The unattractive reality of the King Trader Decision – a botched appeal

The Court of Appeal has handed down its judgment in MS Amlin v King Trader.

The case stems from the 2019 grounding of MV Solomon Trader. After Bintan Mining Corporation (“BMC”), the charterer insured by MS Amlin, became insolvent, the vessel’s owner (King Trader Ltd) and its P&I Club sought to enforce a US$47 million arbitration award against MS Amlin under the Third Parties (Rights Against Insurers) Act 2010. The policy included a “pay-first” clause, requiring the insured to pay the liability before receiving an indemnity. Anticipating BMC’s inability to pay due to insolvency, MS Amlin sought a declaration that it owed no indemnity due to the pay-first clause. In July 2024, the High Court (Foxton J) granted the declaration. King Trader and the P&I Club appealed on three grounds.

Issues forming the appeal

Three issues below were considered by the Court of Appeal:

1. Incorporation: Were the policy’s general conditions (including the pay-first clause) part of the insurance contract?
2. Inconsistency: If incorporated, did the pay-first clause conflict with the primary insuring terms (and thus not apply)?
3. “Red Hand” Notice (Onerous Term): Was the pay-first clause so onerous or unusual that it should not bind the insured (or its assignees) since it wasn’t sufficiently brought to their attention?

On 5 November 2025, the Court of Appeal (Sir Geoffrey Vos MR, Singh LJ, Males LJ) dismissed the appeal on all grounds, confirming that the pay-first clause defeated the owners’ and Club’s claim.

Court of Appeal Decision

Incorporation

The Court of Appeal agreed with the first instance judge that the pay-first clause was indeed part of the policy, was enforceable, and had been properly incorporated into the contract. The policy’s Certificate of Insurance expressly incorporated a policy booklet containing the general conditions, and no reasonable reader would assume that only the Certificate contained all terms. The Court saw no merit in the suggestion that the pay-first clause “was not part of the contract”.

Inconsistency

The court also found no inconsistency between the pay-first clause and the policy’s insuring clause. The charterers’ liability insuring agreement promised to indemnify the insured against liabilities (such as the arbitration award) that were established by final judgment or award. The pay-first clause qualified that promise by making actual payment of the liability a precondition to indemnity. The owners argued this “emasculated” the cover, but the Court held it merely “qualifies and supplements” the indemnity; it does not negate it. The Court found no actual conflict, so the pay-first condition remained effective alongside the main insuring terms.

“Red Hand” Notice

On the “red hand” argument (a reference to Lord Denning’s dictum that especially onerous clauses must be printed with a red hand pointing to them), the Court of Appeal gave a definitive response. Vos MR preferred the term “onerous clause doctrine” for this principle. He emphasised the high threshold for declaring a contract term unenforceable due to lack of notice in a commercial setting. The pay-first clause, though harsh in outcome, was not unusual in marine insurance, and such clauses are common and well understood in that market. Moreover, BMC had a professional insurance broker, who is presumed to know the significance of standard terms and explained this significance to the insured. The Court held the pay-first provision was neither onerous nor unusual enough to require special notice beyond what was given. Therefore, the owners and Club could not avoid it on that basis. The Judgment clarifies that the onerous clause doctrine has little application between sophisticated parties of equal bargaining power in commercial insurance.

Policyholder Perspective – Key Takeaways:

This decision confirms that English law will uphold clear “pay first” or “pay-to-be-paid” provisions in marine insurance contracts, even where this leaves an insolvent policyholder’s creditors without recourse. This outcome is harsh, as pay-first clauses reduce the efficacy of insurance protection just when it’s most needed. However, the Court of Appeal’s confirmation that there is little room to escape these clauses puts further emphasis on the need for insureds to carefully consider whether a “pay-first” requirement is acceptable to them, or if they (and their brokers) should really negotiate these clauses out of policies before inception.

From a policyholder’s standpoint, the case is the latest stark reminder to scrutinise policy wordings for onerous conditions, such as pay-first clauses. Such terms can fundamentally restrict coverage in scenarios of insolvency, and also will have a broader impact on the cash flow of an insured.

It’s worth noting that the 2010 Act does, however, invalidate pay-first requirements for certain kinds of claims (notably personal injury or death in marine policies), but aside from those exceptions, the clause will bite.

In King Trader, the inability of the insured to pay meant the loss ultimately stays where it fell – on the insolvent insured and the third parties – rather than shifting to the insurer.

Our colleague, Anthony McGeough, concluded that the underlying Judgment was an ugly decision for policyholders, (bad for policyholders, but correctly decided). The resounding failure of the appeal suggests that the Court of Appeal has made this case uglier still.

For our commentary on the underlying Judgment, click here.

Authors

Toby Nabarro, Partner, Fenchurch Law Singapore

Dru Corfield, Associate, Fenchurch Law