Nov 4
Following an incident in which a vessel broke in two off the coast of Spain, causing significant pollution damage, the Spanish and French states brought civil claims in Spain against the vessel owner’s insurer, relying on a Spanish law which provided for the direct civil liability of liability insurers. The insurer then commenced arbitration proceedings against the two states in London, relying on an arbitration clause in the contract of insurance between the vessel owner and the insurer. The arbitrator made an award declaring that the two states were bound by the arbitration clause and that their civil claims had to be referred to London arbitration. The insurer obtained an order under section 66 of the Arbitration Act 1996 giving it leave to enforce the award and entering judgment in terms of the award. That order was upheld by the Court of Appeal. Subsequently the states obtained judgment against the insurer in the Spanish proceedings, which they had pursued in disregard of the arbitration clause and the English arbitration proceedings. The insurer commenced a fresh arbitration claim in the High Court, seeking the appointment of an arbitrator pursuant to section 18 of the 1996 Act (“the section 18 application”). In allowing the application and appointing an arbitrator, the judge rejected Spain’s claim to state immunity under section 3 of the State Immunity Act 1978. In addition, the insurer brought claims in the High Court against the two states for failure to honour the arbitration awards (“the award claims”) and for failure to abide by the judgments and orders of the English courts in the section 66 proceedings (“the judgment claims”). Permission was granted to serve the arbitration claim forms out of the jurisdiction. The states applied to set those orders aside. The judge, allowing the applications in part, held that (i) France had been validly served with the judgment claims in accordance with either article 14 or article 15 of Regulation (EC) No 1393/2007. (ii) The states lacked immunity pursuant to section 9(1) of the 1978 Act in respect of the award claims, but not in respect of the judgment claims. However, the states’ continued pursuit of their direct civil claims in the Spanish proceedings constituted a “commercial transaction”, for the purposes of section 3(1)(a) of the 1978 Act. Both the award claims and the judgment claims were proceedings “relating to” that commercial transaction and, accordingly, the states lacked immunity pursuant to section 3(1)(a). (iii) The award claims fell within the “arbitration” exception under article 1(2)(d) of Regulation No 1215/2012. However, under common law rules, the court did have jurisdiction in respect of the award claims since, on the facts, those claims fell within at least one of the jurisdictional gateways contained in para 3.1 of CPR Practice Direction 6B, there was a serious issue of fact or law that should be tried and England was clearly or distinctly the most appropriate forum. By contrast, the court did not have jurisdiction over the judgment claims, since those claims were “matters relating to insurance” within article 10 of Regulation No 1215/2012. The states were “injured parties” within article 13 of the Regulation, and thus entitled to the jurisdictional protections of article 14, under which an insurer could bring proceedings only in the courts of the member state in which the defendant was domiciled. Accordingly, although leave had been properly granted to serve the award claims out of the jurisdiction, the court had to decline jurisdiction in relation to the judgment claims. The states appealed, contending that the courts below were wrong to reject the claims to state immunity and to accept jurisdiction over the award claims. The insurer also appealed, contending that the judge was wrong to hold that the court did not have jurisdiction over the judgment claims.
On appeals—
Held, appeal by the states allowed in part. (1) The claims were contractual in nature, and the contract in question was a commercial contract of insurance, therefore the activity in question fell properly to be characterised as “commercial” activity within the meaning of section 3 of the State Immunity Act 1978. Activity seeking monetary compensation by virtue of a commercial contract against the consequences of a commercial misadventure was plainly commercial in character. The fact that it involved a claim advanced in judicial proceedings did not make it less so, nor did the fact that claims were being heard by a judicial authority make those claims “judicial” in character. The sole remaining issue was whether the proceedings “relate[d] to” that activity. The answer to that question depended upon a characterisation of the proceedings, which examined the nature of the claim being advanced, not whether it would succeed on its merits. In the present case, both the awards claims and judgment claims related to the commercial transaction, which was the continued pursuit of the civil claims in Spain by the states. It was incorrect to suggest that the award claims related to the arbitration awards and not to the underlying activity which gave rise to the awards. The commercial activity in pursuing the civil claims was an essential part of the award and judgment claims and central to the causes of action sued on in those claims. Furthermore, an application to appoint an arbitrator under section 18 of the 1996 Act to determine a claim for breaches of the obligation to arbitrate, where those alleged breaches comprised the commercial activity of pursuit of the Spanish proceedings, was a proceeding which was related to that commercial activity. Accordingly, the states did not have immunity by reason of the exception in section 3(1)(a) of the 1978 Act (paras 36–37, 44, 55, 57–58).
(2) Regarding the award claims, where Regulation (EU) No 1215/2012 applied, article 15 set out the only circumstances in which parties might contract out of Section 3 of the Regulation. It was accepted that an exclusive jurisdiction obligation applicable under the conditional benefit analysis in English law could not be invoked by a liability insurer facing a claim by an injured party bringing a direct action when that was permitted under the national law of the court concerned. However, that reasoning could not apply to an arbitration clause. As arbitration in its entirety was excluded from Regulation (EU) No 1215/2012, there could be no question of Section 3 having any effect in a case to which the “arbitration” exception in article 1(2)(d) applied. Accordingly jurisdiction in relation to the award claims had to be determined in accordance with domestic law principles. Regarding the judgment claims, it was apparent that neither the claims themselves nor the legal sources from which they were derived had anything to do with arbitration. The obligations which were said to arise from the judgments did not depend upon the fact that they happened to be judgments entered under section 66 of the Arbitration Act 1996 to enforce the awards. Although the arbitrations and the proceedings under sections 66, 67 and 72 of the 1996 Act formed part of the background to the judgment claims, their essential subject matter (or principal focus) was an obligation alleged to arise out of an English judgment, whatever its subject matter. It followed that the judgment claims were not within the “arbitration” exception and that jurisdiction over them was therefore governed by Regulation (EU) No 1215/2012 (paras 79–84, 92–93).
(3) The question whether the court had jurisdiction over the award claims under domestic principles turned, in the present case, on whether there was a serious issue to be tried on the merits of the claim. The issue was whether a declaratory award created any obligation to “honour” the award, breach of which gave rise to a cause of action for damages or equitable compensation. It was incorrect to suggest that a purely declaratory award was capable of creating any obligation, breach of which gave rise to a cause of action for damages or equitable compensation. First, it did not make sense to speak of failing to “honour” or to “perform” an award which did not order the defendant to do anything. Just as there could be no “breach” of a declaration amounting to a contempt of court, so there could be no breach of a declaration which merely declared the parties’ rights. Second, a declaratory award or judgment did not create new obligations or extinguish existing obligations, but merely declared what those existing obligations were. Third, there was no need to imply any such obligation (which might itself be thought fatal to any obligation founded upon an implied promise). The existing obligations were not merged in the award. They continued to exist and could be enforced, if necessary by a claim for damages. Accordingly, the award claims were bad in law. There was, therefore, no serious issue to be tried and the English court had no jurisdiction over them. Accordingly, the states’ appeal in respect of the award claims would be allowed (paras 98, 122–126, 150, 151).
Appeal by the insurer dismissed. (4) In deciding whether the court had jurisdiction over the judgments claims pursuant to Regulation (EU) No 1215/2012, the nature of the cause of action was an important factor in considering whether a claim was a “matter relating to insurance” within article 10. However, that could not detract from the need for an evaluative judgment looking at the substance and reality of the matter overall and applying common sense. The judgment claims were claims for damages or equitable compensation for the pursuit by the states of insurance claims in the courts to which jurisdiction for such claims was allocated by the Regulation. Their connection with the issue of liability under the contract of insurance was close and obvious. To treat the present claims as anything other than “matters relating to insurance” would elevate form over substance. Accordingly, the judge was right to hold that the judgment claims were “matters relating to insurance”, recognising that the section 66 judgments were “interposed” between the insurance policy and the claims, but holding that nevertheless the essential purpose of the claims was to seek to ensure compliance with, or redress for non-compliance with, obligations derived from an insurance policy, including its “pay to be paid” provision. The states were “injured parties” within the meaning of the Regulation and the states were entitled (subject to the arbitration agreements to which they were subject by operation of the English law conditional benefit principle) to bring their claims in the courts of their state pursuant to article 13(2) of the Regulation, which extended the provisions of article 11 (claimant’s domicile) and article 12 (place where the harmful event occurred) to injured parties. Under article 10, if the matter was one which related to insurance, then jurisdiction was to be determined in accordance with the section 3 provisions. Those provisions included article 14, under which an insurer could bring proceedings only in the courts of the member state in which the defendant was domiciled. It followed that article 14 required the judgment claims to be brought in the courts of the defendants’ domicile. Accordingly, the insurer’s appeal in respect of the judgment claims would be dismissed (paras 136–138, 140–143, 146, 150–151).
Christopher Hancock QC and Alexander Thompson (instructed by Ince Gordon Dadds LLP) for the claimant.
Timothy Young QC and Jamie Hamblen (instructed by Squire Patton Boggs (UK) LLP) for the Kingdom of Spain.
Anna Dilnot QC (instructed by K & L Gates LLP) for the French State.