Summary
In Kingdom of Spain v London Steam-Ship Owners' Mutual Insurance Association Limited (The M/T Prestige) [2024] EWCA Civ 1536, the English Court of Appeal held that an English arbitral award trumped a Spanish judgment.
The Decision
On 12 December 2024, the English Court of Appeal upheld a first instance ruling, refusing to register and recognise a €855 million Spanish judgment, which was inconsistent with an English arbitration award, on the basis it would be manifestly contrary to public policy to do so. The Court of Appeal recognised that the priority created by a binding arbitral award is an essential feature of the legal order of the United Kingdom.
Background
The dispute arose when the oil tanker M/T Prestige broke in two and sank off the coast of Spain on 19 November 2002. The resulting oil spillage caused significant pollution damage to the Spanish and French coastlines. The owners’ insurance policy included two clauses, firstly, for any disputes to be referred to arbitration in London (the arbitration clause), and, secondly, providing that the insurers would only be liable if the owners had first actually paid the full amount of any liability out of their own monies (the pay to be paid clause).
Court Proceedings v Arbitration
Proceedings were commenced by Spain and France in 2012 in the Spanish courts against the oil tankers’ owners and insurers. In turn, the insurers initiated arbitration claims against Spain and France, which declined to take part in their respective arbitrations. The arbitration claims were successful, leading to awards that Spain and France were bound by the arbitration clause and the pay to be paid clause. The insurers sought to enforce the awards in England and Wales and the first instance court acceded to this.
In January 2016, the Spanish Supreme Court made liability findings against the owners and their insurers. Quantum was later determined as €855,493,575.65 in favour of Spain and €117 million in favour France. On 28 May 2019, The English Court acceded to the registration of the Spanish judgment for enforcement, but gave the insurers permission to appeal.
In 2019, the insurers brought fresh and separate arbitration proceedings against Spain and France respectively, seeking, amongst other things, anti-suit injunctions to restrain them from pursuing their claims and judgments other than through arbitration. On 06 January 2023, the arbitration against Spain succeeded, with a finding that the insurers were entitled to equitable compensation for Spain’s breach of its equitable obligation to arbitrate. On 8 February 2023, the arbitration against France succeeded, including an injunction restraining France from enforcing any of the judgments of the Spanish courts.
Spain and France sought to challenge the awards in applications to the Commercial Court.
Court of Appeal Decision
As already noted, the Court of Appeal affirmed that the Spanish judgment should not be recognised or registered in England & Wales. It would breach public policy given the conflict with arbitration awards that were binding and enforceable against Spain and France. The Court of Appeal noted that:
There must be finality to litigation. It would be wrong for the domestic courts to ignore and to allow parties to ignore arbitral decisions by which those parties have been finally held by the courts of competent jurisdiction to be bound.
The regime of the New York Convention makes it clear that it would be undesirable, as a matter of English public policy, to ignore arbitral awards. Inconsistency should be avoided between the effect of the New York Convention and a domestic award.
The ability of international parties to agree to binding international arbitration is, “of great importance to the legal system in England and Wales and to the economy of the United Kingdom”.
The Court of Appeal also considered whether equitable compensation was available for breach of an equitable obligation to arbitrate, and whether equitable damages are available in lieu of or in addition to an injunction. It found that it was not, but only because of the state immunity of Spain and France. The position would presumably have been different against non-state parties.
The Court of Appeal’s judgment serves as a reminder about parties’ freedom to arbitrate and that their agreement to do so will be enforced. While the decision is primarily relevant to the pre-Brexit regime, the underlying principle is of universal application.
Laytons ETL’s Commercial and Disputes Teams are on hand to advise you on the terms of, and disputes that arise out of, agreements that contain arbitration or exclusive jurisdiction clauses.
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