The London Steamship Owners' Mutual Insurance Association Ltd v The Kingdom of Spain & Anor

A statutory direct action against an insurer must be characterised by identifying the substance of the right conferred. Where the right largely mirrors the insured’s contractual rights, subject only to limited statutory modifications, its scope and enforcement are governed by the proper law of the insurance contract.

A state submits to the English court’s jurisdiction when it seeks substantive relief concerning an arbitral tribunal’s jurisdiction. Such action is not taken solely to claim immunity. A state which pursues a claim governed by a written arbitration clause may also adopt that clause sufficiently for section 9(1) of the State Immunity Act 1978.

Civil monetary disputes do not become incapable of arbitration merely because they arise within criminal proceedings.

The proceedings arose from extensive oil pollution caused by the sinking of the vessel Prestige. Spain and France pursued civil compensation claims in Spanish criminal proceedings against the owners and their liability insurer, The London Steamship Owners’ Mutual Insurance Association Ltd. The insurer commenced London arbitrations and obtained declarations that the claims were subject to the arbitration and “pay to be paid” provisions of its rules.

Hamblen J held in [2013] EWHC 3188 (Comm) that the claims were, in substance, attempts to enforce contractual obligations governed by English law. He also held that the states lacked immunity, that the disputes were arbitrable and that the awards could be enforced as High Court judgments.

Spain and France appealed on characterisation and state immunity and sought permission to appeal on arbitrability. The central questions were whether their direct-action rights were contractual or independently statutory, whether they had submitted to the English jurisdiction, and whether the disputes could be arbitrated.

1. The appeals were dismissed. The issues concerning the insurer’s liability were properly characterised as contractual and governed by English law. Spain and France had submitted to the English court’s jurisdiction, and the disputes referred to arbitration were arbitrable.

2. Characterisation concerns the particular issues raised by a claim, rather than the claim as a whole. The critical inquiry was whether the Spanish legislation conferred, in substance, a right to enforce the obligation created by the insurance contract or an independent statutory liability. A useful indication was the extent to which the legislation modified the contractual obligation.

3. Articles 76 and 117 largely defined the third party’s recovery by reference to the insurance contract. The limited exclusion of certain personal defences did not alter the essential character of the right. The relevant issues therefore concerned an obligation sounding in contract. English law, as the proper law, required the claims to be pursued through arbitration and subject to the “pay to be paid” clause.

4. Under section 2(3)(b) of the State Immunity Act 1978, the decisive question was whether each state had acted unequivocally in a manner demonstrating willingness for the court to decide the substance of the dispute. Merely failing to comply with CPR Part 11 did not waive state immunity. However, applications under sections 67 and 72 of the Arbitration Act 1996 for declarations that the arbitrator lacked jurisdiction sought substantive relief. They were not steps taken solely to claim immunity. Both states had consequently submitted to the jurisdiction.

5. Although unnecessary to the result, continued pursuit of claims subject to the written arbitration clause amounted to consent to arbitration and adoption of that clause. This satisfied section 9(1) of the State Immunity Act 1978. The court declined to decide whether section 3(1)(b) independently removed immunity.

6. Permission to appeal on arbitrability was granted, but that ground failed. A civil claim does not become inarbitrable because it is advanced in criminal proceedings. An arbitrator may determine facts involving criminal conduct, although not impose a criminal conviction. The disputes actually referred—concerning the arbitration clause and “pay to be paid” provision—required no conviction.

Moore-Bick LJ delivered the judgment. Patten and Tomlinson LJJ agreed.

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 333, dismissed the appeals on characterisation and state immunity. It granted permission to appeal on arbitrability but rejected that ground.
2. High Court, Commercial Court: Hamblen J in [2013] EWHC 3188 (Comm) dismissed the states’ jurisdictional applications and permitted enforcement of the arbitral awards as High Court judgments.
3. Arbitration: The arbitrator declared that the claims were subject to the insurer’s arbitration and “pay to be paid” provisions.