Subrogation

THIS ARTICLE considers the concept of subrogation in common law jurisdictions. It begins by explaining the terminology and how the concept applies in the context of guarantees and insurance contracts. It then considers the Chinese terminology and how the issues are treated under Chinese law.

SUBROGATION IN COMMON LAW JURISDICTIONS

In common law jurisdictions, the term “subrogation” is used to refer to the situation where a party has the right to exercise the rights or claims of another party against a third person. The effect is that the party that has the benefit of the right of subrogation is “substituted” for the other party (i.e., it is able to “stand in the shoes” of the other party) in relation to its rights or claims against the third person. In fact, the term “subrogation” is derived from the Latin word subrogatus, which means “to be made a substitute for another”. Interestingly, the words “subrogate” and “surrogate” share the same Latin root.

The right of subrogation can arise either by contract (known as “conventional subrogation”) or by the application of equitable principles (known as “equitable subrogation”). In the latter case, subrogation operates as a remedy that arises independently of contract and is recognized by principles that constitute the body of law known as equity (for a discussion about equity and how it differs from the “common law”, see China Business Law Journal volume 3 issue 5: Law or Equity?).