Equitable Compensation Insurance

A recent Commercial Court decision has given a welcome boost to parties seeking to enforce contractual jurisdiction/forum clauses by confirming that equitable compensation may be awarded if a party deriving rights from the contract, such as an assignee or subrogated insurer, fails to comply.

Argos Pereira Espana v Athenian Marine (MV ‘Frio Dolphin’) involved bills of lading which provided for disputes to be determined in arbitration in London. Owners issued the bills of lading for carriage of a cargo of frozen seafood which became damaged.

The consignee was indemnified by its insurer, which then brought proceedings against the owners’ manager, Lavinia, in the Spanish courts. Lavinia successfully challenged the jurisdiction of the Spanish courts as it was not the contracting carrier – but was left with substantial unrecovered costs.

Owners commenced arbitration in London seeking to recover those costs, on the basis that although the insurer was not party to the bills of lading, it derived its rights from them and had an obligation to pursue its claim in accordance with the arbitration clause – and that equitable compensation could be awarded for breach of that obligation.

Where a claim is brought in the wrong forum, it may be possible to obtain an injunction to prevent the claim from proceeding. What was not clear was whether a claim could be brought in these circumstances for equitable compensation for breach of the forum clause.

Owners succeeded in arbitration and the Commercial Court, on appeal, held that there was nothing in previous authorities preventing such a claim and agreed that there were good reasons why such a remedy should be granted.

Owners were thus entitled to claim all of Lavinia’s unrecovered costs of the Spanish proceedings. The decision confirms that a party whose contract provides for English jurisdiction or arbitration has a remedy of equitable compensation – potentially for all foreseeable financial consequences – if a party deriving rights from the contract pursues foreign proceedings in the wrong forum.

The remedy may be particularly valuable where an injunction is not available – and parties should consider the position carefully where there may be potential difficulties in obtaining an injunction – for example where there are competing European claims, a subject made more uncertain following Brexit.

For more information, contact the Elborne Mitchell Commercial & Reinsurance Group:

Alex Booth,

+44 (0) 20 7320 9000

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