On Thursday 4th May 2023 Mr Justice Martin Spencer handed down judgment in the conjoined appeals Nicholls v Mapfre & Woodward v Mapfre, adding another appellate decision to the line of cases on the hard fought issue of the correct approach to Spanish Interest in Rome II cases.

By way of overview, in both cases the judges below exercised their judicial discretion pursuant to s.69 of the County Courts Act 1984 to award a rate of interest mirroring that which would have awarded by the Spanish Court. Mapfre appealed both decisions.

Mr Justice Martin Spencer dismissed the Appellant’s appeal. In so doing he held that (i) the Judges below were wrong to exercise their discretion to award Spanish rates of interest pursuant to s.69, however, (ii) the articles of Spanish law that gave rise to a right to interest were substantive rather than procedural, they therefore came within the scope of Rome II such that it was mandatory for the Court to award interest pursuant to these provisions. Both orders below were undisturbed and the appeal was dismissed.

This appeal is highly significant for practitioners in this area and is unlikely to be the last word on the subject.

William Audland KC appeared for Mapfre, Max Archer, the author of this blog post, appeared for Mrs Nicholls and Matthew Chapman KC appeared for Ms Woodward. James Pickering appeared for Mapfre at first instance in Woodward, Aliyah Akram appeared for Mapfre at first instance in Nicholls.

Background

The Nicholls case was heard below by HHJ Bloom, who gave judgment for of  €83,654.28 comprising damages of  €42,458.28 and interest of €41,196.71. Though liability was not in issue there were various issues that arose at first instance associated with the quantification of damages under the Baremo rules. The judge heard expert evidence from two Spanish lawyers, who agreed that Article 20.4 of the Spanish Insurance Contract Act 50/1980 contemplated specific rules for the calculation of what they called ‘Default Interest’ in claims against insurers. It was said that ‘Default Interest’ would not apply where there was a justified cause for the insurer not to make early payments such as a dispute as to liability or coverage issues.

The judge accepted the invitation to award rates of interest mirroring those that would have been awarded under Spanish Law, exercising her discretion under s.69 of the County Courts Act 1984 to do so. In so doing the judge relied on the line of authority from Maher v Groupama onward, a pre-Rome II case in which it was said that in a case where foreign law applied the Court may in exercising its discretion under s.69/s.35A take into account foreign provisions relating to the calculation of interest. HHJ Bloom relied on XP v Compensa, in which Whipple J had held that the court should use its discretion under s.69 to award a foreign rate of interest, Troke v Amgen, a post-Rome II decision of Mr Justice Griffiths in which it was said that the court could use s.69 to award Spanish Interest rates and Scales v MIB in which Mr Justice Cavanagh had awarded Spanish Interest pursuant to s.35A.

In Woodward v Mapfre HHJ Waldren-Smith gave judgment in the sum of £112,620 comprising damages of £54,205.63 and interest of £58,414.37. As in the Nicholls case, the judge heard from expert Spanish Lawyers who agreed that Spanish law provided for interest on the same basis.

It was argued before HHJ Waldren-Smith that the right to interest under Spanish Law could be characterised as a substantive right such that it came within the Scope of Rome II, in the alternative the Court had a discretion to award the same rates pursuant to s.69 of the CCA 1984. HHJ Waldren-Smith held that the right to penalty interest was not substantive but rather that it was a matter of procedure governed by the lex fori (and outwith the scope of Rome II). However, she found that: ‘the court does have is a discretion to award interest pursuant to the provisions of section 69 of the County Courts Act 1984. In my judgment, it is appropriate to award interest, as a matter of lex fori, at the same rate as the penalty rate of the Spanish law. This was suggested in Maher and encouraged by Whipple J in XP v Compensa.’

Submissions on Appeal

Mapfre argued on appeal that the decisions below raised a fundamental point of principle, namely whether, in relation to a procedural matter subject to the lex fori, it can ever be right to apply or, indeed, take into account, a foreign procedural sanction since the implementation of Rome.  It was argued that first, the award of interest on damages is procedural rather than substantive and therefore outside of Rome II. Second, the Court’s discretion does not extend to include foreign punitive rules on the award of interest because to do so would promote such rules to substantive rights and thus derogate from the principle that interest awards are procedural and not substantive. Third, that it is fair and just for an English claimant choosing to litigate in E&W to be awarded English rates as the award of interest under English law is closely aligned to English procedural rules. Fourthly, the line of cases following Maher (XP, Scales, Troke and Sedgwick) in which it has been held that a court can take into account foreign law on awards of interest in exercising discretion under s.69 were wrongly decided. It was argued that this line of authority inappropriately relied on what was said in Maher, which is a pre-Rome II case. It was said that Rome II fundamentally changed the position such that the line of authorities which relied on Maher post-Rome II were per incuriam.

The Respondents argued that whilst the award of interest is procedural and therefore a matter for the lex fori, the discretion in relation to the award of interest is a wide one and sufficiently flexible for the English court to have regard to foreign rules, where appropriate. Though Maher was decided before the implementation of Rome II, the cases decided after this had rightly held that Maher remained good law, not merely for the proposition that the award of interest is procedural rather than substantive but also where the court said, at paragraph 40, that the factors to be taken into account in the exercise of the court’s discretion may well include any relevant provisions of foreign law. The judges below had been bound by this line of authority in any event.

In the alternative, it was argued that the order of interest is so intrinsically linked to the assessment of financial compensation that it is in fact appropriate to treat it as a substantive matter, not procedural. As a matter of European Law, it is clear that interest is a substantive right for the purposes of Rome II. The Respondents relied on the views expressed by the authors of Dicey, Morris and Collins at paragraphs 4-111 to 4-116, the decision of Leggatt J (as he then was) in Latvijas -v- Antonov and the decision of Judge Hacon in Royalty Pharma Collection Trust -v-Boehringer Ingelheim GmbH.

The Decision

First, Mr Justice Martin Spencer held that the starting point was to determine whether the recovery of interest was a substantive right for the lex causae or a procedural remedy for the lex fori. This assessment required an autonomous interpretation which did not depend on the manner in which interest is characterised in a particular member state. In his view, interest was substantive rather than procedural:

  1. He considered that Rome II recalibrated the distinction between matters of substance and procedure from the previous position as represented by Maher. He found that the purpose of Rome II was to harmonize the laws of the EU countries to ensure that where a tort or delict was committed in an EU country, the recovery was identical irrespective of the forum in which the proceedings were brought: ‘The Claimants in each of the cases before me had the right to recover the same amounts as if they had sued in Spain rather than England, and in my judgment, that should be deemed to include the right to penal interest under the Spanish Insurance Act’.
  2. He found that the penalty interest provisions as a matter of Spanish law should be characterised as substantive rather than procedural, whilst this was not determinative, it was certainly persuasive.
  3. He agreed with the views expressed in Dicey, in which it was said that the scope of Rome II was broad and that ‘It might be argued that the rate of interest upon damages goes to, or is intrinsically linked with, the assessment of the overall amount which the claimant can recover in respect of a damages claim.’
  4. He associated himself with the views of Leggatt J (as he then was) in Latvijas v Antonov, who agreed with the authors of Dicey that the rate of interest on damages falls within the scope of Article 15 of Rome II.
  5. He disagreed with the reasoning of Griffiths J in Troke that because Spanish rates of interest were discretionary they could not be characterised as a substantive right. He found that whilst there are exceptions that might mean that the interest rates do not apply, they are a substantive right laid down by statute subject to the conditions set out in the statute itself. There is no discretion, there is a set of rules that provide a claimant with a right.
  6. The judge was also struck by the fact that in all of the cases in which the English Courts have hitherto exercised their s.69/s.35A discretion to award interest they have done so on the basis that had the case been tried in Spain, the Spanish court would have applied these rates. There was no suggestion in any of these cases that the Spanish Court could have exercised a discretion to refuse to award the interest rates, the statutory conditions having been made out. As such: ‘It is difficult to see in what respect even lip-service was paid to any discretionary nature of the remedy: indeed, the way that the Spanish statute and rules were applied seems to me to prove, in practice, that what was being granted was, in reality, a substantive right, only expressed through the “back door” of exercise of discretion under section 69 of the 1984 Act’.
  7. The judge was also struck by the dramatic effect on the overall amounts awarded.  ‘This significant difference indicates clearly, to my mind, that the awards of interest in both cases are much more in the nature of substantive rights to damages than the kind of discretionary awards made in the English courts‘.

The judge observed that had the UK still been a member of the EU the Court could have referred the question of the interpretation of Rome II to the European Court of Justice. In the absence of such a power, the English domestic courts must do their best to interpret the provisions of retained EU law, such as Rome II. There is no guidance from existing EU case law to guide the Court, accordingly he held:

‘Doing the best I can, and for the reasons set out in paragraph 30 above, I take the view that the right to interest under Spanish law is a substantive right closely associated with the right to damages and, as such, does not arise out of a matter of discretion through the award of interest under English procedural but arises as a right pursuant to the lex causae, applied as result of the application and interpretation of Rome II.’

Mr Justice Martin Spencer did however accept the Appellant’s argument that the judges below had been wrong to award the Spanish rates pursuant to s.69. He agreed that the line of authority purporting to follow the suggestion made in Maher that the English Court may take into account foreign rates of interest under s.69/35A was wrongly decided. He held that this line of cases confused the boundaries under Rome II between substantive law, which is for the lex causae, and procedural matters, for the lex fori. He held that it was not legitimate for the judges below to give effect to Spanish law provisions which are intended to operate in a different procedural environment where different procedural rules apply, to award interest at those significantly higher, penal rates as part of the discretion under s.69:

‘In my judgment, a clear line was intended to be drawn by Rome II between the award of substantive sums in accordance with the lex causae and the application of procedural rules in accordance with the lex fori.  This clear distinction means that, pursuant to Rome II, it is illegitimate to taint awards of interest under the English statutes and pursuant to the English civil procedure rules with elements of substantive foreign penal law, where the claimant has chosen not to subject herself to those foreign procedural rules by suing in Spain but has elected to subject herself to the English rules of procedure, with its different rules and different legal consequences, including the way in which discretion is exercised by the courts when deciding whether to award interest and, if so, in what sums.’


Though he agreed with the Appellant’s submissions with regards to s.69, the fact that Spanish interest gave rise to a substantive right meant that the right awards were made, albeit for the wrong reasons. The appeals were dismissed.

Discussion

This is a fascinating decision for cross-border lawyers, notable for its refreshing willingness to deal with the fundamental issues on a ‘first principles’ basis. This author appeared for the Respondent and will therefore save any commentary for others save as to note this: Martin Spencer J’s decision may represent a break with the specific reasoning of Lambert J and Cavanagh J in the Sedgwick and Scales cases, however, it is notable that he commended the instincts of each and every judge who has exercised their discretion to award Spanish interest pursuant to s.69/35A for the basic reason that doing so has resulted in the claimants in these cases achieving precisely the same award that they would have done so in Spain. Martin Spencer J felt that this basic factor heavily indicated that the right to interest was substantive, intrinsically connected with the assessment of damages. He may have criticised the means by which the judges in these cases got to this result (in his view it was unprincipled given the impact of Rome II) but the fundamental point remains that the judges were right to attempt to award a personal injury claimant the same amount that they would have achieved in the Spanish Court. Thus where a Spanish Insurer will, rightly, insist on the application of Spanish law pursuant to Rome II with its modest levels of compensatory damages but, wrongly, baulk at the suggestion that Spanish interest should apply, the cry of ‘this far but no further’ should be rejected. This will not be the last word on this fascinating subject.

Other views are available.

Spencer Turner Applicable Law, Cross-Border, Rome II

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