A third party claiming the benefit of an insurance contract may also have to accept its arbitration clause - and face contractual damages for pursuing the claim elsewhere.
That is the central conclusion of the UK Supreme Court’s unanimous October 28 judgment in The Prestige (No 2), [2026] UKSC 36.
The Court allowed the insurer’s appeal and held that the relevant obligation to arbitrate was contractual. The appropriate monetary remedy was therefore common-law damages for breach of contract, rather than equitable compensation.
How the dispute reached the Supreme Court
The litigation followed the sinking of the tanker Prestige in 2002, which polluted the Spanish and French coastlines.
Spain and France pursued direct claims against the vessel’s liability insurer through Spanish proceedings. The insurance contract required disputes to be arbitrated in London under English law.
Applying the conditional benefit principle, the English proceedings treated the states’ claims as deriving from the insurance contract. Taking that contractual benefit also brought the related arbitration obligation.
Why the distinction between law and equity matters
The Supreme Court upheld monetary relief on the basis of contractual damages, correcting the legal characterization underlying the awards.
That distinction affects more than terminology. Contractual damages and equitable compensation operate through different principles, including the role of discretion and available defences.
For arbitration and insurance lawyers, the decision reinforces the importance of examining how a third party’s claim arises. A claimant may not have signed the original agreement, but a right derived from that agreement can carry obligations relevant to enforcing it.
For Canadian practitioners, the judgment is a comparative authority under English law. Its application elsewhere will depend on the governing law, the source of the third party’s rights and the particular arbitration agreement.
Sources: UK Supreme Court judgment · Court press summary
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