JHA | Court of Appeal upholds arbitration awards and rejects state immunity

Court of Appeal upholds arbitration awards and rejects state immunity

April 9, 2015

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In a case involving the sinking of a vessel, the Court of Appeal upheld the enforcement of two arbitration awards and denied France and Spain’s applications resisting enforcement on grounds of jurisdiction and state immunity.

Following the sinking of the vessel “Prestige”, France and Spain made claims for pollution damages against the vessel owners’ protection and indemnity insurers, The London Steamship Owners’ Mutual Insurance Association Limited. The association started arbitration proceedings in London seeking declarations that Spain and France were bound by the arbitration clause in its rules. The association applied under section 66 of the Arbitration Act 1996 for permission to enforce the subsequently obtained awards as judgments of the High Court. France and Spain opposed those applications on the grounds that as states they were immune from proceedings under the State Immunity Act 1978. However, in the course of those proceedings they issued application notices seeking declarations under sections 67 and 72 of the Arbitration Act that the awards had been made without jurisdiction.

The Court of Appeal held as follows:

  • “[T]he court must ultimately determine whether the right conferred on the claimant is in substance one to enforce the obligation created by the contract of insurance or one to enforce a liability which is independent of the contract”. In the present case, the the right to recover against the insurer was largely defined by the terms of the contract. Moreover, Spanish law conferred on the third party a right to recover damages from the insurer, but only to the extent permitted by the contract of insurance.
  • Consequently, the appellants’ right to seek compensation from the association related to an obligation in contract, and so it was to be determined in accordance with English law as the proper law of the obligation. Claims against the association would thus have to be pursued in arbitration in accordance with the terms of the contract of insurance.
  • “A state is not entitled to claim immunity in relation to proceedings which it has itself commenced: section 2(3)(a) of the State Immunity Act; by doing so it has clearly consented to the court’s determining the claim and so has elected to waive any right to immunity”. France and Spain sought a declaration that the arbitrator did not have substantive jurisdiction; this was a step in the proceedings otherwise than for the sole purpose of claiming immunity.
  • This made it unnecessary to decide whether the appellants had also submitted to the jurisdiction under either or both of sections 9(1) or 3(1)(b) of the State Immunity Act 1978, but the court would nonetheless state its views thereon. The court did not reach a conclusion on section 3(1)(b) (no state immunity for proceedings relating to an obligation of the state which by virtue of a contract (whether a commercial transaction or not) fell to be performed wholly or partly in the UK). Notably, the court held that under section 9(1) a state party to an arbitration agreement had agreed in writing to submit a dispute to arbitration. When a third party claimed under an insurance policy with an arbitration clause, it claimed under or through a party to the arbitration agreement and thus became a party to the arbitration agreement for the purposes of the Arbitration Act 1996.

The London Steamship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain & Anor [2015] EWCA Civ 333, 01 April 2015