The Kingdom of Spain v The London Steam-Ship Owners' Mutual Insurance Association Limited

A CJEU preliminary ruling made on a valid reference is binding in the United Kingdom, including where it gives a qualified answer to the questions referred. A judgment entered in terms of an arbitral award does not create an irreconcilable judgment under article 34(3) of the Brussels I Regulation where the underlying award was made in circumstances inconsistent with that Regulation. However, article 34(1) may prevent recognition where enforcement would disregard the res judicata created by a binding domestic arbitral award.

An arbitral tribunal cannot grant an injunction against a state where the court lacks that power because of state immunity. Damages under section 50 require jurisdiction to grant an injunction. Equitable compensation cannot be used to bypass those limits or to provide indemnities for losses not caused by the equitable obligation to arbitrate.

The appeals arose from the sinking of the Prestige and the resulting Spanish judgment against the Club for approximately €855 million. The High Court had refused registration of the Spanish judgment under the Brussels I Regulation, relying on issue estoppel, and had upheld arbitral awards granting the Club equitable compensation against Spain and France. It had also rejected the Club’s human-rights objections.

Spain appealed the refusal to register the Spanish judgment. Spain and France appealed the awards of equitable compensation, while the Club cross-appealed on injunctions and section 50 damages. The Club separately appealed the rejection of its human-rights arguments. The central questions concerned the effect of the CJEU’s decision on article 34(3), the public-policy effect of the arbitral awards, state immunity, equitable remedies, and the scope of review under article 34(1).

1. Brussels I Regulation. The CJEU had answered the questions referred. Its conclusion that a section 66 judgment could be a judgment for article 34(3), but not where the underlying award arose in circumstances incompatible with the Regulation’s insurance and lis pendens rules, was a qualified answer to the questions referred. It was a ruling of EU law, not an impermissible determination of disputed facts. The court was bound by it under article 89 of the Withdrawal Agreement and section 7A of the European Union (Withdrawal) Act 2018.
2. The section 66 judgments did not decide whether such judgments were irreconcilable judgments under article 34(3). Hamblen J decided only that there was utility in entering judgment because there was a real prospect of establishing primacy over a future Spanish judgment. The Spanish judgment therefore could not be refused recognition under article 34(3) on the basis of an issue estoppel arising from the section 66 judgments.
3. The CJEU’s answer concerning the lex specialis relationship between articles 34(1), 34(3) and 34(4) concerned the res judicata created by a judgment, not by an arbitral award. Ignoring the res judicata created by a binding domestic arbitral award would be a manifest breach of an essential rule of English public policy. The Spanish judgment was therefore properly refused recognition under article 34(1).
4. Arbitration and state immunity. Section 13(2)(a) of the State Immunity Act 1978 deprived the court of power to grant an injunction against Spain or France. Section 48(5) of the Arbitration Act 1996 gave the arbitrators the same powers as the court, so they likewise lacked that power absent state consent or a different agreement under section 48(1). Dame Elizabeth Gloster was wrong to grant an injunction against France.
5. Section 50 of the Senior Courts Act 1981 permits damages in substitution for an injunction only where the court had jurisdiction to grant one at the commencement of proceedings. As no injunction could be granted against either state, equitable damages were unavailable.
6. The conditional benefit principle created a defensive equitable constraint, not a conventional cause of action for damages. The established remedies for breach of the equitable obligation to arbitrate were an injunction and, where appropriate, a declaration. Equitable compensation could not be used to create broad indemnities for enforcement costs or liabilities flowing from the pay-to-be-paid clause rather than from the breach of the obligation to arbitrate.
7. The human-rights objections failed. Article 34(1) permits refusal only for a manifest breach of an essential legal rule or fundamental right and does not permit review of the substance of the foreign judgment. The Club had not shown a manifest denial of fair hearing rights or arbitrary decision-making. Article 14(5) of the International Covenant on Civil and Political Rights had not been shown to be customary international law.

Spain’s Brussels appeal was dismissed. Spain’s and France’s appeals against equitable compensation were allowed. The Club’s cross-appeal and human-rights appeal were dismissed.

1. Court of Appeal (Civil Division). Appeals and cross-appeal determined by [2024] EWCA Civ 1536. Registration of the Spanish judgment remained refused, but the awards of equitable compensation against Spain and France were set aside.
2. High Court, Commercial Court. Mr Justice Butcher decided the human-rights issues in [2021] EWHC 1247 (Comm), and the registration, arbitration and remedies issues in [2023] EWHC 2473 (Comm) and [2023] EWHC 2474 (Comm).