paid to the salvors by the holders of the vessel, the salvors filed a petition for a closing order against the holders and also against the P and I club as per the 1930 Act. The insurers denied paying the amount. Next, in the Padre case, the holders of the Padre Island entered their container with the respondent club. The document of indemnity consisted of the ‘pay to be paid’ clause which laid that the club has the duty to compensate members for the damage caused or claims they had been accountable to pay, or the amount they have paid. The petitioners challenged against the holders of the Padre Island for consignment claims and for denying the compensation plead for an order for closing. The petitioners then claimed against the P and I club as per the 1930 Act. For a second time the insurers declined to pay. Since no amount was paid to the salvors by the owners, they filed a petition against the owners and also made a claim against the Club on the basis of the Third Parties (Rights against Insurers) Act 1930. In these two cases, the main issue which came before the court was whether the liberty of a third party against an insurance company came under the original expression in the document that is the “pay to be paid” law. In the Fanti case, the document consisted of the requirement of “pay to be paid rule” according to which the insurer had no liability to compensate the assured unless he himself had paid the amount. “Through this clause the P & I club can only be forced to pay the insured ship owner if the latter has paid the damages to the injured party first. This theory is logical as the insurance contract can only cover (indemnify against) actual losses of the insured and the loss of the insured is only suffered once the money leaves his property.” (Loss of Insurance Cover Under a Direct Action in Marine Liability Insurance). These decisions gravely reduce the worth of the legislation of 1930 for the third party applicants who seek to claim from the P and I clubs whose regulations come under the English law. The same problem arises in other nations also like the United States. This clause has been made in order to evade compensation to the owner of the ship which would not provide assistance to the prejudiced person. In this particular case, the issue which arose before the court was whether the application of the pay to be paid rule deviated from the provisions of the 1930 Act. It was held by the court that the rule creates a stipulation precedent. “As such, the insured had to pay the claim before it was entitled to any indemnity under the insurance policy. The 1930 Act had not intended to put the third party in a better position than that of the original insured. As such, the insurers (or the P&I Club in this case) were able to avoid a claim under the 1930 Act. This was the case even though the insured's liability had been incurred and established.” (The Problem). It was also criticized by certain persons that there is a possibility that the P and I clubs may utilize the pay to be paid clause in order to escape from their responsibility of dimnifying the insurers or their kin in the cases of private injury, casualty or death. It is always beneficial to the third party because he has the right to claim from the club in circumstances where the assured is in an unsure fiscal condition. Even though the person who claims has the liberty to take action on the club, these rights can be crushed by the “pay to be paid” clause in the P and I insurance contract. Such a clause in the P and I insurance contract will eventually make certain legislations out of action. But in the circumstances when the insured becomes bankrupt, an apparent difficulty arises since the insured will be unable to pay to the prejudiced person because of his insolvency. “In the event of the claimant obtaining a judgment against a ship owner, which it is unable to satisfy due to its insolvency, the Third Parties (Rights against Insurers) Act 1930 allows the claimant to assume the rights of the ship owner as against its liability insurer.” (Chapter 1: The Commercial Background).. But straight action in opposition of the insurer will be discouraged because the laws of all P and I requires a condition of compensation which the assured has to resolve. The judgment of the House of Lords in these cases brought ambiguity especially when the insurers are Protection and Insurance Clubs and also in the situations when it is applied to maritime insurance cases. The Fanti and The Padre Island case, being the first case, contains the act of a third groups in opposition to the relevant P&I associations in the issues of affiliate liquidation. These two issues are vital for the growth of English rule in connection with the ‘Pay to be Paid’ section .The Act 1930 was planned to overcome the precise injustice to maintain under a liability of the indemnity being situated within the general dissolving pot of an insolvency of allotment of all the property. At the same time as it can be attained this, a variety of extra unfairness were ignored. “Section 1 of the1930 Act provides that where, under a contract of insurance, a person is insured against liabilities to third parties which they may incur then, in the event of the insolvency of that person (or company) and also The Act expressly provides that any attempt to contract out of these provisions or alter the rights of the parties upon the happening of an act of insolvency shall be null and void.” (The Problem). In the case of an agreement of insurance that is among the promoter and the insurance party, the shipment or the cargo holder does not possess any hold to implement the agreement and also at the same time they don’t have any right to ensues under the rule. This efficiently uninvolved reason of the insurance and how discreetly the cargo owner proceeded in guarantee with the intention of his appointed promoter who had possessed insurance and would be gone away on the majority of instances. “Padre Island” case and “Fanti cases (”[1990] 2 Lloyds Rep 191) show the best example for the pay to be paid” rule-In this case it was a circumstance example to the P&I association’s responsibility to underwrite the affiliate that the affiliate had primarily a complete prior imbursement to the third party. And also at the same time, at the moment of the termination of the affiliate or member, the affiliate had merely the right of contingent not in favour of the P&I Club and also not released their legal responsibility to the third party. So the P&I Club has a very good protection to argue not in favour of them by the third group because of this reason at last they have no superior argue than that of the affiliate had. “These shipping cases were one of the reasons why the 1930 Act has been subject to such criticism and why in 2001 the Law Commission produced the draft Third Party (Rights against Insurers) Bill. The draft Bill would make ineffective pay to be paid clauses.” (The Kidsons Judgement – Handle with Care 3). Integrating the rule of a pay to be paid section in the area of the indemnity consequently shall be of extreme beneficial interest also considering the factors that come into play. In the present problem of the financial recession, a lot of Insurer’s will turn out to be bankrupt and know-how insurers be supposed to think about in beginning them into their strategies as an efficient means of save cash. The 1930 Acts is relevant merely in certain situation. The rule is not being relevant if the insurers are doing not challenging events. The Paid to pay reorganization will expose lawful actions of the insurer’s new conditions, which results as of alteration in bankruptcy rule. “Lord Brandon of Oakbrook said that on the ordinary and natural construction of the 'pay to be paid' provisions of the clubs' rules payment by the members of the cargo owners was a condition precedent to payment by the clubs to the members and that there was no principle of equity which enabled those express provisions to be disregarded or overridden.” (Insurance 1990). The terms and conditions related to the 'pay to be paid' by the conditions of the agreement of insurance through the affiliate and the P&I club are not claimed, both straight and indirectly, to keep away from those agreements or to modify the members. Scope of the P&I club consists of the legal responsibility with regard to seamen, traveler and any of the extra third groups. “The Club’s ‘Pay to be paid’ rule seeks to reject a claim if the member has not paid for a loss or damage, whereas the provisions of the 1930 Act aim to protect the injured third party where the wrongdoer is bankrupt. Without the member’s payment of a liability first, there is no right of recover against the relevant P&I Club.” (Finnern 28). In the event of the claimant obtaining a judgment against an insolvent ship-owner, the third parties rights and prerogatives against insurance Act 1930 empower claimants to take over the rights of the ship-owners as against its liability insurer. However, the condition precedent would circumscribe that any direct action against the insurer would be negated under the rules of all of P&I clubs, and makes it prior mandatory to have the indemnity or compensate the settlement first. In other words, it becomes necessary to pay off the claimants before seeking compensation. In other words, “The rules of the two P. & I. Clubs involved in these appeals provided that their members should be indemnified in respect of all losses or claims which they “shall have become liable to pay and shall in fact have paid” in respect inter alia of cargo claims (the “pay to be paid” provisions).” (Lloyd’s Maritime Law Newsletter). It is now proposed to take up the case of Newcastle P & I Association v. Firma c Trade SA (The Fanti) (1987) 2 Lloyds Rep.289 in which the case arouse as to whether the Third parties could proceed against the insolvent ship owner, through the P&I Club. In this case the ruling was that while pay to be paid could be rightly imposed, it is also necessary that more than protecting the insurer, the law should seek to indemnify the aggrieved party and this is what is being sought through the Insurance Act of 1930. In line with this element, Lord Goff observed in this case and I quote “a promise of indemnity is simply a promise to hold the indemnified person harmless against a specified loss or expense. On this basis, no debt can arise before the loss is suffered or the expense incurred; however, once the loss is suffered or the expense incurred, the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense. (The Law Commission and the Scottish Law Commission 10). “Again, the decision of this Court has also been validated in that of Socony Mobile Oil Company Inc. v. West of England Ship owners Mutual Insurance Association Limited (The Padre Island) (No 2) (1987) 2 Lloyd’s Rep 529.” (Insurance 1985-1989). In this case also, the Courts were of the decided opinion that the matter of insurance is constructive and not punitive. It is incumbent on the part of the insurer to help prevent the loss, and to pay off the aggrieved, or injured person, in order that the recompense could be gained. In the event this does not occur, the pay to be paid element needs to be enforced under law. Again, there are different schools of thought on the matter of maritime contracts such as these in which the question of who would bear the responsibility and obligation of settling claims arising out of damages suffered to goods. These could take several notions in that whether the ship owner- the actual insurer or the ship, or the P&I Club who has been vested with the responsibility of taking care of goods, etc. However, the Courts held in this and similar cases that the main factor here is in terms of whether the payment has been made to the aggrieved party before claims are made by the insurer, or claimant. In the event the claim is not settled at their end, they would not be entitled to gain any credence or recompense. Conclusion: It would be safe to assume that Courts could not take arbitrary decisions, even if based on precedents, since while apparently there may be similarities among cases, there may be covert dissimilarities and differences that could justify the need for a different perspective and ruling for it. For one thing, it is necessary that more than the question of granting protection to the insurer, as was the previous notion underpinning insurance contract, the law has now changed to incorporate the aspect of the need to create conditions for granting financial, or economic succour for aggrieved party. Under such circumstances, it is seen that with the evolution and modernization of legal bonding, sea of changes have even occurred that could change the legal complexion of maritime trade, bringing in its wake the aspects of transparency, openness and clarity in thoughts and judgments not only among the parties per se, but also there is need for Courts to assess each case on the basis of its merits and reach conclusive decisions. The complexities of legal business present enormous challenges for HOL and Courts. They need to strike a harmonious balance between the demands of upholding laws on the one hand, and for the need to dispense equity and justice on the other. It is necessary to put the aggrieved, or suffering party back into a position had the loss of cargo not taken place, while at the same time also ensuring that the precepts of justice, equity and good conscience prevails. It is indeed in the fitness of things that the right chord be struck between economic recompense and legal necessities and obligations, in order that institutional legal framework may present itself in its correct perspective. In as far as maritime laws and its invocations in cases are concerned; complexities of cases and the surmises of law need to be the predominant factors that need to be taken into account. Considering the maritime laws, there are also factors in terms of greater legal jurisdiction to be granted to non judiciary proceedings like mediator, arbitrator or non judicial proceedings which have major advantages to be preferred over expensive, long drawn procedures. Reference List Chapter 1: The Commercial Background. Google. 28 Apr. 2010. . Finnern, Christian Dr. The ‘Pay to be Paid’ Rule. University of Cape Town. Sep. 2007. Web. 28 Apr. 2010. . Insurance 1985-1989. Swarb.co.uk. 2009. Web. 28 Apr. 2010. . Insurance 1990. Swarb.co.uk. 2009. Web. 28 Apr. 2010. . Lloyd’s Maritime Law Newsletter. i.law.com. 30 Jun. 1990. Web. 28 Apr. 2010. . Loss of Insurance Cover Under a Direct Action in Marine Liability Insurance. Jura Falconis. 2003. Web. 28 Apr. 2010. . The Kidsons Judgement – Handle with Care. Be Alert. May. 2009. Web. 28 Apr. 2010. . The Law Commission and the Scottish Law Commission. Insurance Contract Law. 24 Mar. 2010. Web. 28 Apr. 2010. . The Problem. Waltons & Morse. 2008. Web. 28 Apr. 2010. . Read More