London Steam-Ship Owners' Mutual Insurance Association Ltd v Spain and Another [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 22 October 2013 |
| Neutral Citation | [2013] EWHC 3188 (Comm) |
| Docket Number | Case No: 2013-368 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 October 2013 |
[2013] EWHC 3188 (Comm)
Mr Justice Hamblen
Case No: 2013-368
2013-920
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC2A 1NL
Mr Christopher Hancock QC and Ms Charlotte Tan and Mr Thomas Corby (instructed by Ince & Co LLP) for the Claimants
Mr Joe Smouha QC and Ms Anna Dilnot (instructed by K&L Gates LLP) for the Defendants
Hearing dates: 3, 4, 7, 8, 9, 10 and 14 October 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
In November 2002 M/T "PRESTIGE" ("the vessel") was on a voyage from St Petersburg to the Far East carrying 70,000 tonnes of fuel oil.
On 13 November 2002 the vessel suffered damage from a storm surge 28 miles from Cape Finisterre and began to list significantly. A distress call was sent to the Spanish authorities but salvage attempts over the following days were unsuccessful. On 19 November 2002 the vessel broke in two and sank.
The resulting oil spillage was an ecological disaster severely polluting the Atlantic coasts of Cantabria and Galicia. Its effects spread as far as France where thirteen administrative departments from the western coastal area were affected. Cleaning up after the spill required extensive resources and took years.
In late 2002 criminal proceedings were instituted in Spain against the Master, Chief Officer and Chief Engineer and Mr Lopez-Sors, the Spanish official who had ordered the vessel to sail away from the coast ("the Spanish proceedings").
In or about June 2010, at the conclusion of the investigatory stage of the criminal proceedings, civil claims were brought against the owners of the vessel, Mare Shipping Inc ("the Owners"), on the grounds of its vicarious liability, and also against the Owners' protection and indemnity ("P&I") insurers, the London Steamship Owners Mutual Insurance Association Limited ("the Club"). These claims were brought under Article 117 of the Spanish Penal Code 1995 ("the Penal Code") (which provides an injured party with a direct right of action against an insurer in certain circumstances) and the Convention on Civil Liability ("CLC") in respect of the damage caused by the loss of the vessel. Claims were brought by several separate legal entities, including the State Administration of Spain ("Spain"), the Spanish Public Prosecutor and two autonomous Spanish territorial entities, Galicia and (although there was a dispute about this) Arteixo. The claims brought in June 2010 by the Spanish entities were for just under €1 billion. However, that amount has now increased to approximately €4.3 billion. At about the same time, the Republic of France ("France") and a number of local French government entities and organisations joined the Spanish criminal proceedings claiming that the Club was civilly liable under the CLC and Article 117 of the Penal Code. France's claim is for approximately €67.5 million.
The Club acknowledges its CLC liability. The CLC broadly imposes strict liability (subject to certain limited exceptions) on the owners of ships to compensate persons who suffer oil pollution damage, as defined. To ensure that a ship owner is in a position to meet his obligations under the CLC he is obliged to arrange insurance up to his CLC limit (in this case SDR 18,884,400). In this case, the Club was the Owners' CLC insurer. The CLC provides for direct action against the CLC insurer, but only up to the amount of the CLC Fund: Article VII.8 of the CLC. The amount of the CLC Fund for this incident, which was constituted in Spain on 28 May 2003 (at the then exchange rate), is €22,777,986.
In relation to the non-CLC claims the Club's position is that the civil claimants are bound by the terms of the contract of insurance contained in the Club Rules to bring those claims in arbitration and by the English law clause in those Rules. Further, they are bound by any contractual defences available to the Club, including the "pay to be paid" clause (Rule 3.1) and that upon the proper application of the "pay to be paid" clause, the Club has no liability.
The Club has accordingly played no part in the Spanish proceedings. It did, however, commence London arbitration proceedings seeking negative declaratory relief in respect of any non-CLC liability to Spain and France. The references against each respondent proceeded separately but the same Tribunal (constituted of Mr Alistair Schaff QC) was appointed in each case. Neither Spain nor France participated in the arbitrations.
In awards dated 13 February 2013 (Spain) and 3 July 2013 (France), the Tribunal upheld most of the Club's claims for negative declaratory relief in respect of any non-CLC liability. Declarations were granted that Spain/France were bound by the arbitration clause in the Club's Rules to refer the civil claims being brought in Spain to arbitration; that actual payment of the insured liability by the insured member is a condition precedent to the Club's liability pursuant to the "pay to be paid" clause in the Club Rules; that in the absence of such prior payment the Club is not liable to France/Spain in respect of the claims, and that the Club's liability shall, in any event, not exceed the amount of US$1,000,000,000 (U.S. Dollars One Billion).
The Club now seeks permission pursuant to s.66 of the Arbitration Act 1996 ("the Act") to enforce the two arbitration awards as judgments and/or to have judgments entered in their terms.
France and Spain (together "the Defendants") resist the s.66 application as a matter of jurisdiction, on the grounds that they have state immunity, and as a matter of discretion.
They have also brought their own applications challenging the substantive jurisdiction of the Tribunal pursuant to s.67 and/or s.72 of the Act on the grounds that they are not bound by the arbitration agreement as their direct action rights are in essence independent rights under Spanish law rather than contractual rights, non-arbitrability and (in relation to France only) waiver.
The trial of the Spanish proceedings took place between 16 October 2012 and 10 July 2013. Judgment is expected in November 2013 and the present applications have been brought on before the court on an expedited basis, at the Club's behest.
The hearing of the applications took 7 days. I heard oral evidence from Spanish law experts, Professor Andrés Betancor for the Defendants and Dr Ruiz Soroa and Mr Fajardo for the Club; French law experts, Mr Grelon for France and Mr Gautier for the Club; and factual witnesses Mr Irurzun Montoro for the Defendants and Dr Ruiz Soroa for the Club.
Both parties made extensive written submissions and I have drawn on those submissions, with adaptations and amendments, in preparing this judgment, particularly in relation to matters of common ground and in setting out the parties' arguments.
The factual background
The insurance contract
In the year commencing 20 February 2002, the vessel was entered with the Club in respect of P&I and FD&D cover. The P&I contract of insurance ("the contract") was evidenced by a Certificate of Entry by which the Club agreed to provide P&I cover for the Owners and Managers (Universe Maritime Ltd) of the vessel in respect of, inter alia pollution liabilities up to a maximum aggregate amount of US$1 billion.
The contract was subject to the Club's Rules of Class 5 — Protecting and Indemnity ("the Rules"). The Rules included the usual P&I "pay to be paid" clause and incorporated the Marine Insurance Act 1906.
The most material provisions of the Rules are as follows:
"RULE 1 INTRODUCTORY
All insurance afforded by the Association within this Class is by way of indemnity and all contracts relating thereto shall be deemed to incorporate the provisions of these Rules, save insofar as those provisions are varied by any special terms which have been agreed pursuant to these Rules…; all such contracts and these Rules shall be governed by English law and shall be subject to the provisions of the Marine Insurance Act 1906 and any statutory modifications thereof.
…whatever insurance is afforded by the Association within this Class shall always be subject to the provisos, warranties, conditions, exceptions, limitations and other terms set out in the remainder of these Rules.
RULE 3 RIGHT TO RECOVER
If any Member shall incur liabilities, costs or expenses for which he is insured, he shall be entitled to recovery from the Association out of the funds of this Class, PROVIDED that:
1 actual payment (out of monies belonging to him absolutely and not by way of loan or otherwise) by the Member of the full amount of such liabilities, costs and expenses shall be a condition precedent to his right of recovery; [hereinafter "the pay to be paid clause"]
RULE 9 RISKS COVERED
Subject to any special terms which may be agreed in writing, a Member is insured in respect of each ship entered by him in this Class against the risks set out in Rule 9.2 – 9.28, PROVIDED that such risks arise:
1 in respect of the Member's interest in such ship; and
2 in connection with the operation of such ship by or on behalf of the Member; and
3 out of events occurring during the period of entry of such ship.
Pollution:
1 Liabilities, costs and expenses set out in Rule 9.15.1.1 – 9.15.1.4 to the extent that they are the result of the discharge or escape from an entered ship of oil or any other polluting substance, or the threat of such...
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