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Law Notes Aspects Of Obligations Notes

6. Subrogation Notes

Updated 6. Subrogation Notes

Aspects Of Obligations Notes

Aspects Of Obligations

Approximately 333 pages

Aspects Of Obligations notes fully updated for recent exams in the UK. These notes cover all the major LLB aspects cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Canada, Hong Kong or Malaysia (University of London).

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1. What is Subrogation?

  • Basics

    • Subrogation is the substitution of one party for another as creditor – in other words it allows one person to step into another’s shoes and take over their rights as against the defendant.

  • Terminology

    • Not strictly correct to say that subrogation is a remedy, strictly speaking you are subrogation to another’s rights, which thereby give rise to causes of action to secure remedies.

  • Types of Subrogation

    • (1) Subrogation to subsisting rights

    • (2) Subrogation to extinguished rights – they are revived for the benefit of the claimant.

2. Justification for Subrogation Rights

  • Three potential juristic bases for subrogation –

    • (i) Consent or contract

      • Likely to explain insurers’ rights.

    • (ii) Unjust enrichment

      • Watterson supports this – subrogation preventing unjust enrichment arising

      • Note that Virgo disagrees that this is a juristic base for subrogation

    • (iii) Other sources?

      • Sometimes if the subrogation rights are not underpinned by contract or tort, sometimes it is statutory or equitable.

      • Some may appear to have no clear underlying rationale, should we see them as sui generis?

  • May well be that there are simply multiple rationales.

3. Workings of Subrogation

  • Introduction

    • Concept of subrogation was undeveloped until Mitchell published his doctoral thesis which was a watershed work.

    • In some cases, where insurers’ subrogation rights are a key example, C would be subrogated to X’s subsisting rights against D.

    • But some cases look like subrogation rights are being acquired when C seems to have extinguished or discharged X’s rights.

    • The latter sort of case is where C pays off X’s debt to D as guarantor. In principle, this has the effect of discharging the debt and the rights. But if the guarantor is subrogated, something else must be going on.

    • Mitchell thought there had to be an extra process whereby X’s extinguished rights were brought back to life then transferred to C for enforcement. Extra process of revival led Mitchell to describe this second class of cases as reviving subrogation, as opposed to simple subrogation. But later decided it should be distinguished as subrogation to subsisting rights and subrogation to extinguished rights.

    • New language –

      • (1) Expresses the key structural difference between the two category of cases more clearly.

      • (2) Second reason for the change is that language of subrogation to extinguish rights explains the structural difference and fundamental contrast in the second case.

      • (3) Third reason is that we don’t want to leave courts into error – ‘reviving subrogation’ is misleading, because it implies that C gets the actual rights that X had. But need to accept the real position is that C, having discharged X’s rights, C may get new rights against D. These new rights of C generally mirror those that X had but nevertheless they are new rights.

  • Two Types of Subrogation

  1. ‘Simple subrogation’

C - (payment for loss) X D

The payment for loss has no effect on the tort-claim by X against D.

  1. ‘Reviving subrogation’

C X - (rights extinguished) D

C discharges X’s rights. E.g. C provides money to pay off a debt owed by D to X.

  • Mitchell said the extinguished rights are brought back to life so that C can enforce them.

  • Reclassification

    • 2007, Watterson and Mitchell reclassified the types of subrogation as –

  1. Subrogation to subsisting rights

  2. Subrogation to extinguished rights

  • Reviving subrogation refers to where C has discharged D’s liability to X and takes over X’s former rights and remedies against D

  • Now clear that they are entirely new rights conferred on C, it only replicates X’s right rather than revives it.

    • Authority – Banque Financiere v Parc

Subrogation to Subsisting Rights (Insurers)

1. Insurers’ Rights of Subrogation and Recoupment

  • Two Relevant Rights

    • There are two distinct rights that might be relevant for an insurer – the right of subrogation in the narrow sense and the right of recoupment.

  • Insurers’ Right of Subrogation

    • C against D

    • Insurer’s procedural right – the right to bring proceedings in the insured’s name to enforce their rights against the third party for his own benefit, recovering the indemnity paid.

  • Insurers’ Right of Recoupment

    • C against X

    • Insurer’s right to recoupment from the insured – there is a risk that the insured X will be over-indemnified, if he could take the insurer’s pay out and also recover from the tortfeasor, it would lead to double compensation.

    • If D pays the insured before the insurer does, this should make the insurer no longer obliged to pay out. But if they are not aware of the recovery from the tortfeasor, it may mistakenly pay out to the insured themselves.

    • Alternatively it could happen the other way round, tortfeasor could pay after indemnity recovered.

    • Law’s solution in both cases is to give the insurer a recoupment right against the insured to recover indemnity over paid.

2. Juristic Basis

  • Contract

    • Insurer has these subrogation rights, simply because the relevant parties, insurer and insured have agreed that he should.

    • No doubt that an insurance contract could expressly confer such rights, and often do so. But even where it does not expressly say so, implied subrogation rights can be found as a sort of default.

    • But once we talk of implied standard default terms, might wonder whether the term is implied because it is such a standard reasonable term of the relationship that the parties would obviously want to agree to it, saving them the bother from having to say it.

    • Or is the implied term on the basis of more general policy argument?

  • Policy-based

    • Even if the parties do not intend to confer subrogation rights, there may be policy arguments that would confer these rights.

    • If the insured has two rights – against the defendant and the insurer, then what happens when the insurer pays out first? The defendant cannot raise the plea that you have already been indemnified. Leads to two mischiefs underlying policy...

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