Subrogation of a claim by operation of law is not a void transfer of rights by a party (UK)

Patrick Bracher, Norton Rose Fulbright

A sale contract for maritime surveillance aircraft delivered in Japan provided that the contract must “not be assigned or transferred in whole or in part by any party to any third party, for any reason whatsoever, without the prior written consent of the other party”. Such a transfer would be void. The buyer insured the risk of late delivery to its customer and was indemnified for late delivery by its insurer. Under the Japanese Insurance Act, when an insurer makes an insurance proceeds payment the insurer is “by operation of law … subrogated with regard to any claim acquired by the insured”. The court found that the non-assignment clause was clear and not breached. The clause prevented any transfer effected voluntarily by a party to the sale contract but not a transfer effected by operation of law.

The correct question was whether the transfer was made by the buyer and not whether the transfer was caused as a consequence of certain actions taken by the buyer, namely taking out the insurance. The objective meaning of the language which the parties chose to use meant that it did not invalidate a transfer by operation of Japanese law.

The court did not consider whether an English law subrogation would or would not be caught by the non-assignment provision.

This decision has implications for the drafting of any non-assignment clause. The decision is likely to be followed in South Africa under similar circumstances and wording. Obligatory statutory subrogation would not normally be seen as an assignment or transfer of rights under the contract “by a party”.

[Dassault Aviation SA v Mitsui Sumitomo Insurance Company Limited [2024] EWCA Civ 5 (Judgment 12 January 2024)]

First published by: Financial Institutions Legal Snapshot