Supreme Court hands down judgment in The Kingdom of Spain and The French State v The London Steam-Ship Owners’ Mutual Insurance Association Limited (The Prestige) [2026] UKSC 36

29/10/26

The Supreme Court has found in favour of the Insurers in the latest instalment of this long-running litigation against the Kingdom of Spain and the French State. 

The case arises from the sinking of an oil tanker, the MT Prestige, in 2002, causing a significant oil spill and widespread pollution damage to the Spanish and French coastlines.  The States sued the shipowners’ insurers in the Spanish courts under a Spanish direct action statute which allows a victim of harm to sue an insurer directly by effectively stepping into the shoes of the insured under the policy.  The Insurers’ position was that because the States were seeking to enforce the benefit of the insurance contract, they must comply with any inextricably linked burden in the policy, which included the London arbitration clause.  In earlier English proceedings, London arbitral tribunals (and Mr Justice Hamblen (as he then was) and the Court of Appeal enforcing the awards under s.66 Arbitration Act 1996 (“AA 1996”)) agreed, declaring that the States were bound to arbitrate their claims and also that under English law, which governed the policy, the Insurers were not liable to the States.  Despite those declarations, the States continued their pursuit of the Spanish proceedings and obtained a c. USD1bn judgment against the Insurers.  Due to state immunity, no anti-suit injunction was available to restrain the foreign proceedings and the question arose as to whether the Insurers could obtain monetary compensation for breach of the arbitration agreement instead.

Sir Peter Gross and Dame Elizabeth Gloster (sitting separately as sole arbitrators) and Mr Justice Butcher on appeals under s.69 AA 1996 held that equitable compensation was available to the Insurers.  The Court of Appeal disagreed, holding that there was no power to grant such a remedy.  The Supreme Court allowed the Insurers’ appeal, holding that monetary compensation was available, the remedy lying in damages for breach of contract. 

The judgment, given by Lord Leggatt and Lord Burrows (Lord Lloyd-Jones, Lord Doherty and Lord Snowden agreeing) covered a range of issues of general interest to commercial litigators:

• The Supreme Court provided its first detailed analysis of the “conditional benefit principle”.  As noted above, the States were not direct contracting parties to the arbitration clause but were instead held to be bound by the operation of a benefit/burden analysis, which has been termed the conditional benefit principle and applied most often in property disputes (e.g. where successors in title seek to enforce rights under predecessors’ contracts which are subject to indissociable burdens) and in the context of seeking to bind third parties such as assignees, subrogees or direct action claimants to dispute resolution provisions in the underlying contract.  Importantly, the Supreme Court disapproved a line of authority (including High Court and Court of Appeal cases) which viewed the conditional benefit principle as giving rise to rights and obligations in equity only.  Instead, the principle operates equally in contract and equity and where the third party becomes bound to an obligation, the obligation must be the same, retaining its original character as legal or equitable, and the remedies available for breach should be the same.  In this case, the conditional benefit principle treats the States as a party to the insurance contract and so a breach of the obligation to arbitrate is treated as being a breach of a contractual obligation sounding in common law damages.  The analysis thus provides an exception to the rules of privity of contract and a novel way of holding third parties to obligations as a matter of contract with contractual remedies available for breach, without a novation having been agreed. 
• The judgment considered the availability of equitable remedies in commercial cases more generally, exploring the penumbra between remedies in the law of equity and the law of contract.  The Supreme Court made statements of potentially wide-ranging application including confirming that, in principle, there is no reason why equitable compensation cannot be awarded for breach of any equitable wrong (in circumstances where, to date, equitable compensation has developed in a more ad hoc manner in relation to distinct types of equitable wrong).  The Court was concerned with ensuring coherence and rationality in the availability of remedies, for example, finding that it would be irrational to permit the coercive remedy of an anti-suit injunction to restrain breach of the obligation to arbitrate while denying the availability of damages if a breach is committed.  Moreover, the Supreme Court robustly rejected the Court of Appeal’s view that section 50 Senior Courts Act 1981 (the modern successor to Lord Cairns’ Act) which gives power to award damages in addition to or in lieu of an injunction, removed or cut down other remedies of monetary compensation. Contractual damages, equitable compensation and s.50 damages are simply alternatives in the suite of remedies available for contractual or equitable wrongs depending on the circumstances. 
• The Supreme Court also confirmed the availability of contractual indemnities in respect of future (uncrystallised and therefore unquantified) losses arising out of past breaches, whilst holding that damages cannot be awarded under the common law in respect of a breach which has not yet been committed. 
• Finally, the Supreme Court adopted a robust position in relation to the jurisdictional limits of appeals under s.69 AA 1996, following the approach in Sharp v Viterra [2024] UKSC 14; [2024] 4 All ER 273.  The Court held that in this case the Court of Appeal had “lost sight of” and exceeded the statutory limits of s.69 by considering various issues which were not within the scope of the appeals brought by the States and therefore should not have been considered by the Court of Appeal. 

In the result, the Supreme Court confirmed that the arbitrators were entitled to award monetary relief albeit on the basis of contractual damages rather than equitable compensation.  The Court therefore allowed the appeal and confirmed the awards, subject to amendments clarifying the legal rather than equitable basis on which the monetary relief was being upheld.

The full judgment is available here.