The London Steam-Ship Owners' Mutual Insurance Association Ltd v Spain (M/T "PRESTIGE")

A state which asserts and pursues a contractual claim subject to an arbitration clause assumes, in equity, the burden of complying with that clause in relation to the claim. That burden includes disputes concerning compliance with the arbitration obligation and remedies arising from its breach. Proceedings to appoint an arbitrator may therefore fall within the state-immunity exceptions for arbitration, commercial transactions and obligations performed in the United Kingdom.

On an application under section 18 of the Arbitration Act 1996, the court ordinarily applies a relatively low good-arguable-case threshold and leaves jurisdictional and remedial issues to the tribunal in the first instance. Merger does not prevent arbitration of successive causes of action arising from later, distinct breaches.

The Club provided pollution cover for the owners of the vessel Prestige. Spain pursued direct civil claims against the Club in Spanish criminal and civil proceedings, despite an arbitration clause in the insurance contract. Earlier English proceedings upheld an arbitration award requiring Spain’s substantive claims to be arbitrated.

The Club commenced further arbitrations alleging that Spain continued to pursue those claims in breach of its equitable obligation to arbitrate. It sought appointment of an arbitrator under section 18 of the Arbitration Act 1996. Spain applied under CPR Part 11 to set aside permission to serve the arbitration claim, relying on state immunity, lack of arbitral jurisdiction, merger and limits on arbitral remedies.

1. State immunity. Spain was not immune from the proceedings concerning the Club’s claims for relief arising from Spain’s continued pursuit of its contractual claims. By asserting and pursuing a claim under a contract containing an arbitration clause, Spain became bound in equity by the arbitration agreement as a whole insofar as it related to that claim. That included arbitration of the substantive claim and disputes concerning non-compliance with the obligation to arbitrate. The reasoning in The Jay Bola, Through Transport (No 2) and The Yusuf Cepnioglu supported that conclusion.
2. Section 9 of the State Immunity Act 1978 applied to the Club’s claims for declaratory relief, equitable compensation, an injunction and damages in lieu of an injunction. It did not apply to the separate claim alleging a freestanding contractual obligation arising from Spain’s participation in the earlier enforcement proceedings, because no such contract had been established.
3. Spain’s pursuit of the insurance claims was a commercial, financial or similar activity within section 3(3)(c) of the State Immunity Act 1978. The present arbitration and section 18 application related directly to that activity. Section 3(1)(a) therefore removed immunity, including in respect of the proposed contractual claim. Section 3(1)(b) also applied to the equitable obligation to arbitrate in London, but not to the unestablished freestanding contractual obligation.
4. Spain had not submitted to the English court’s jurisdiction under section 2. Its Part 11 application, read as a whole, maintained its immunity plea and did not constitute an unequivocal election to accept the court’s determination on the merits.
5. For section 18 purposes, the Club needed to show a good arguable case that an arbitration had been commenced and that the tribunal had jurisdiction. The threshold was more than merely arguable but less than proof on the balance of probabilities. Questions of jurisdiction and novel remedial issues should ordinarily be determined by the arbitrator first.
6. The Club had a good arguable case that the later proceedings involved successive breaches and new causes of action. They had not merged into the earlier award or judgments. Nor was the proposed relief obviously hopeless. An arbitrator could arguably grant an injunction against a state, damages in lieu under section 50 of the Senior Courts Act 1981, and other equitable compensation.
7. The Part 11 application failed. The court would appoint an arbitrator under section 18, except in relation to the proposed freestanding contractual-breach claim. The identity of the arbitrator was left for further argument.

First-instance decision. Earlier proceedings concerning the first arbitration were described but were not under appeal in this judgment.