Season the lamb shanks with sea salt, freshly ground black pepper and the thyme, and set aside.
Place the oil, onions and garlic in a large, heavy-based saucepan over low-medium heat and cook for 8 minutes or until soft but not browned. Add the capsicums and cook gently for 45 minutes or until very soft.
Add the tomatoes and bay leaves, and cook for a further 30 minutes or until the tomatoes break down and the mixture thickens.
Add the wine and water, increase the heat to high and bring to the boil. Stir in the paprika, then reduce heat and simmer for a further 30 minutes.
Preheat the oven to 180°C.
Place the lamb shanks in a single layer in a roasting pan or large baking dish and pour the red pepper sauce over the top. The sauce should just come to the top of the meat, so that the lamb browns as the sauce evaporates.
Cook for 2 hours, turning occasionally, or until the shanks are very tender.