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State immunity and arbitration - can arbitrators issue injunctions against States? The Prestige saga continued

The English High Court has rejected Spain’s challenge against an English seated arbitration award.  In doing so, the judge commented that an arbitral tribunal has no power to grant an injunction against a State where there is no waiver of immunity in relation to enforcement.

In 2002, the Prestige ship suffered damage from a storm and sank off the coast of Spain and France. The resulting oil spillage caused significant pollution to both coasts. The Prestige was insured by London Steam-ship Owners’ Mutual Insurance (the Club). The incident gave rise to a series of claims between Spain, France and the Club, both in the courts and in arbitration.

This post considers just one of the many issues that the English court was asked to consider in relation to the claims involving Spain: whether an arbitrator has power to issue an anti-suit injunction against a State.

The issue arose because the arbitrator in the arbitration brought by the Club against Spain in London had (among other things) awarded equitable compensation to the Club on the basis that Spain had breached its obligation to arbitrate the dispute by commencing proceedings in the Spanish courts.  The arbitrator also found that he had the power to grant an anti-suit injunction against Spain, although he exercised his discretion not to do so and instead awarded damages in lieu of an anti-suit injunction.

Spain challenged the award before Butcher J in the English High Court on a number of different grounds.  Among other things, Butcher J found that the arbitrator had been correct to award equitable compensation for the breach of the obligation to arbitrate, but noted obiter that an arbitral tribunal has no power to grant an injunction against a State (nor therefore damages in lieu of an injunction).

An arbitrator’s power to issue an injunction stems from s.48(5) of the Arbitration Act 1996 (the AA)

An arbitrator’s ability to grant an injunction stems from s.48(5) of the AA which provides that “The tribunal has the same powers as the court – (a) to order a party to do or refrain from doing anything”. In the ordinary course, this would include the power to grant injunctions.  However, a State has immunity from enforcement and injunctive relief in the English courts under s.13(2) of the State Immunity Act 1978 (the SIA), subject to various exceptions.

Spain’s case was that the court could not have granted an injunction against it without consent (which the parties agreed had not been given), so neither could the arbitrator, who only had “the same powers” as the court.  The Club’s view was that the SIA does not apply to arbitrators, who are not courts or organs of the State, and that the reference in s.48(5) to the tribunal having “the same powers as the court” is simply a descriptive phrase referring to the type of remedy available. 

An arbitrator has no power to issue an injunction against a State without the State’s consent

Butcher J disagreed with both the arbitrator and an obiter comment by Henshaw J in The Prestige (No. 3) (in which Henshaw J stated that s.13 of the SIA governs the exercise of the court’s power to grant an injunction but not the existence of that power).  Butcher J’s view was that an arbitral tribunal cannot issue an injunction against a State unless the State’s s.13(2) immunity had been waived. 

According to Butcher J:

  • Section 13(2) limits the jurisdiction of the courts such that they have no power to grant an injunction against States – it is not merely a constraint on the exercise of such power.
  • Section 48(5) cannot be read as referring just to the type or classes of powers a court has and not the “limitations on the circumstances in which the court has to exercise such powers”.  Rather, it refers to the “actual powers of the court” in relation to litigants before it.  In his view, if the court lacks a power to make an order against a party to court proceedings because of an immunity which that party has, then s48(5) confers no power on an arbitrator to make such an award against such a party.
  • The fact that s.13(2) of the SIA is based on the principle of par in parem non habet imperium (“equals have no sovereignty over each other”) was not sufficient to outweigh the drafting of s.48(5) of the AA.  The purpose of s.48(5) was to ensure parity between the awards of arbitral tribunals and courts (and to ensure that awards made pursuant to that power are capable of enforcement by the court).

There was one point that Butcher J deferred consideration of because it is subject to an appeal in another case, The Resolute, which is being heard by the Court of Appeal in the next month.  The question for the Court of Appeal in The Resolute is whether the prohibition on the grant of injunctions in relation to commercial acts of a State has a tenable basis under customary international law or whether it is a disproportionate denial of justice in violation of Article 6 of the European Convention on Human Rights.

The Court of Appeal’s decision in The Resolute will shed further light on the implications of s.13(2) when it comes to the English court’s (and accordingly arbitral tribunals’) power to grant an injunction against a State.  In the meantime, we are left with two contradictory sets of obiter comments on the scope of powers under s.48 of the AA: (1) Henshaw J’s in The Prestige (No. 3); and (2) Butcher J’s position in this case.  If the decision in The Resolute does not resolve the issue, it is likely that we will see further litigation on this question in the future.

 

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