An update on handling applicable law issues in cross-jurisdictional cases: The cases of Yordanov v. Vasilev & Ors [2024] and Nicholls v. Mapfre [2024]

This article provides a short synopsis of two key 2024 decisions, Yordanov [2024] and Mapfre [2024], which raised issues surrounding the applicable law to substantive issues, interest, and subrogated claims.

The cases highlight the important distinction between procedural rules such as how evidence is managed or quantum is assessed, and the applicable law which determines issues such as liability, contributory negligence and the quantum of damages. In cross-jurisdictional cases where Rome II applies, this distinction is crucial.

Operation of Article 4(2) and (3) of Rome II in multi-party litigation

Case 1: Yordanov v (1) Vasilev (2) Estate of Angelov (3) Aviva Insurance Ltd (4) Atanasov (5) Zad Dallbogg Life and Health AD [2024] EWHC 1496 (KB)

Aside from the issues of liability and contributory negligence, the court in Yordanov had to determine whether Bulgarian or English law should apply to the substantive issues in the case. The judgment provides guidance on the operation of articles 4(1), (2), and (3) of Rome II in multi-party cases.

Several of the parties had agreed that English law would be the applicable law to the substantive issues. The fact that the applicable law could be determined by agreement under Article 14 between some parties and not others was not disputed.

The habitual residence test

For the purposes of article 4(2), the court must determine the habitual residence of the parties. Article 23 provides a definition of habitual residence but only with respect to companies and natural persons acting in the course of business; it does not provide a definition as it applies to individuals.

The court distilled some of the key propositions on habitual residence in paragraph 36:

“(i) ‘Habitual’ denotes a residence that has a certain permanence or regularity (Mercredi, ibid [44]).

(ii) Habitual residence must be established on the basis of all the circumstances specific to each individual case (A (Case C-523/07), (2010) Fam 42 at paragraph 37.)

(iii) A peripatetic life, over a short period was liable to constitute an indicator that the individual in question did not habitually reside in the state in question (A ibid, [41]).

(iv) The mere fact of residence in a particular country is insufficient; habitual residence is the location where the person has established his permanent or habitual centre of interests, with all relevant factors being taken into account (M v M (2007) EWHC 2047, as cited in the judgment in Winrow and Hemphill and another (2014) EWHC 3164 (QB) at [12]).

(v) The intention of the parties as to future residence is not a determinative factor; Re LC (Children) (2014) 2 WLR 124.”

The court went on to examine the typical aspects of habitual residence as they applied in this case, including by examining the locality of (1) living arrangements, (2) the social and familial network, (3) work arrangements, (4) tax arrangements, (5) insurance arrangements, and (6) asset ownership.

Material to the court’s decision on article 4(2) was that Yordanov and Atanasov, whilst living in England, did so in temporary accommodation and on temporary work contracts. The fact they lived in the UK in a ‘Bulgarian bubble’, as it was termed, was not decisive. The decision of the court was, therefore, that article 4(2) displaced article 4(1), and the law of Bulgaria must apply. However, the court needed to go on to consider how this interacted with article 4(3).

Operation of Article 4(3)

The court highlighted in paragraph 41 the guidance provided in Winrow and Hemphill [2014] EWHC 3164 (QB) as they apply to determine whether article 4(3) displaces article 4(1) or (2):

“(i) The country in which the accident and damage occurred and the habitual residence of the parties remained to be taken into account, notwithstanding that each was the determinative factor for the purposes of Articles 4(1) and (2) respectively (paragraph 43).

(ii) The habitual residence of the claimant at the time that any consequential loss is suffered, may also be relevant (at paragraph 43).

(iii) The ‘centre of gravity’ referred to that of the tort, not that of the damage and consequential loss caused by the tort (at paragraph 45) but the link between the consequences of the tort and a particular country remained to be considered as a relevant factor (paragraph 50).

(iv) The nationality of the claimant and defendant (at paragraph 54).

(v) Place of residence after the accident, although this is to be viewed in the context of residence and length of residence at the time of the accident (at paragraph 56).

(vi) The country in which the greater part of the loss and damage are suffered (at paragraph 59).

(vii) The country in which the vehicle driven by the Defendant was insured and registered, albeit that neither were deemed strong connecting factors (at paragraph 60).

(viii) The pursuit of proceedings before an English court was to be taken into account but was not a strong connecting factor (at paragraph 61).”

The court considered a range of evidential markers in its assessment under article 4(3), which can be broadly summarised as follows: (1) accident location, (2) treatment location, (3) vehicle registration, (4) damage location, (5) investigation location, (6) standard of care evidence, (7) where proceedings were brought, (8) location of work colleagues, (9) location of the longer term effects, (10) the applicable law to other parties in the proceedings, (11) material differences in outcome under the differing applicable laws.

In balancing these factors, the court determined that the applicable law to the substantive issues in the case should be English law.

The court underlined its decision by reference to the “flexible framework” aim under Recital 14 of Rome II, which reassured the court its decision was within the intended breadth of article 4.

“Although foreseeability and predictability are, as emphasised by Ms Deal, important objectives behind the Regulation, Recital 14 of Rome II also identifies the goals of doing justice in individual cases and creating a flexible framework of conflict of law rules. Article 4(3) is itself intended to bring a degree of flexibility enabling the court to adapt rigid rules to the circumstances on an individual case. The purpose of the rules are to enable to the court to treat individual cases in an appropriate manner and not to apply an inflexible rule regardless of the circumstances of a particular case.”

The applicable law to foreign interest regimes

Case 2: (1) Nicholls (2) Axa Assistance Group v Mapfre Espana Compania De Seguros Y Reaseguros SA;  Woodward v Mapfre Espana Compania De Seguros Y Reaseguros SA;  Sedgwick v Mapfre Espana Compania De Seguros Y Reaseguros SA [2014] EWCA Civ 718.

The appeal joined three personal injury claims, all brought in the English courts. Liability was admitted, and damages were assessed under Spanish law pursuant to Rome II. The appeal concerned whether interest under article 20(4) of the Spanish Insurance Contract Act 50/1980 (“50/1980 Act”), often described as the Spanish penalty interest regime, should be ordered as part of the damages due to the Claimants.

What law should govern interest?

Mapfre contended that laws of England and Wales applied to the assessment and award of interest, and Spanish penalty interest should not be allowed in through the back door via section 35A of the Senior Courts Act or section 69 of the County Courts Act. The respondents contended that Spanish penalty interest is a matter of substantive law because it is integral to how damages and interest are assessed in Spanish proceedings; therefore, it should be paid as Spanish law governs the action. Alternatively, if Spanish penalty interest is a matter of procedure, the trial judges had the discretion to award Spanish penalty interest under sections 35A and 69.

The Court of Appeal decided that Spanish penalty interest under section 20 is not a matter of procedure for the purpose of article 1(3) of Rome II. It is governed by Spanish law because:

• The existence, nature and assessment of damage or remedy claimed are matters of substantive law pursuant to the wording of article 15(c) of Rome II.
• The payment of interest under article 20 of the 50/1980 Act is integral to how interest on damages is assessed under Spanish law, as it is entwined with other Spanish law, in determining the interest payable.

Further, the Court interpreted the power awarded to the Court under section 35A and section 69 as sufficiently broad to allow judges to consider foreign law in determining the interest payable. The issue of whether it is ever appropriate to award extra interest under Part 36 when an insurer is ordered to pay interest under the 50/1980 Act involves a separate discretion. As this was not an issue, the court declined to comment on the interoperability of the two provisions.

What law should govern subrogation?

One of the respondents, Ms Sedgwick, also claimed some medical and repatriation costs paid by her insurer, raising an issue as to whether the subrogated claim should be governed by Spanish or English law. Mapfre contended the issue of subrogation is governed by Spanish law. Ms Sedgwick contended that the law governing the contract of insurance (which was English law) should apply. It was common ground that under Spanish law, the Claimant would been deemed to have suffered no loss, whereas there would be a recoverable loss, as a subrogated claim, under English law.

The Court of Appeal found that, under article 19 of Rome II, the law which governed the third person’s duty to satisfy the creditor, in this case, the law of England and Wales, determines 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. In paragraph 76, the court summarised the position as follows:

“This means that the laws of England and Wales determine “whether, and the extent to which, [Insurefor.com] is entitled to exercise against [Mapfre] the rights which [Ms  Sedgwick] had against [Mapfre].”

Summary

Practitioners should welcome both decisions as providing much-needed clarity on navigating applicable law issues as they apply to substantive issues, interest, and subrogated claims.

Practitioners need to be aware of applicable law issues from an early stage. As was seen in Yordanov, the court considered a wide range of factors to determine the applicable law and practitioners need to advise early on the cost and evidential implications where such an issue has been raised. Such wide-ranging disclosure is often more difficult when there are language constraints or the relevant party has returned to live overseas.

Claimants are likely to plead reliance on (and expect settlement offers accounting for) beneficial foreign interest regimes with greater confidence following Nicholls. Punitive overseas interest regimes must feature in practitioners’ advice on litigation risk and may nudge the parties closer to settlement discussions to avoid costly litigation over interest regimes. The judgment has provided clarity following several irreconcilable decisions on the same point in English law, including Troke v AMGEN [2020] 4 WLR 159 (QB) and Royalty Pharma Collection Trust v Boehringer [2021] EWHC 2692.

 

With thanks to Dan Jacklin, a Pupil at Farrar’s Building. For further information or to instruct any of our Members, please contact our Clerking Team.

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