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    UK: France and Spain Lose State Immunity in M/T “PRESTIGE” Case

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    In The London Steam-Ship Owners’ Mutual Insurance Association Ltd v (1) The Kingdom of Spain (2) The French State [2013] EWHC 3188, London Steam-Ship (the Claimant) sought an English judgment pursuant to s. 66 Arbitration Act 1996 (the Act) enforcing arbitral awards it had obtained against the Kingdom of Spain and the French State (the Defendants). The arbitration proceedings had been brought by the Claimant, who sought declarations that the Defendants were bound by the arbitration clause and contractual defences available to the Claimant under a policy of protection and indemnity insurance (the Policy).

    The Policy was between the Claimant and its insured, Mare Shipping Inc. (the Owners), which owned a vessel, the M/T “PRESTIGE”, which sank at sea following a storm in November 2002. The resulting oil spillage severely polluted the Atlantic coasts of the Defendants, who had subsequently brought a number of separate actions (both civil and criminal) against various parties, in both France and Spain. These included proceedings brought by both Defendants against the Claimant, under the Spanish Penal Code, which provides an injured party with a direct right of action against an insurer.

    In the present proceedings, the Defendants, pursuant to s. 67 and / or s. 72 of the Act, challenged the jurisdiction of the arbitral Tribunal, raising a number of issues, which were dealt with in turn. The Defendants argued that they were not bound by the arbitration agreement as their direct action rights against the Claimant were independent rights under Spanish law, rather than contractual rights under the Policy (which contained the arbitration clause). The court held that the direct action right conferred by Spanish law was in substance a right to enforce the contract, in this case the Policy, rather than an independent right of recovery.

    Both Defendants also claimed they were immune from the jurisdiction of the English court, by reason of state immunity. The court held that the Defendants, in bringing a claim under the Policy (albeit a direct action) which contained an arbitration clause, became parties to an arbitration agreement. This constituted an exception to the rule of prima facie immunity afforded to the Defendants under the State Immunity Act 1978 (the SIA), rendering invalid the Defendants’ assertions that the Queen’s Bench Division did not have jurisdiction.

    The court, in its discretion, granted the s.66 application of the Claimant, and refused the s. 67 and / or s. 72 applications of the Defendants, noting that it has always “upheld the principle of freedom of contract and supported the enforcement of contractual bargains freely entered into”.

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