English Court of Appeal Rules on the Rome II Regulation

On 27 June 2024, the English Court of Appeal delivered a judgment on the Rome II Regulation (which is assimilated EU law in the UK) in Nicholls v AXA Assistance Group Group T/A AXA Travel Insurance [2024] EWCA Civ 718 (LLJ Dingemans, Stuart-Smith and Coulson). The case concerned personal injuries in Spain, Spanish law was the law applicable to the torts, one victim’s medical costs and the costs of repatriation to England were paid by their insurer and the victim brought an action directly against the tortfeasor’s insurer.  The judgment addresses the substance/procedure dichotomy (Articles 1(3) and 15) and subrogation (Article 19).

Substance v Procedure

Article 1(3) of Rome II provides that the regulation does not apply to evidence and procedure. Article 15(c) states that “The law applicable to non-contractual obligations under this Regulation shall govern in particular…the existence, the nature and the assessment of damage or the remedy claimed”.

In Nicholls, the court dealt with the question whether the issue of the rate of interest was a substantive or procedural matter under this regulation.

According to the European e-Justice Portal, “Article 20(4) of Law 50/1980 of 8 October 1980 on insurance contracts (Ley del Contrato de Seguro) penalises unjustified delays by insurance companies in the payment of compensation to those affected by claims covered by insurance contracts taken out with the insurers, applying an annual interest rate equal to the statutory interest rate in force when payment becomes due, plus 50%. If compensation is not paid within 2 years of the claim, the judge must impose an annual interest rate of no less than 20% on the insurer.”

In English law, section 69 of the County Courts Act 1984 and section 35A of the Senior Courts Act 1981 provide courts the power to award interest on debts and damages. Under traditional English law, ie where the Rome instruments do not apply, these provisions are undisputedly procedural rules, applicable in proceedings in England even if the lex causae is foreign law (Harding v Wealands [2006] UKHL 32; Maher v Groupama Grand Est [2009] EWCA Civ 1191).

Surprisingly, before the Court of Appeal judgment in Nicholls, lower courts were divided on whether the issue of the rate of interest was substantive or procedural under the regulation. The following authorities favoured a substantive interpretation: AS Latvijas Krabjanka v Antonov [2016] EWHC 1679 (Comm), Royalty Pharma Collection Trust v Boehringer Ingelheim Gmbh [2021] EWHC 2692 (Pat) and the High Court in Nicholls [2023] EWHC 1031 (KB). On the other hand, the following authorities adopted a procedural interpretation: Troke v Amgen Seguros Generales Compania De Seguros Y Reaseguros SAU [2020] EWHC 2976 (QB) and Sedgwick v Mapfre Espana Compania De Seguros y Reaseguros SA [2022] EWHC 2704 (KB). According to the High Court in Troke, the reason for the procedural interpretation of Article 20(4) of Spanish Law 50/1980 was that it imposed a penalty, procedural sanction or even an incentive designed to encourage prompt payment of an adjudicated compensatory sum.

The Court of Appeal held that the correct interpretation was a substantive one – the issue of the rate of interest falls within the scope of the law designated as applicable by the choice-of-law rules of Rome II.

According to the court,

the Court’s task is to give Rome II an independent and uniform interpretation, having regard to the wording, the context in which it occurs, and the objectives pursued by the rules of which it is part. The objectives of Rome II were to ensure a uniformity of approach to determining the applicable substantive law. It is right that if the meaning of “evidence and procedure”, which are excluded from Rome II, are given a very wide interpretation that might risk undermining the objectives of Rome II. On the other hand I do not accept Mr Chapman’s [claimants’ counsel] submission that the words “evidence and procedure” in article 1(3) of Rome II should be given either a strict or narrow interpretation. This is because such an approach risks distorting the proper interpretation of the words “evidence and procedure”. They are words which are to be given an autonomous meaning under Rome II and interpreted in their context and in the light of the objectives of Rome II. ([33])

The relevant question is whether the issue of interest is “so ‘intertwined’ with the assessment of damages, which is a matter of substantive law under Rome II, that interest payable [under Article 20(4) of the Spanish Law 50/1980] should be considered a matter of substantive law and not a matter of procedure” ([34]).

The court answered this question positively. “[T]he payment of interest under the Spanish legal interest rate is effectively part of the nature and the assessment of damage or the remedy claimed, because it is intertwined with the assessment of damages in Spain in the sense that it would be difficult to separate from the assessment of damages which is governed by the laws of Spain” ([59]) and “so intertwined with matters governed by the substantive law, as to mean that Act 50/1980 is also part of the substantive law of the assessment of damages” ([60]).

Subrogation

Under Spanish law, a claim for repayment of medical costs and the costs of repatriation to England, which have been incurred by a victim but paid by their insurer, must be brought by and in the name of the insurer. Under English law, the victim is entitled to bring the claim in their own name as a subrogated claim, holding the sums recovered for and on behalf of their insurer. The question was whether the issue of subrogation was governed by Spanish law or English law, the latter being the law governing the underlying contract of insurance.

The court addressed this question briefly. It referred to the wording of Article 19 (“Where a person (the creditor) [ie the victim] has a non-contractual claim upon another (the debtor) [ie the tortfeasor or their insurer], and a third person has a duty to satisfy the creditor, or has in fact satisfied the creditor in discharge of that duty [ie the victim’s insurer], the law which governs the third person’s duty to satisfy the creditor [ie English law] shall determine whether, and the extent to which, the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship.”) and held that English law governed.

Comment

The judgment in Nicholls is primarily important because of its decision on the first question. It settles an issue which, surprisingly, was open in English case law despite the seemingly clear wording of Article 15 of Rome II. Although the judgment focuses on the wording of Article 20(4) of Spanish Law 50/1980, it can be regarded as having more general importance and supporting the tentative suggestion made in para 4-115 of Dicey, Morris and Collins 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”, meaning that interest is a matter for substantive law.