The Kingdom of Spain and another (Respondents) v The London Steam-Ship Owners' Mutual Insurance Association Limited (Appellant) No 2

Case summary

Case ID

UKSC/2025/0034

Parties

Appellant(s)

The London Steam-Ship Owners’ Mutual Insurance Ass

Respondent(s)

The Kingdom of Spain

The French State

Issue

Absent a contrary agreement, does section 13 of the State Immunity Act 1978 (“SIA”) prevent an arbitral tribunal from awarding (i) an injunction, and (ii) equitable damages, against a State for its breach of an equitable obligation to arbitrate? Can an arbitral tribunal award equitable compensation against a State for such a breach?

Facts

In 2002, an oil tanker (the “M/T Prestige”) sank. The resulting oil spill significantly damaged the Spanish and French coastlines. The London Steam-Ship Owners’ Mutual Insurance Association (the “Club”) insured the vessel. The insurance contract required all disputes to be referred to arbitration under English law in London. The contract also contained a “pay to be paid” clause, which excluded the Club’s liability to third parties unless and until the vessel’s owners had paid the full amount of any insured liability. Spain and France (the “States”) brought claims for compensation against the Club in Spanish court. In response, the Club brought an arbitration in London. On 13 February 2013, the arbitrator found that: (i) the States were bound in equity to arbitrate any claims against the Club; and (ii) the “pay to be paid” clause meant that the Club had no liability to the States (until payment was made by the vessel’s owners) (the “Schaff Award”). The English High Court then permitted enforcement of the Schaff Award as a judgment of an English court under section 66 of the Arbitration Act 1996 (the “s.66 Judgment”). Meanwhile, the Club had brought two other London arbitrations, against each of the States (Spain and France) respectively. In early 2023, the arbitrators (separately) found that the States: (i) had equitable obligations to arbitrate their claims against the Club; (ii) had breached those obligations (by litigating claims in court); and (iii) were liable to pay equitable compensation to the Club. Both arbitrators also concluded that they could grant an injunction to restrict a State from enforcing the Spanish Judgment (only the France arbitrator exercised the discretion to do so). The States appealed to the English High Court. Butcher J heard both States’ appeals on the remedies an arbitrator can award against a State for breach of its equitable obligation to arbitrate its claims (absent a contrary agreement as to the arbitrator’s remedial powers). Butcher J concluded that: (i) section 13 of the SIA removed an arbitrator’s power to make an injunction against a State; (ii) for the same reason, an arbitrator could not award equitable damages; but (iii) an arbitrator could award equitable compensation. The Court of Appeal upheld Butcher J’s conclusions (i) and (ii) but allowed the States’ appeal on (iii). The arbitrators’ equitable compensation awards were set aside. The Club now appeals against the Court of Appeal decision on points (i)-(iii).

Date of issue

3 March 2025

Case origin

PTA

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