Argos Pereira Espana SL & Anor v Athenian Marine Ltd

An assignee who takes contractual rights subject to an arbitration clause may owe an equivalent equitable obligation to respect that clause, including when suing a non-party within its scope. Equitable compensation may be awarded for breach of that extended derived-rights obligation, in addition to injunctive or declaratory relief. The transferred-loss principle is not confined to contract. It may apply to an equitable obligation where the third party was a known object of the transaction and denying recovery would create a legal black hole. The availability of damages in lieu of an injunction under section 50 of the Senior Courts Act 1981 need not be resolved where the evidence does not establish that the third party could recover the loss.

The claimants appealed under section 69 of the Arbitration Act 1996 against an arbitrator’s award in favour of the defendant, the owner of a vessel carrying cargo under bills of lading containing an English law and London arbitration clause.

The insurer, claiming by subrogation, had brought proceedings in Spain against the owner’s manager and charterer, Lavinia Corporation, mistakenly treating it as carrier. The arbitrator found that the insurer owed the owner an equitable obligation equivalent to the arbitration agreement and awarded the irrecoverable Spanish litigation costs suffered by Lavinia.

Permission to appeal was limited to whether equitable compensation was available for breach of that obligation and whether the defendant could recover Lavinia’s loss under transferred-loss principles.

1. Appeal dismissed. The arbitrator’s conclusion that the insurer owed an equitable obligation equivalent to the arbitration agreement was not open to challenge, permission having been refused on that issue. The obligation extended to proceedings against Lavinia concerning disputes falling within the arbitration clause.
2. Equitable compensation was available for breach of that extended derived-rights obligation. The obligation was distinct from a simple inconsistent-claim obligation, whose basis was the court’s jurisdiction to restrain vexatious or unconscionable proceedings. The court did not decide whether compensation was available for breach of a simple inconsistent-claim obligation.
3. The reasoning supporting equitable compensation included the substantive equitable character of the derived-rights obligation, its equivalence to the contractual obligation, and the absence of authority excluding monetary relief. Compensation was available independently of, and in addition to, an injunction or declaration.
4. The transferred-loss principle was a limited exception to the rule that a claimant recovers only loss suffered by itself. It required a known object of the transaction, including a third party or class of persons intended to benefit or protected from detriment, and applied to avoid a legal black hole where the only party entitled to claim differed from the only party suffering loss. There was no basis for confining the principle to contract where the relevant equitable obligation was equivalent to contract.
5. The arbitrator’s findings that Lavinia was closely related to the owner and fell within the intended scope of the arbitration agreement established a sufficient basis for treating Lavinia as a known object. The possibility that Lavinia might have obtained damages in lieu of an injunction under section 50 of the Senior Courts Act 1981 was materially uncertain, and the arbitrator had made no finding that such recovery was available. The legal-black-hole exception was therefore not excluded.

1. High Court (Commercial Court): appeal under section 69 of the Arbitration Act 1996 dismissed.
2. Sole arbitrator: award dated 10 February 2020 in favour of the owner on its counterclaim for irrecoverable Spanish litigation costs.