High Court: Interest on tort damages is a matter of procedure under Rome II

In Troke & Anor v Amgen Seguros Generales Compania De Seguros Y Reaseguros SAU [2020] EWHC 2976 (QB), Griffiths J was asked to decide whether interest on damages arising out of a road traffic accident in Spain was a matter of procedure (and therefore governed by English law) or a matter of substance (and therefore governed by Spanish law).

The Claimants were keen to benefit from the significantly higher rates of interest recoverable under Spanish law. The trial judge, who considered that the court’s discretion to award interest was a procedural matter governed by English law, limited them to English rates of interest (0.5% on special damages and 2% on general damages).

In summary, Griffiths J decided that:

• The English court’s power to award interest is a matter of procedure for the purposes of Rome II. The discretion is therefore one of the laws of the forum which remains open to the court apparently notwithstanding the content of the applicable substantive law.
• Spanish law also provided an entitlement to interest. However, since this right was discretionary and not absolute, it was properly characterised as a matter of procedure. This meant that it was not one of the substantive matters covered by art. 15 of Rome II.
• The judge was entitled to assess interest awarded under the procedural English power at either English rates of interest or Spanish rates of interest. His decision to use English rates would not be disturbed.

There are four practical implications of this decision:

• The English court’s entitlement to award interest may apparently be relied on notwithstanding the approach of a foreign applicable law. There is apparently no need to plead or prove a foreign law entitlement to interest since a claimant can rely on the standard English interest provisions.
• If the foreign law provides an absolute (as opposed to a discretionary) entitlement to interest, then the judgment suggests that this could possibly also be relied upon as part of the lex causae applicable under art. 15 of Rome II. The foreign law right to interest will, in these circumstances, need to be pleaded.
• Where the court is awarding interest using the English procedural power, it retains a discretion as to the rate used. The parties should be prepared to explain why one rate is more appropriate than the other on the facts of the case.
• The court’s comments that “penalty interest” will generally constitute a “procedural sanction” have implications for the characterisation of interest on damages or costs payable when one of the parties beats a Part 36 offer.

Decision

In some cases, the question of whether the award of interest is to be characterised as a procedural rather than a substantive right may depend on the basis upon which interest is claimed:

“If there is a contractual right to interest, as there sometimes is, that would be governed by Rome I and not Rome II, and it would be a claim of substantive right (under the contract) and would not, therefore, be excluded by Article 1(3) of Rome I.”

But this case did not involve a contractual right to interest. The judge had to consider whether the right to interest in tort claims was procedural or substantive.

He noted that, in Maher v Groupama Grand Est [2010] 1 WLR 1564, Moore-Bick LJ had decided that the key to the determination of this issue was “the proper classification of the court’s power to award interest” (para 25). He decided that “the existence of a legal right to claim interest is properly to be classified as a substantive matter to be determined by reference to the lex causae” (para 33).

“In other words,” said Griffiths J of this passage in Troke, “if there is an absolute right to interest under the lex causae, that is part of the substantive claim under Rome II and would not be excluded by Article 1(3).”

Griffiths J then considered and rejected the argument that the Claimants did have a “substantive right” to interest under Spanish substantive law. Key to his decision was the finding that the Spanish law right to interest

“was not mandatory, but discretionary. It was not, therefore, properly classified as a substantive right. It was a procedural right, in the discretion of the forum, and procedural rights are excluded by Article 1(3) of Rome II and will be governed by the lex fori not the lex causae.”

He went on to explain that this was also suggested by the foreign law experts’ characterisation of the Spanish rates as “a penalty interest”, which arose “where insurers have not made a relevant interim payment within 3 months from the accident”:

A penalty is a procedural sanction (or incentive). It is not a fundamental right. It is also to be expected that a penalty award will ultimately be in the discretion of the court (and so procedural) rather than being claimed as an absolute right (and so part of the substantive as opposed to procedural law).

Griffiths J concluded that the judge had been right to characterise interest as a procedural matter and therefore subject to English law. The judge was entitled to award English rates of interest, although he did not have to:

That being so, the Judge was entitled to apply the rate of interest prevailing in the forum, since he was ordering interest pursuant to the forum law (the County Courts Act 1984). This is what Treacy J did in Rogers v Markel Corporation [2004] EWHC 1375 (QBD) at para 81, applying Miliangos v George Frank (Textiles) Ltd (No 2) [1977] 1 QB 489 at 497B-D and Lesotho Highlands Development Authority v Impreglio SpA [2003] EWCA Civ 1159.

The Judge might equally have applied the Spanish rates, not as a matter of lex causae, but using the discretion given to him by the lex fori: that is what Whipple J thought should happen in XP v Compensa Towarzystwo SA [2016] EWHC 1728 (QB) at para 67, based on the suggestion in Maher. However, he was not asked to do that and, it being in his discretion, I do not think it can be said that he was bound to do that.

In conclusion:

“It follows that I agree with the Judge that the award of interest in this case was a procedural matter excluded from Rome II by Article 1(3); that there was no substantive right to interest at Spanish rates to be awarded to the Claimants under the lex causae; that interest could be awarded under section 69 of the County Courts Act 1984 as a procedural matter in accordance with the law of England and Wales as the lex fori; and that he was entitled to award interest at English and not Spanish rates accordingly.”