[2009] EWHC 38 (QB)

Court provides guidance on the determination of applicable law to the assessment of damages and pre-action interest in a direct action brought in the English courts against an insurer pursuant to the Fourth Motor Insurance Directive (2000/26/EC)

Factual background

On 29 July 2005 Mr and Mrs Maher were involved in a road traffic accident in the Mont-sous-Vaudrey area of France with another vehicle. Unfortunately, as a result of the accident, the driver of the other vehicle, M. Kress, died and the Mahers suffered injuries for which they commenced an action for damages in the English courts. The action was brought against M. Kress' French insurers (Groupama Grand Est) directly. Groupama had provided M. Kress with third party motor insurance cover under a contract of insurance which was subject to French law.

Liability was admitted and judgment entered by consent on 24 September 2008. There was a practical issue to be dealt with in terms of whether the assessment of damages and, separately, the award of pre-judgment interest, fell to be assessed accordingly to the principles of English law (as the law of the forum) or French law (the law of the contract). Accordingly, a further preliminary issue hearing was fixed to determine those questions. The Claimants alleged that English law applied and the French insurers averred that French law should be used.

The jurisdictional basis of claim was not in dispute. The right to bring a direct action against insurers in road traffic accidents in the European Union was introduced by the Fourth Motor Insurance Directive (2000/26/EC) and the attendant country-specific regulations. The jurisdictional mechanics of how such a claim can be brought are provided for under Council Regulation (EC) No. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and following the ECJ case Odenbreit (2007) an injured party can bring an action directly against a tortfeasor's insurer in the courts of its own domicile (provided the insurer is domiciled in a Member State where a direct action is permitted). This mechanism permits claimants to deviate from the normal rule which requires a claim to be commenced in the courts of the tortfeasor's resident state.

Issues in dispute

The Claimants' argument was predicated on the basis that the insurer's liability flowed from that of its insured which was, in this case, tortious. They suggested that the assessment of damages in tort is a procedural (and not substantive) matter and must, therefore, be determined according to the law of the forum, namely English law. Similarly, it was argued that the provision of pre-judgment interest claimed under section 35A Supreme Court Act 1981 was also procedural and, accordingly, English law would also apply to that issue as the law of the forum.

The Defendants disagreed. They said the claim was essentially contractual as it was brought directly against the tortfeasor's insurer, whose culpability fell to be assessed according to the extent it was liable to indemnify the insured under the contract of insurance. The question was therefore one of substance and damages ought to be assessed in accordance with French law as the law of the contract. The Defendants submitted that the same principle also applied to the assessment of pre-judgment interest as the question stemmed from the same contractual liability.

Decision of the Court

  1. Assessment of damages

The Court held that the application of the English conflicts of law rules to claims made against a tortfeasor or his estate was clear. The assessment of damages in tort is a procedural matter and English law would apply as the law of forum (Harding v. Wealands [2006] UKHL 32) and section 14(3)(b) of the Private International Law (Miscellaneous Provisions) Act 1995. Where, however, a claim was brought directly against an insurer, in order to determine the applicable law, the court must characterise the essence of the underlying claim.

Applying Macmillan Inc. v Bishopsgate Investment Trust Plc (No. 3) [1996] W.L.R. 387, Mr Justice Blair held that the court will determine the character of a claim (i.e. as contractual or tortious) by reference to the issues which are in dispute.

In this instance, the Court found that the questions at issue were tortious and not contractual. The fact that the claim was made directly against the insurer did not necessarily mean that the essence of the dispute was contractual (by reference to the underlying contract of insurance). There was no issue before the Court as to whether or not the French insurers were liable under the terms of the insurance policy. If there were such an issue, the Court accepted that it would fall to be determined according to French law as the applicable law of the contract. In this case, however, liability had been accepted and judgment agreed by consent. The insurer must, therefore, face the liability of the insured which was, in this instance, tortious. Accordingly English law applied to the assessment of damages.

  1. Pre-judgment interest

The Court accepted that there were conflicting authorities as to whether the court's power to award pre-judgment interest was procedural or substantive and noted that the issue would, at some point, need to be determined by a higher court. The question was, however, before the Court and was determined according to an analysis of the nature of the underlying claim.

Mr Justice Blair held that the right to claim interest is essentially a claim for compensation which relates to the deprivation of money. The question of whether there is a right to claim interest by way of damages depended on French law as the applicable law of the tort (pursuant to section 11 Private International Law (Miscellaneous Provisions) Act 1995). However, the rate of interest (assuming interest is recoverable) was to be determined under English law as the law of the forum although the Court had a discretion under section 35A Supreme Court 1981 to enable it to arrive at an appropriate rate, whether the English or French domestic rate.

Commentary

It is a well established principle under English law conflict rules that the assessment of damages in tort is a procedural matter and therefore governed by the law of the forum. The case indicates that it makes no difference whether the claim is a direct one against the tortfeasor's insurer for the purpose of the assessment of damages; the insurer's liability should equally be seen as a liability arising in tort.

Importantly, the position has now changed as a result of EU Council Regulation (EC) No. 864/2007 (known as "Rome II") on the law applicable to non-contractual obligations. Rome II was published in July 2007 and has applied in all EU Member States, other than Denmark, since 11 January 2009. It is intended to harmonise the conflict of law rules which apply to non contractual disputes (e.g. torts) in the EU and will apply in all civil and commercial cases heard in all member states (except Denmark). With the exception of certain exclusions and special rules for particular types of obligations, the applicable law for the resolution of non-contractual disputes (such as torts) will be determined on the basis of where the damage occurred. The new rules apply to events giving rise to damage which occurred after 20 August 2007, provided the claim is brought on or after 11 January 2009. Rome II also allows commercial parties in certain cases to select the law which governs non-contractual obligations both before the damage occurred and thereafter by agreement.

Accordingly, in this case, had the accident happened after 20 August 2007 (and legal action commenced on/after 11 January 2009) it would appear that French law would have governed the assessment of damages as the event which gave rise to the damage occurred in France.