In London Steam Ship Owners Mutual Insurance Ltd v. Kingdom of Spain and another [2013] EWHC 3188, Spain and France failed in their attempt to resist enforcement of an arbitral award.

In November 2002, a ship carrying 70,000 tonnes of oil sank off the coast of Spain, causing significant oil pollution to the Spanish and French coasts. The legal ramifications of the resulting ecological disaster included civil claims against the shipowners and their insurers (the Insurers). Spanish and French State entities (the Claimants) brought claims in the Spanish courts against the Insurers, of €4.3 billion and €67.5 million respectively, under Article 117 of the Spanish Penal Code 1995, which provides an injured party with a direct right against an insurer.

The Insurers accepted partial liability pursuant to the Convention on Civil Liability (CCL), which imposes strict liability on ship-owners to compensate victims of oil pollution damage up to a prescribed amount. The Insurers rejected the remainder of the claim on the grounds that the Claimants were bound, under the terms of the insurance contract between the shipowners and the Insurers (the Contract), to bring their claims in arbitration. The Insurers did not participate in the Spanish proceedings and instead sought relief in arbitration in London.

The Insurers obtained declaratory relief from the arbitral tribunal that: (i) the Claimants were bound by the arbitration clause to refer the civil law claims to arbitration; (ii) actual payment of the insured liability by the insured member was a condition precedent to the Insurers’ liability under the “pay to be paid” clause in the Contract; and (iii) in any event, the Insurers’ liability would not exceed the amount of US$1 billion (the cap in the Contract). The Insurers then applied to the High Court to enforce the terms of the arbitral award and to enter judgment under section 66 of the Arbitration Act 1996. Amongst other things, the Insurers did so with a view to ensuring that the arbitral award would have primacy over any potentially inconsistent judgment that could be rendered in the Spanish court proceedings.

The Claimants resisted enforcement on three grounds.

First, the Claimants challenged the substantive jurisdiction of the tribunal, on the basis that the dispute was purportedly not within the scope of the arbitration clause. The court considered whether the claims could be characterised as a third party seeking to enforce a contractual obligation under an insurance contract or advancing an independent right of recovery under the relevant statute (in this case the Spanish Penal Code). The court decided that the content of the right would be the most important factor in identifying the correct characterisation, and found that the content of the right in this case was contained in the Contract. Therefore, it was found to be a contractual claim and the challenge to the jurisdiction of the tribunal failed on this ground.

Second, the Claimants argued that the claims were not arbitrable, since they were brought under a criminal statute and they related to public policy, namely protection of the environment. This challenge also failed on the basis that the claims were, in substance, claims to enforce a right under contract and were monetary claims of a civil nature.

Third, the Claimants resisted enforcement on grounds of State immunity. However, the Court found that there was a valid exception to the Claimants’ prima facie State immunity from jurisdiction of the English courts. Specifically, immunity had been lost since the Claimants had agreed in writing to submit the relevant dispute to arbitration. The Court stated that the Claimants could not “seek to take the benefit of the insurance contract without accepting its incidents and limitations.” The Court also stated that, when a third party makes a claim under an insurance policy containing an arbitration clause, they become a person claiming under or through a party to the arbitration agreement and thereby a party to the arbitration agreement for the purposes of the Arbitration Act 1996.