A. Introduction
On 12 December 2024, the English Court of Appeal handed down the latest judgment in a series of arbitral and court decisions relating to the sinking of the M/T Prestige in 2002, which caused widespread environmental damage along the Spanish and French coastlines.1
The Court of Appeal’s judgment clarifies English law concerning the enforcement of arbitration agreements against non-signatories. Notably, it has clarified the remedies available to an applicant seeking to enforce an arbitration agreement in such circumstances.
B. When Will an Equitable Obligation Arise?
In general, English law takes a restrictive approach to binding non-signatories to arbitration agreements. Subject to certain limited exceptions, only parties who agree, in writing, to submit a dispute to arbitration will be bound to do so.2
There are, however, limited circumstances where a third party who was not itself a signatory to the arbitration agreement can be bound by it. This possibility is envisaged in the Arbitration Act 1996, Section 82(2):
“References […] to a party to an arbitration agreement include any person claiming under or through a party to the agreement.”3
Often, a non-signatory will be content to rely upon an arbitration agreement to enforce their rights, but that is not always the case. The question therefore arises as to when and how a non-signatory may be bound to an arbitration agreement against their will. As a matter of English law, an equitable obligation to arbitrate arises where a non-signatory third party is transferred, assigned, or has been granted a statutory entitlement to enforce certain contractual rights that fall within the scope of an arbitration agreement, and subsequently seeks to enforce those rights against a contracting party.
Thus, within the context of the M/T Prestige litigation, France and Spain were granted rights to make a direct claim under Spanish law to recover damages against the insurer under an insurance policy provided to the owners and managers of the M/T Prestige. In a 2015 Court of Appeal judgment, Moore-Bick LJ held that the rights conferred on France and Spain were in substance rights to enforce a contract of insurance, which was governed by English law and contained an exclusive arbitration agreement. As a result, Moore-Bick LJ held that the scope of the insurer’s liability, and the terms upon which it could be enforced, was likewise subject to English law. It followed that, if France and Spain wished to pursue their claims against the insurer, they had to do so in arbitration in accordance with their equitable obligation to arbitrate.4
Nonetheless, France and Spain persisted in foreign proceedings against the insurer, which culminated in a Spanish judgment dated 1 March 2019 that awarded nearly US$ 1 billion in compensation against the insurer. Enforcement of this judgment was sought in the English courts. In the meantime, the insurer initiated further arbitrations under the arbitration agreement, in which it obtained (inter alia) injunctions restraining enforcement of the Spanish judgment and/or equitable compensation. The Court of Appeal therefore had to consider: (i) whether the Spanish judgment should be enforced; and (ii) whether the relief granted under the arbitrations was within the power of the relevant tribunals.
C. How Can an Equitable Obligation to Arbitrate Be Enforced?
Prior to the recent Court of Appeal judgment in M/T Prestige, it was thought that the enforcing party would typically have at least three options.
First, the enforcing party might seek an injunction. This is the primary remedy for breach of an equitable obligation to arbitrate.5 Typically, the English courts will grant such an injunction - which can include an injunction restraining enforcement of a judgment obtained in breach of an equitable obligation to arbitrate - if a party has acted in breach of the arbitration agreement.
Second, the enforcing party may seek damages in lieu of (or in addition to) an injunction, under Section 50 of the Senior Courts Act 1981 (SCA 1981).6 Such damages can be awarded in all cases in which the court has jurisdiction to entertain an application for an injunction. In principle, such damages can be awarded for future, as well as past, breaches for which an injunction could have been granted but was not.7
Third, there was some authority to suggest that the enforcing party might be able to seek equitable compensation pursuant to the English court’s broad equitable jurisdiction.8 Thus, in circumstances where an injunction was unavailable,9 the enforcing party might still be able to obtain monetary compensation for the infringement of the equitable obligation to arbitrate.
Following the Court of Appeal’s judgment in M/T Prestige, it now appears that: (i) none of these options will be available against state parties in the absence of consent by the state to injunctive relief; and (ii) only an injunction, or damages in addition to or in lieu of an injunction, will be available against non-state parties.
D. The Relevance of the M/T Prestige Case to the Equitable Obligation to Arbitrate
In the M/T Prestige case, the issues before the Court of Appeal were whether arbitrators appointed under the relevant arbitration agreement had the power to:
(i) grant injunctive relief against state parties, restraining them from enforcing the Spanish judgments that were procured in breach of the arbitration agreement;
(ii) award equitable damages in lieu of an injunction by virtue of Section 50 of the SCA 1981; or
(iii) award equitable compensation.
The Court’s findings with respect to each issue are briefly addressed below.
Injunctive Relief
On the first issue, Vos MR accepted that typically the remedy for breach of an equitable obligation to arbitrate was an injunction, and that this would have been the insurer’s “primary remedy” against a non-state party commencing foreign proceedings in breach of the arbitration agreement.10
However, Vos MR found that this remedy was unavailable against states. Vos MR noted that Section 48(5) of the Arbitration Act – which provides arbitral tribunals with the power to order injunctive relief – expressly states that the tribunal has “the same power as the court.”11 In this case, the court had no power to grant injunctions, since no consent had been given by either France or Spain in accordance with Section 13(3) of the State Immunity Act 1978. Therefore, the arbitral tribunal likewise had no power to award an injunction.
Damages in Lieu of an Injunction
On the second issue, Vos MR found that equitable damages in lieu of an injunction were not available since the tribunal had no power to award an injunction, and the two were intrinsically entwined. As stated by Vos MR: “All authorities seem to me to point in one direction. There has to be power or jurisdiction to grant an injunction before equitable damages under section 50 are available.”12
Equitable Compensation
On the third issue, Vos MR considered in some detail whether equitable compensation could be available for breach of an equitable obligation to arbitrate, in terms of both whether the existing authorities justified the grant of equitable compensation, and, if not, whether some extension of the principle was appropriate.
Vos MR found that the existing authorities, which concerned non-states, established that a declaration and/or an injunction were the equitable remedies that had thus far been established for a breach of an equitable obligation to arbitrate (or potentially, equitable damages in lieu of an injunction). The existing authorities did not establish a freestanding right to equitable compensation against non-states, let alone against states.13
Vos MR therefore considered whether an extension of equitable principles should justify an award of equitable compensation in this case. He concluded that it did not, since “equitable compensation cannot be used to short circuit, for sovereign states, the well-established approach adopted under section 50,”14 namely to only award damages in circumstances where the court had the power to grant an injunction, and thus where consent had been provided under Section 13(3) of the State Immunity Act 1978. For that reason, Vos MR ultimately concluded that there was no basis to “widen the categories of case in which the power to award [equitable] compensation has currently been recognised” to include cases involving breach of an equitable obligation to arbitrate.
E. Key Implications for Contracting Parties
This decision relates to a complex and unusual fact pattern; however, it has significant implications that are relevant far beyond the specific circumstances of this case.
First, this case demonstrates that there are limited options available to a party seeking to enforce an equitable obligation to arbitrate against a state. Unless consent is provided in accordance with Section 13(3) of the State Immunity Act 1978, an injunction, damages in lieu of injunction, and equitable compensation will all typically be unavailable. Instead, the contracting party will be left to resist enforcement of any judgment obtained in breach of the equitable obligation to arbitrate in the enforcing court (as the insurer successfully did in M/T Prestige).
Second, the case clarifies the options available to a party seeking to enforce an equitable obligation to arbitrate against a non-state party. In this regard, the enforcing party will have two potential options: injunctive relief, or damages in lieu of an injunction. The Court of Appeal also confirmed that damages in lieu of an injunction can extend to cover past and future damages caused by a breach of an obligation to arbitrate, which may substantially increase the quantum of damages awarded.
Third, the case shows the crucial impact that state immunity can play in arbitration claims under English law, even given the comparatively restrictive approach taken to state immunity under the State Immunity Act 1978 (which provides immunity subject to exceptions such as consent, unlike other national regimes). It also highlights how the relevance of state immunity extends beyond national court systems to impact the types of relief that can be awarded by international arbitral tribunals (an issue that has arisen in a number of interesting recent arbitration-related decisions - see our colleagues’ comments on cases in the United States here).
1 The Kingdom of Spain v. The London Steam-Ship Owners’ Mutual Insurance Association Limited [2024] EWCA Civ 1536.
2 Arbitration Act 1996, Section 5.
3In particular, commentary confirms that Section 82(2) is a “general provision” that will apply (inter alia) where a third party seeks to enforce an underlying contract that contains an arbitration agreement under the Contracts (Rights of Third Parties) Act 1999, or where an insurer exercises subrogation rights: see Merkin & Flannery, Arbitration Act 1996, 5th ed., at p. 377.
4The London Steam-Ship Owners’ Mutual Insurance Association Limited v. The Kingdom of Spain [2015] EWCA Civ 333 at para. 30.
5 Schiffahrtsgesellschaft Detlev Von Appen GmbH v. Voest Alpine Intertrading GmbH [1997] 2 Lloyd’s Rep 279 (The Jay Bola) at p. 291.
6 The section states, “Where the Court of Appeal or the High Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance.”
7The Kingdom of Spain v. The London Steam-Ship Owners’ Mutual Insurance Association Limited [2024] EWCA Civ 1536 at para. 185.
8 See Argos Pereira España S.L. v. Athenian Marine Ltd [2021] EWHC 554 (Comm), [2021] 2 Lloyd’s Rep 387 (The Frio Dolphin) at para. 19; and The Front Comor [2012] 2 All ER (Comm) 395 (Flaux J, obiter at para. 77, “[I]t seems to me there would be a strong case for awarding damages for breach of the duty to arbitrate.”).
9 One such example would be where a state had not provided the requisite consent to injunctive relief under Section 13(3) of the State Immunity Act 1978.
10 The Kingdom of Spain v. London Steam-Ship Owners’ Mutual Insurance Association Limited [2024] EWCA Civ 1536 at para. 192.
11 Arbitration Act 1996, Section 48.5.
12The Kingdom of Spain v. London Steam-Ship Owners’ Mutual Insurance Association Limited [2024] EWCA Civ 1536 at para. 191.
13 The Kingdom of Spain v. London Steam-Ship Owners’ Mutual Insurance Association Limited [2024] EWCA Civ 1536 at para. 217.
14 The Kingdom of Spain v. London Steam-Ship Owners’ Mutual Insurance Association Limited [2024] EWCA Civ 1536 at para. 218.
