Nicholls v Mapfre: interest under foreign law

Introduction

Choice of law in tort is governed by the Rome II Regulation.  Article 1(3) of Rome II excludes matters of evidence and procedure from its scope and those issues are traditionally governed by the law of the forum.  Matters of substance (in the conventional term) are, however, governed by the applicable law, and that includes “the assessment of damage” (art.15(c)).  
 
In Nicholls v Mapfre [2024] EWCA Civ 718 (judgment 27.06.24), the Court of Appeal has considered a number of issues of general importance in cross border personal injury claims relating to the dividing line between matters of procedure and substance:
 
(1)          Is interest payable under art.20(4) of the Spanish Insurance Act 50/1980 a matter of procedure?  If so, it would not be applied by the English court as part of the Spanish applicable law.
 
(2)          If art.20 is a matter of procedure, can an English judge award interest at the equivalent rate to the interest payable pursuant to 
art.20 as a matter of discretion under either s.35A of the Senior Courts Act 1981 or s.69 of the County Courts Act 1984?
 
(3)          Whether a claimant was entitled to bring in her own name a subrogated claim for repatriation and medical expenses?
 
Questions (1) and (2): interest
 
In tort claims, Spanish law has the same basic principle as English law: restitutio in integrum or full compensation.  It seeks to achieve that end, however, through a more tariff-based approach under the Baremo.  Spanish law provides for an award of interest on damages, applicable to pecuniary and non-pecuniary damages and for damages awarded for the future as much as the past.  The starting point for interest under Spanish law is the “legal interest rate” which was 3% pa for most of the relevant period.  Article 20 of 50/1980 then provides that where an insurer is in default, “compensation for damages will follow these rules …”  Article 20(3) states an insurer will be in default when it has not fulfilled its obligations within 3 months of the claim or paid the minimum amount within 40 days of receiving the claim.  Article 20(4) provides that the interest rate in these circumstances will be the legal rate plus 50% for the first 2 years (i.e. 4.5% pa when the legal rate is 3% pa) increasing to at least 20% pa after that.  So large sums may be at stake. 
 
The Court of Appeal noted that whether or not a particular provision is a matter of procedure is an autonomous concept under Rome II, not a matter to be determined according to either Spanish or English notions: [34].  Regard must be had to context and to the objectives of Rome II.  To give procedure too wide a scope would risk undermining the objectives of Rome II: [33].
 
In light of those principles, the court held that the relevant Spanish interest provisions are substantive not procedural and therefore to be applied as part of the applicable Spanish law: [58].  The description of the award within art.20 as “compensation” was noted.  The interest provisions were held to be inextricably “intertwined with the assessment of damages” [59] so as effectively to be part of the assessment.  That conclusion was not affected by the acknowledged fact that 20% is “a penal rate of interest to encourage prompt resolution of disputes by insurers” ([61]). 
 
The court also held that even if the provision were procedural, an English court would be entitled to award interest at the Spanish rates pursuant to its powers under s.35A or s.69: [65].  Given the significance of the interest figures, 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]). 
 
While clarity is welcome on an issue which has created uncertainty for practitioners for some years, it is not obvious that the decision is correct.  An award of interest may form part of the assessment of damages when the interest is directed at compensating a claimant for being kept out of her money.  But, as the court acknowledged, art.20 is not directed at measuring in money terms the damage flowing from the tort.  It is directed at punishing insurers who do not make timely offers.  That is a fundamentally procedural purpose.  As to art.20 being inextricably tied up with the assessment of damages, it is quite possible to extricate it by simply not applying it and instead awarding interest either according to any substantive / compensatory interest available under Spanish law or according so s.35A or s.69.  And as to the suggestion that it should generally be awarded as a matter of discretion even if it were a procedural provision, that would surely depend on whether the defendant insurer can be criticised for its conduct in the context of English litigation to an extent justifying a punitive award of interest.  Though even then it might be said that the court’s inherent discretion and CPR 36 create adequate powers to adjust interest to reflect procedural defaults without adopting the Spanish rule and its different context.
 
The practical difficulty caused by the decision is highlighted by the differences between personal injury litigation in England and in Spain.  In Spain, claims would be expected to be quantified early (once stabilisation of injury has occurred) since the process is under the Baremo a more mechanical one.  Substantial claims in the English courts are often not quantified, at least sufficiently to enable a rational offer of settlement to be made, until the final schedule is served quite close to trial and many years after the accident has happened.  The problem is aggravated because the parties must first get their English medical evidence before then getting their Spanish law experts to translate that evidence into Spanish damages.
 
Permission to appeal was refused by the Court of Appeal, however, so for the present the law is settled.
 
Question (3): subrogation

One of the claimants, Ms Sedgwick, brought a claim for some £35,000 on behalf of her English insurer for the cost of repatriation and medical costs.  Under English law, she is entitled to maintain that claim in her own name for the benefit of her insurer.  Under Spanish law, she would have no such entitlement and a separate claim would have to be brought in the name of the insurer.  

The Court of Appeal held that by art.19 of Rome II English law governed the question of subrogation so the claim was a valid one.   The decision on this point is uncontroversial but a welcome clarification.