On 27 June 2024, the latest instalment of the ‘Spanish Interest’ appeals landed on the desks of cross-border lawyers when the Court of Appeal handed down judgment in the conjoined appeals of Nicholls v Mapfre & Woodward v Mapfre [2024] EWCA Civ 718. In relation to interest, there were two primary issues considered by the Court of Appeal:
- Is awarding interest at the rates of article 20(4) of the Spanish Insurance Contract Act 50/1980 (‘Spanish interest’) a matter of procedural or substantive law (‘issue 1’), and
- Were it to be procedural, can Spanish penal interest be awarded by the Courts of England and Wales in any event, on a discretionary basis under section 35A of the Senior Courts Act 1981 or section 69 of the County Courts Act 1984 (‘issue 2’)?
There was a further issue considered in the appeal as to whether a claimant was entitled to bring in their own name a subrogated claim for repatriation and medical expenses.
William Audland KC, leading Philip Mead, both of 12KBW, represented the appellant Mapfre. Matthew Chapman KC, of Deka Chambers led Max Archer, formerly of 12KBW, on behalf of the respondents. This blog post is written by Jessica Muurman.
Background
The appeal backgrounds have been set out previously on this blog, available here. As such, the substance is not restated, save that in each case claims were brought for injuries incurred on holidays in 2015 or 2016. The claims were pursued against Mapfre, the insurer of the tortfeasors, as a direct cause of action. Liability was admitted in each case, and the remaining quantum disputes were determined in English Courts, applying Spanish law, pursuant to the provisions of Rome II.
At first instance, albeit built upon different reasoning, each Claimant was awarded Spanish interest. Broadly speaking, Spanish interest was deemed a matter of procedure, so not award directly as principle of Spanish substantive law. However, the equivalent rates were awarded through the exercise of judicial discretion under section 35A of the Senior Courts Act 1981 or section 69 of the County Courts Act 1984.
This was appealed to Martin Spencer J who, in May 2023, made the contrary determination that the recovery of Spanish interest was a matter of substantive law within the meaning of Article 15 of Rome II, so governed by Spanish law, and therefore recoverable, without the need of exercising discretion.
This appeal saw Mapfre contend that the award of Spanish interest was procedural, as found by the first instant Judges. Further, it was argued that it was wrong for Courts to exercise statutory discretion to award interest of equivalent rates. Conversely, the respondents said that the award of Spanish interest was integral to the awarding of damages in Spain for personal injury, and therefore a matter of substantive law. It therefore follows that the need to exercise discretion should not arise, but if it did, the first instant judges made no error nevertheless.
Findings – Act 50/1980 Interest
The cases of Nicholls, Woodward and Sedgwick were joined to be heard by the Court of Appeal. Giving the leading judgment, Lord Justice Dingemans found that the award of Spanish interest was not a matter of procedure for three reasons:
- It would be difficult to separate the Spanish penal interest from the assessment of damages. Article 15(c) of Rome II is clear that the assessment of damages is to be determined by Spanish law, as the law of the substantive claim. Neither Article 15(d) of Rome II, nor the explanatory memorandum, directs otherwise.
- The method of awarding interest in Spain when the Spanish penal interest rates are not awarded further demonstrates that the Spanish penal interest rates are intertwined with matters governed by substantive law. This further supports the conclusion that Spanish penal interest is a substantive issue in the assessment of damages.
- The increase in penal interest rate per annum does not preclude the above findings, as it is simply that compensation is approached in a very different way in Spain compared with England; Spanish penal interest is merely part of this different approach.
Given the conclusions of issue 1, the issue of exercising discretion became academic. Nonetheless, it was determined that Courts are entitled to exercise their discretion to make an award in line with the Spanish interest rates. Dissecting this conclusion, two reasons were given:
- The exercise of this statutory discretion has been long considered, and a relevant factor may well include relevant provisions of the overseas law.
- While the interest rates after the second year are penal, the rates remain an integral part of the way in which damages for personal injuries paid by insurers are assessed in Spain. Had Spanish penal interest been found a procedural matter, it would be proper to award this sum, as this is what a claimant would have got in Spain; it is not giving claimant’s an advantage by bringing the claim in England, rather it is matching what they would walk away with in Spain. It would be “an unusual case where such an important component of the overall award should be left out of the award as an exercise of discretion” [66].
Findings – Reparation Cost Recovery
While this discrete issue is not the focus of this post, a quick acknowledgment is given to the matter of which law determines the principle of subrogation; Mapfre saying Spanish law, the respondents saying English law. Parties agreed that the answer to this hung on the proper interpretation of article 19 of Rome II.
The issue was dealt with swiftly. A literal reading of article 19 of Rome II, taken step-by-step, was set out, the crux being that Ms Sedgwick’s contract with her insurer was governed by English law. It was therefore found that it is under English law that her insurer had a duty to satisfy her claim, and consequently English law governs the recovery of these sums. Ms Sedgwick was correct to claim in her own name.
Comment
This judgment provides a security blanket for claimants who have obtained injuries in Spain and are pursuing damages through the English courts; they can have assurance that they will not find themselves worse off because of a technicality of where the money ‘comes from’, be it conventional damages or interest, because they have pursued their losses in the English rather than Spanish courts.
Beyond claims originating from accidents in Spain, the ramification of this judgment extends to cases pursued under Rome II more broadly. While not a definitive determination that, in cases outside Spain, interest is always a matter of substance, this judgment has clarified that interest can be brought within the scope of Rome II. On a country-by-country basis there may be argument to be had that the system of awarding interest is distinguishable from Spain, but it appears the starting point is that interest is a matter of substance.
In any event, any argument to distinguish a case from this judgment in relation to issue 1 will, arguably, be largely academic. What this judgment has confirmed, and brought back into the spotlight, is the availability of judicial discretion under section 35A of the Senior Courts Act 1981 or section 69 of the County Courts Act 1984, as per Maher. The implication of this is that even if a defendant were to distinguish themselves from this case on issue 1, claimants still have the safeguard of this judgment in respect of issue 2. While this may be of interest to the lawyers, the practical impact for the parties is that, be it through reliance on this judgment in respect of issue 1, issue 2, or both, claimants pursing claims under Rome II likely have the interest provisions of the law of substance available to them.
As a final note, Lord Justice Dingemans at [67] noted that “whether it is appropriate to award extra interest under Part 36, when an insurer has been ordered to pay interest under Act 50/1980, involves a separate exercise of discretion.” How this discretion should be exercised remains a live argument for Defendants to make in appropriate cases.