The Dekagram 9th May 2023

• Published date: 22 May 2023
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Court Procedure, Trials & Appeals & Compensation, Personal Injury, Professional Negligence
• Law Firm: Deka Chambers
• Author: Ms Sarah Prager and Amelia Katz

In all the excitement this week - yes, the inaugural Deka Chambers Eurovision Sweepstake was drawn on Thursday - you could be forgiven for missing an important decision on the recoverability of Spanish penalty interest, considered below. And it's also worth bearing in mind the guidance given recently on the operation of s.33 of the Limitation Act 1980, a provision you always hope you won't need to use, but which this recent judgment demonstrates can be invoked many years after the expiry of the primary limitation period.

The Latest Installment in the Spanish Penalty Interest Saga

Regular readers will recall that the team has written before about the vexed question of whether the incidence of interest on damages is a matter governed by substantive law or procedural rules. The latest in the line of cases all, seemingly, providing different answers to the question is the decision of Martin Spencer J in the conjoined appeals in Nicholls, AXA Assistance v Mapfre and Woodward v Mapfre, unreported, 4^th May 2023. It is to be hoped that this judgment provides the final word on the subject and that parties in this type of litigation will now have some much-needed certainty on whether or not penalty interest is likely to be awarded in these cases.

First, a reminder of why the question is important. When a claim is brought before the courts of England and Wales it is common for interest to be claimed on both general and special damages, but for many years now the rate of interest applied has been so low that any interest award is invariably dwarfed by the damages awarded. Not so in Spain. Pursuant to Article 20 of the Spanish Insurance Contract Law 50/1980 of 8^th October:

a) the Spanish courts are empowered to award interest at a penalty rate on damages in a claim brought directly against an insurer or, where there is no insurer, against the Spanish Guarantee Fund (the Spanish equivalent of the UK Motor Insurers' Bureau);

b) the aim of the penalty interest regime contained in Article 20 is to discourage delay (by the insurer) in responding to a claim in those cases where the insurer is aware of its contractual obligation to make a payment (under the policy);

c) the Spanish Supreme Court has held that interest under Article 20 should be calculated as follows, (i) for the first two years after the relevant date (usually the date of accident), interest will accrue at the annual rate prescribed in Spanish law, increased by a substantial percentage increment; (ii) two years after the relevant date, interest accrues at 20% per year;

d) these penalty interest provisions will not apply where, "... the absence of satisfaction in indemnity or payment of the minimum amount is based on a justified cause or is not attributable to them [the insurer]": Article 20(8). To this extent, an award of penalty interest does not follow automatically.

e) penalty interest will be levied on the entirety of the award made to the Claimant (not just, as in England, on past losses and general damages).

The combined effect of these provisions is often that the interest claimed under them is the largest item of loss claimed, with significant six figure sums being commonplace. It is therefore of obvious advantage to Claimants for claims subject to Spanish applicable law for interest to be awarded in accordance with the Spanish provisions on interest; and of equally obvious advantage to Defendants for such claims to be subject to the English rules on recoverability of interest. The question has therefore arisen: will the courts of England and Wales, when considering whether to make an award, do so using the Spanish provisions or the English rules on interest?

Articles 1(3) of Regulation (EC) No.593/2008 ('Rome I') and of Regulation (EC) No.864/2007 ('Rome II') provide that 'this Regulation shall not apply to evidence and procedure ...'. The result of this is that even where the English courts are applying foreign law to a contractual or tortious claim, the law of the forum (namely, English law) will continue to apply to matters of procedure. Therefore if the recoverability of interest is a matter of substantive law, the Spanish rules will be applied by the English courts, whereas if it is a matter of...