Court Upholds Tribunal's Jurisdiction To Determine Remedies For Breach Of Arbitration Agreement And Rejects Claim For State Immunity (London SteamShip V Spain, M/T 'Prestige')

• Published date: 24 August 2020
• Subject Matter: Corporate/Commercial Law, Insurance, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Insurance Laws and Products, Arbitration & Dispute Resolution
• Law Firm: Quadrant Chambers
• Author: Paul Toms

Arbitration analysis: A challenge by the Kingdom of Spain (Spain) to an order granting permission to serve an arbitration claim form out of the jurisdiction was rejected by Mr Justice Henshaw in the Commercial Court. London Steam-Ship Owners' Mutual Insurance Association Ltd (the Club) sought the appointment by the court of a sole arbitrator under section 18 of the Arbitration Act 1996 (AA 1996). The claims referred to arbitration were for remedies arising out of Spain's pursuit in its courts of claims against the Club, brought in breach of an arbitration agreement providing for arbitration in London. Spain argued that (i) it was immune from all suits brought by the Club under the State Immunity Act 1978 (SIA 1978), and/or, (ii) the court lacked jurisdiction to appoint an arbitrator, as the claims did not fall within the scope of the arbitration clause. The court held that (i) Spain did not have state immunity, and, (ii) the court did have jurisdiction to appoint a sole arbitrator in respect of all bar one of the Club's claims. Written by Paul Toms, barrister, at Quadrant Chambers.

London Steam-Ship Owners' Mutual Insurance Association Ltd v Kingdom of Spain, M/T 'Prestige' [2020] EWHC 1582 (Comm).

For our initial coverage of this judgment, see: : Commercial Court concludes Spain has no immunity in respect of arbitration claim for appointment of arbitrator in oil spill insurance dispute (The London Steam-Ship Owners' Mutual Insurance Association v Spain, M/T 'Prestige').

What are the practical implications of this case?

It is established law that where a party, X, acquires or asserts rights under a contract between two other parties, B and C, X can only enforce those rights consistently with the terms of that contract. That means that where the contract contains an arbitration agreement, X can only permissibly pursue any substantive claim in arbitration and not in some other forum. This is the application of the so-called 'conditional benefit' principle.

The principle often arises in the context of claims by an assignee against the contractual counterpart of the assignor. Sometimes the assignee is an insurance company because some European legal systems provide that where an insurer indemnifies an assured under an insurance policy, there is an automatic assignment of the assured's rights against its contractual counterpart or a tortfeasor. By contrast, for insurance policies subject to English law, such a claim would be pursued by the insurer in the name of the assured pursuant to the insurer's rights of subrogation.

This case establishes that where the 'conditional benefit' principle...