Background

Although Article 76 of the Insurance Act 1980 provides for direct action by injured parties against civil liability insurers, the act does not apply to marine insurance; thus, traditionally, no direct action against protection and indemnity (P&I) clubs was possible. This position was set out by a July 3 2003 Supreme Court decision which held that P&I cover does not constitute civil liability insurance, but rather indemnity insurance under the 'pay to be paid' provision included in P&I cover. Previously, a March 5 2002 decision of the Madrid Court of Appeal held that the 'pay first' rule – included in P&I cover and subject to English law – was valid under the Spanish conflict of laws provisions and public order principles.

The legal position was not definitive, as in Spain two Supreme Court decisions are needed to establish case law; but the decisions discouraged cargo claimants and other interests from suing P&I clubs in Spain.

However, since the Maritime Navigation Act came into force in September 2014, the position regarding P&I clubs is less clear.

Maritime Navigation Act

The act contains two relevant provisions. Article 463 reads:

"the rules governing civil liability insurance shall not only apply to those of this class, but also to the coverage of risk of certain obligations arising to compensate third parties included in maritime insurance of another class."

On the other hand, Article 465 reads:

"the obligation of the insurer to compensate in such insurance (civil liability insurance) exists from the moment the liability of the assured arises before the third party damaged.

The latter shall be entitled to direct action against the insurer to demand that it fulfils its obligation. Any contractual clause that alters the terms of this provision shall be void."

As the act came into force only in September 2014, there have not yet been any court decisions on Articles 463 and 465.

Courts' position

Articles 463 and 465 have opened up the possibility of third parties exercising a right of direct action against a party's underwriters – so how will the courts deal with these actions?

If they follow the Supreme Court's July 3 2003 decision, which did not regard P&I clubs as civil liability insurers, the courts would reject a claim against a P&I club on the grounds that:

  • P&I cover is governed by English law in accordance with the principle of contract law wherebycontracts are governed by the law of the country agreed by the parties (P&I rules usually include a jurisdiction arbitration clause and an applicable law clause); and
  • a P&I club may rely on the 'pay to be paid' clause.

Thus, a P&I club would have to produce enough evidence of the 'pay to be paid' clause under the applicable law through notarial affidavits.

However, it may be that in the near future, the courts will accept direct actions against P&I clubs on the grounds that:

  • both Article 465 of the Maritime Navigation Act and Article 76 of the Insurance Act (secondary legislation applicable to the merchant navy and primary legislation applicable to pleasure crafts) provide a direct action in favour of the injured party against liability insurers;
  • it can be argued that a P&I insurance policy is a civil liability policy; and
  • under Article 465 of the Maritime Navigation Act, any contractual clause altering the terms of this provision is void.

A further argument is the legislative process before approval of the Maritime Navigation Act. In the initial draft, affected third parties could claim directly against the liability insurer and contractual clauses with the purpose of avoiding the regime were deemed void. The second draft introduced a new provision expressly prohibiting direct actions against P&I clubs. However, the final draft returned to the initial draft and removed the prohibition on direct actions.

The 2006 report of the General Council of the Judiciary explained that P&I insurance is a particular type of liability insurance and that, due to the widespread use of P&I insurance to cover the liability of commercial vessels, the prohibition of direct actions against P&I insurers would have far-reaching consequences, as P&I clubs would be released from claims brought by third parties.

Thus, it appears that the door to claims against P&I clubs before the Spanish courts is now open, and it is only a matter of time before an action is brought.

Anti-suit injunctions

A further question is whether a P&I club could enforce an anti-suit injunction in the Spanish courts in order to prevent an injured party from prosecuting a direct claim against it.

While anti-suit injunctions have succeeded in some cases, the European Court of Justice (ECJ) has held that they are incompatible with the Brussels/Lugano system of allocating jurisdiction, as they infringe on another court's jurisdiction and EU rules do not permit the courts of one country to review the jurisdiction of the courts of another country. Further, in Front Comor the ECJ held that anti-suit injunctions are also incompatible with EU law when they are granted in support of arbitration.

Accordingly, an anti-suit injunction would be unenforceable in Spain. The only way to make a jurisdiction clause valid in favour of a foreign jurisdiction is to file a jurisdictional plea issue before the court dealing with the matter in order to establish that the suit does not fall under Spanish jurisdiction.

Following Front Comor, in Wadi Sudr the UK High Court held that Front Comor did not affect the English court's jurisdiction to make a declaration regarding the validity of an arbitration clause in a contract governed by English law. The High Court established that the English courts were not obliged to recognise or enforce a Spanish court decision that the arbitration clause had not been incorporated into the bill of lading.

For further information on this topic please contact Luis de San Simon at San Simón & Duch by telephone (+34 913 579 298) or email (lsansimon@lsansimon.com). The San Simón & Duch website can be accessed at www.lsansimon.com.

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