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The application of Spanish Penalty interest in personal injury claims has been a contentious issue for many years and has recently come under further scrutiny in the case of Woodward v Mapfre.

Those who deal with travel litigation, specifically, claims against Spanish Insurers being pursued through the English Courts, will be aware of the case law surrounding Spanish penalty interest and its application in English proceedings, but why is it important?

Well, depending on which side of the claim you are on it can have a huge impact.

Spanish law provides for specific rules for how interest is calculated in personal injury claims against insurers. The first two years after an accident, the interest is calculated at an increased annual rate prescribed by Spanish law but if the claim has not settled within this time then a special rate of 20% can be applied. This is clearly significantly more than the interest that applies to general damages in English personal injury claims (2%) and even more still than the interest that applies to special damages (0.1%).

The 20% rate on interest in Spanish claims is used to encourage insurers to deal with claims at an early stage to avoid protracted litigation. As a Claimant, if you have a long-standing claim then the Spanish penalty interest can really increase the value of your claim.

So how does Spanish penalty interest apply in claims being dealt with through the English Courts?

The Court addressed whether Spanish penalty Interest could be applied in Scales v MIB ([2020] EWHC 1749 (QB)). Here the Court indicated that the award of interest was a matter for the lex causae – i.e. the law of the land where the cause of accident occurred and so Spanish penalty interest was applied in this case. However, the Court also said that they could use their discretionary powers to determine whether interest was applied and also the rate of interest.

The Court of Appeal decision in Troke v Amgen [2020] EWHC 2976 (QB) discussed whether interest was a procedural or substantive right and considered the Spanish law experts' use of the word "contemplates" in their discussion of penalty interest. The Court concluded that interest was a procedural right and determined that:

"Although this was a matter of foreign law, and therefore had to be proved at the hearing before the Judge, it was proved by the expert’s use of the word “contemplates”, and it is no more than reassurance that Scales confirms it to be correct that this was a power exercisable in the discretion of the court, and not a substantive right or mandatory entitlement.

It follows that I agree with the Judge that the award of interest in this case was a procedural matter excluded from Rome II by Article 1(3); that there was no substantive right to interest at Spanish rates to be awarded to the Claimants under the lex causae; that interest could be awarded under section 69 of the County Courts Act 1984 as a procedural matter in accordance with the law of England and Wales as the lex fori; and that he was entitled to award interest at English and not Spanish rates accordingly." (Paragraphs 70 and 71 of [2020] EWHC 2976 (QB)).

Here the Court of Appeal indicated that the Court was able to make an award of interest but that they were not forced to apply Spanish rates of interest, rather that the Court was able to use their discretionary power determined by the lex fori (i.e. the law of the Court). The Court therefore applied English levels of interest to both general and special damages.

So where does this leave us now?

The most recent case to consider this issue is Woodward v Mapfre. Here the Court considered the decisions in both Scales v MIB and Troke v Amgen and HHJ Karen Walden-Smith concluded that:

"the right to penalty interest is not a substantive right. It is acknowledged that it will not always apply, albeit that is in restricted circumstances, and as such is a matter of procedure to be  determined by the lex fori (the law of England and Wales). What this 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." (Paragraph 72).

HHJ Walden-Smith was critical of the Defendant's unwillingness to settle the claim at an early stage. No attempt had been made to try to resolve the Claimant's claim despite the Defendant being advised shortly after the accident occurred in October 2015 by their own insured or even after proceedings were issued in March 2020. Liability was disputed in full and it was not until May 2021 when Judgment on liability was determined by the Court.

Whilst the position appears to be clear that English Courts have discretion to award Spanish penalty interest, it is difficult to predict how it will be applied to individual cases give the three different decisions previously determined. This certainly provides a challenging level of uncertainty in how best to advise both Claimants and Defendants alike regarding the issue of Spanish penalty interest and how this will be applied in the Courts.

There may be a risk that the Courts will be reluctant to award Spanish penalty interest as the rates are so much higher than what would be awarded in under English interest. Spanish penalty interest could increase the value of the Claimant's claim very significantly depending on the length of time since the accident.

That said, where it can be shown that Spanish insurers are not engaging in claims or not actively trying to resolve them at an early stage then there is a risk that the discretionary powers provided to the English courts could allow them to award penalty interest.

For Claimants the decision in Woodward v Mapfre is in some way reassuring in that Spanish penalty interest could be applied in their claims, however, this is certainly no guarantee, and it appears clear that the decision is with the Court as to how they use their discretionary powers to determine which rates of interest should apply.

So, to answer the question of whether the decision in Woodward v Mapfre has simplified how Spanish penalty interest applies I fear the answer is a resounding no!