Maher & Anor v Groupama Grand EST

The question in this case is as to the law which governs two issues. They both arise in connection with a direct claim brought by injured parties against the insurers of the driver who caused a road accident. The issues are as to (1) the assessment of damages, and (2) pre-judgment interest on those damages. Are these issues governed by the law of France, where the accident occurred and the driver was domiciled, as the defendant insurers submit? Or are they governed by the law of England, where the claim is brought, as the Claimants submit? There is a body of well-known authorities on the answers to these questions as they arise in proceedings by the injured party against the tortfeasor. But there appears to be none as regards proceedings such as the present based on the injured party’s direct claim against the insurer of the tortfeasor.

The facts are not in dispute. On 29 July 2005, Mr Maher was driving his Range Rover on the RN5 road in the area of Mont Sous Vaudrey, France. His wife was a passenger. A van was being driven by M. Marc Kress in the opposite direction. He lost control of the van, and it collided with the Maher’s Range Rover. Unfortunately, M. Kress was killed in the collision, and Mr and Mrs Maher suffered injuries for which they have brought this claim for damages in the English Courts.

The Defendant is the French insurance company which insured M. Kress against third party claims arising out of the use of his vehicle under a contract of insurance, the applicable law of which is French law. Neither liability nor the jurisdiction of the English Court is in dispute, and judgment on the issue of liability was entered on 24 September 2008. However I am told that it makes a practical difference whether damages and interest are calculated under English or French Law, and for that reason, Master Fontaine ordered the trial of preliminary issues as follows:

Though it is not in dispute, I should explain the jurisdictional basis for this claim which is brought, as I have said, in the English Court against a French insurer in respect of an accident that took place in France where the insured tortfeasor was French. In this respect, I am indebted to the written argument of Mr Bernard Doherty, counsel for the Claimant. A direct right of action against insurers in road traffic accident cases was required to be introduced into the laws of all Member States of the European Community (in so far as it did not already exist) by Directive 2000/26/EC of the European Parliament and Council of 16 May 2000. This is the directive on the approximation of the laws of the Member States against civil liability in respect of the use of motor vehicles, usually known as the Fourth Motor Insurance Directive. Article 3 states that:

“Each Member State shall ensure that injured parties referred to in Article 1 in accidents within the meaning of that provision enjoy a direct right of action against the insurance undertaking covering the responsible person against civil liability.”

In the United Kingdom, the direct claim was provided for by the European Communities (Rights against Insurers) Regulations 2002, which applies to road accidents in this country, and which can be invoked by residents of any Member State. There is no dispute that an equivalent right exists under French law, and the claim against the Defendant is brought pursuant to such right.

In its original form, the Fourth Motor Insurance Directive merely referred to a right of action. It did not deal with the possibility of bringing a claim of this kind in the State in which the injured party is domiciled. The jurisdictional question is governed by Council Regulation (EC) No. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Judgments Regulation”). Articles 9(1)(b) and 11(2) contain special rules of jurisdiction for matters relating to insurance. These are intended to be more favourable to the interests of the “weaker party” (recital (13)). Article 9(1) states that:

“An insurer domiciled in a Member State may be sued:

(a)

in the courts of the Member State where he is domiciled, or

(b)

in another Member State, in the case of actions brought by the policyholder, the insured or a beneficiary, in the courts for the place where the plaintiff is domiciled.”

Article 11(2) states that:

“Articles 8, 9 and 10 shall apply to actions brought by the injured party directly against the insurer, where such direct actions are permitted.”

The effect of these provisions was considered by the European Court of Justice in FBTO Schadeverzekeringen NV v Jack Odenbreit (C-463/06), 13 December 2007, in a preliminary ruling from Germany. After referring to various instruments including the Fourth Motor Insurance Directive and the Fifth directive which amended it, the Court held that:

“ … the reference in Article 11(2) of Regulation No 44/2001 [the Judgments Regulation] to Article 9(1)(b) of that regulation is to be interpreted as meaning that the injured party may bring an action directly against the insurer before the courts for the place in a Member State where that injured party is domiciled, provided that such a direct action is permitted and the insurer is domiciled in a Member State.” (paragraph 31)

The upshot is that after the Odenbreit case, an injured party can bring a direct claim against the tortfeasor’s insurer in the courts of his own domicile, so long as the insurer is domiciled in a Member State where a direct action is permitted (as is the case here). This can be a more attractive option for the injured party than suing the tortfeasor in the courts of his domicile (in which most such claims would otherwise have to be brought in accordance with Article 2 of the Judgments Regulation). I am told that the right is now being exercised quite frequently in respect of road accidents in Europe involving injured parties from England.

As refined in oral argument, the parties’ respective submissions can be summarised as follows. The Claimants submit that since the liability of the Defendant flows from that of its insured, the assessment of damages should be treated as an issue in tort. Under English conflicts rules, it is well established that the assessment of damages in tort is a procedural matter, and governed therefore in this case by English law. So far as the second question is concerned, interest is claimed under section 35A Supreme Court Act 1981. This, it is submitted, is a procedural provision, and thus applicable as part of the law of the forum.

The Defendant’s case is equally straight forward. It is submitted that the Claimants’ direct claim against the insurer is to be characterised as a contractual claim, because the insurer becomes involved only on the basis that it is contractually obliged to indemnify the policy holder against the claim which the injured parties have against him. For the same reason, the availability of interest is a substantive rather than a procedural matter, and therefore governed by French law as the law applicable to the contract of insurance, and not English law as the law of the forum.

In oral argument, Mr Pierre Janusz, counsel for the Defendant insurer, summarised his case as follows. The question for the court is not what it would award against the tortfeasor (here M. Kress or to be precise his estate). The question is as to the extent of the indemnity to which the tortfeasor is entitled under his policy. That cannot exceed the sum that he would be held liable for in an action against him. And that must mean an action in a Court that has jurisdiction over him. The only court, Mr Janusz submits, with jurisdiction over the tortfeasor in the present case is the French court. It is therefore the amount that the Claimants would be awarded by a French court that the English court has to value for the purposes of the direct claim against the insurer.

The Claimants dispute the proposition that the English court would have no jurisdiction in respect of the claim against the tortfeasor himself (or his estate), pointing to Article 11(3) of the Judgments Regulation. Article 11(3) says that if the law governing the direct action provides that the insured may be joined as a party to the action, the same court shall have jurisdiction over him. The Defendant counters that this provision only permits the courts of one Member State to exercise jurisdiction over an insured domiciled in another Member State when he is joined as a third party to a claim which has been brought against his insurer. It does not provide a basis on which to join him as an additional defendant.

It is well established under English conflicts of law rules that the assessment of damages in tort is a procedural matter, and so governed by the law of the forum. The most recent authority is Harding v Wealands [2007] 2 A.C. 1, in which the claimant, who was English, was rendered tetraplegic following an accident in a vehicle driven by the defendant, an Australian national, which occurred in New South Wales. The claimant issued and served proceedings on the defendant in England where she was working. The defendant contended that the law of New South Wales applied to the assessment of damages and relied on certain provisions of the Motor Accidents Compensation Act 1999 of New South Wales which imposed restrictions on the amount of damages which could be recovered.

On the preliminary issue as to the law applicable to the quantification of damages, the House of Lords held that under the common law rules of private international law, questions of the quantification or assessment of damages are regarded as procedural rather than substantive, a position preserved by s. 14(3)(b) of the Private International Law (Miscellaneous Provisions) Act 1995. For the purposes of the traditional distinction between substance and procedure which treated remedy as a matter of procedure, it was held that all the provisions of the New South Wales Motor Accidents Compensation Act 1999 should be characterised as procedural. Accordingly, the quantification of the claimant’s damages was a matter of procedure to be determined in accordance with English law

Summarising the distinction between substance and procedure in this context, Lord Hoffmann said at paragraph 24:

It appears that the position changes as from 11 January 2009 in relation to events which give rise to damage which occur after 20 August 2007. This is the result of Council Regulation (EC) No. 864/2007 on the law applicable to non-contractual obligations (colloquially called “Rome II”). Article 15 provides that the law applicable to non-contractual obligations under the Regulation shall govern “(c) the existence, the nature and the assessment of damage or the remedy claimed”. Under Article 4, the general rule is that “the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur”. In the present case, the damage occurred in France where the accident took place (Dicey, Morris & Collins, The Conflict of Laws, 14th edn (first supplement), para S35-195) with the result that French law would govern the assessment of damages. However the accident happened on 29 July 2005 and these provisions have no application. (It is however worth noting in passing that Article 18, which deals with direct actions against the insurer of the person liable, provides that a “person having suffered damage may bring his or her claim directly against the insurer of the person liable to provide compensation if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides”.)

If this claim had been brought against the tortfeasor or his estate, there is therefore no doubt that damages would have been assessed by reference to English Law. Does it make a difference that the claim is a direct one against the tortfeasor’s insurer? The defendant submits that the starting point is that this claim is properly characterised as a contractual claim not a claim in tort. In this respect, it relies on Through Transport Mutual Insurance v. New India Assurance Co. Ltd [2005] 1 Lloyd’s Rep 67. In that case, goods were lost in transit between Kotka in Finland and Moscow in Russia. A claim was brought against the carrier’s insurers under a Finnish statute which gave a direct right of action in the event of the carrier’s insolvency. The Court of Appeal upheld the decision of Moore-Bick J that the claim was to be characterised as a claim to enforce the contract of insurance in accordance with its terms (see paras 53 to 59).

As the Court in that case made clear however, the characterisation question is not to be answered in the abstract. At para 56, Clarke LJ cites Macmillan Inc. v. Bishopsgate Investment Trust Plc (No. 3) [1996] 1 W.L.R. 387 where Auld LJ said as follows:

“I agree with the judge [Millett J] when he said [1995] 1 W.L.R. 978, 988: "In order to ascertain the applicable law under English conflict of laws, it is not sufficient to characterise the nature of the claim: it is necessary to identify the question at issue." Any claim, whether it be a claim that can be characterised as restitutionary or otherwise, may involve a number of issues which may have to be decided according to different systems of law. Thus it is necessary for the court to look at each issue and to decide the appropriate law to apply to the resolution of that dispute.” ([1996] 1 W.L.R. 387 at p. 418A-B)

Whether a particular issue is properly to be characterised as one in tort or one in contract depends therefore on what the issue is.

With that in mind, the Claimants submit that to establish a direct action against an insurer, the claimant will ordinarily have to prove (1) that the injury was caused by a breach of duty (usually in tort) on the part of a wrongdoer, and (2) that the wrongdoer is entitled to be indemnified by the insurer against liability for such breach of duty. Issues in any given case may arise at stage (1) or stage (2). Ordinarily, it is submitted, it will be appropriate to consider stage (1) issues as arising in tort and stage (2) issues as arising in contract. At stage (1), the insurer is in reality no more than a surrogate for the tortfeasor, and it would be artificial for such questions as the law governing the tortfeasor’s liability to turn on the question of the law governing the contract of liability insurance which he took out. The question of the assessment of the damages in respect of which the indemnity is given arises at stage (1), and should be viewed as a matter arising in tort.

I take as the correct starting point the law as stated in Dicey, Morris & Collins (ibid) at para 35-043, which is based on the majority view expressed in Australian decisions. Whether a claim can be brought by an injured party directly against the wrongdoer’s insurers is a contractual question, governed by the law applicable to the insurance contract (and see para 35-065). It is not in dispute in this case that such a claim can be brought under French law. Subject to that, I agree generally with the Claimants’ approach. If for example, the insurers were to dispute liability under the policy, that question would fall to be determined under French law as the law governing the policy. But in the present case there is no such dispute. It is not suggested that the policy (a copy of which is not before Court) limits the insurer’s liability in any relevant way. Mr Janusz does not argue with Mr Doherty’s assertion that the Defendant’s agreement was to indemnify the insured against liability in respect of claims wherever brought. Liability is admitted, and indeed judgment has been entered by consent. The result is that the insurer has to meet directly the wrongdoer’s liability which in this case is a tortious one. For the purposes of the assessment of damages, the insurer’s liability should equally be seen as a liability arising in tort. This conclusion is entirely consistent with the Through Transport Mutual Insurance case.

This approach receives some support from the Report of the Law Commission on Choice of Law in Tort and Delict ((Law Com. No. 193 (1990)). It was this report which led in due course to the enactment of the Private International Law (Miscellaneous Provisions) Act 1995. The Commission’s initial view was that a direct action against an insurer should be characterised as a matter in contract because of the connection to the contract of insurance. But after the consultation process, it suggested that if the underlying claim against the wrongdoer would be in tort (as it is here) then “an action against the insurer may be better seen as an extension of this tortious action.” Paragraph 3.51 reads as follows:

“In some jurisdictions, it is possible for the injured party to bring a direct action against the wrongdoer’s insurer rather than the wrongdoer himself. There are a number of ways in which the courts of other jurisdictions have characterised this issue. It has been seen as a tortious question, governed by the applicable law in tort; as a contractual question governed by the proper law of the insurance contract; and as a procedural question governed by the lex fori. The Consultation Paper tentatively concluded that the question whether the claimant can sue the wrongdoer’s insurer rather than the wrongdoer himself was a matter for the proper law of the wrongdoer’s insurance contract rather than a question to be decided by the applicable law in tort or delict, although it also said that there did not appear to be an unanswerable argument in favour of any approach. In the light of the views expressed by consultants, we are not convinced that the tentative conclusion adopted in the Consultation Paper is necessarily the ideal one. The direct action is not in any real sense contractual, since the claimant is not suing a party with whom he is in privity of contract. It is true that neither has a wrong been perpetrated by the insurer on the claimant. However, the action against the wrongdoer’s insurer may be more akin to a claim in tort than contract, since what would normally be the claimant’s primary remedy would be a tortious action against the wrongdoer. If the claimant’s action against the actual wrongdoer would be tortious, an action against the insurer may be better seen as an extension of this tortious action. Although the direct action cannot exist in the absence of the contract of insurance, neither would the direct action exist in the absence of any wrongdoing. While to apply a law other than the law of the insurance contract would expose the insurer to a liability greater than he contemplated, nevertheless, depending on where the insurer carries on his activities, his expectations might reasonably be expected to include not only the potential liability of the insured under the law of that jurisdiction to which cover extends, but also any potential direct liability. We have recommended that the matter should not be included in implementing legislation. The issue is of hardly any practical importance, there being no reported case in England or Scotland. We feel that the matter can be left to the courts to decide if called upon to do so.”

The question whether the claimant can sue the wrongdoer’s insurers is (as I have said) one for the law applicable to the insurance contract. But subject to that, this passage remains instructive when read as dealing with the stage (1) issues identified above.

This conclusion is sufficient to decide the first question, but I should say something about Mr Janusz’s submission that in the present case the tortfeasor (or his estate) could only have been sued in France. He submits that Article 11(3) of the Judgments Regulation (which is invoked by the Claimants to meet this point) does not on its true construction produce a different result.

Article 11 deals with jurisdictional questions as they arise in respect of direct actions against insurers. I have set out Article 11(2) above. In full, Article 11 provides that:

In Mr Janusz’s words, the Claimants can be forgiven for reading Article 11(3) in such a way as to conclude that it allows an English Court to exercise jurisdiction over an insured (in this case the estate of M. Kress) as an additional defendant to a claim brought against a liability insurer, but in the light of relevant commentaries and authority this is an erroneous construction of the Article. Correctly interpreted, he submits that Article 11(3) only permits the courts of one member state to exercise jurisdiction over an insured domiciled in another member state in the case of him being joined as a third party to a claim which has been brought against his insurer.

In fact the “commentaries and authority” came down to a passage attributed to Morland J quoted in a case in the Chester County Court which had to do with Article 11(1) not 11(3), and a passage in the Jenard Report dealing with the (admittedly identical) provisions in the Brussels Convention of 1968 which preceded the Judgments Regulation. Though neither of these seems to me to be dispositive of the issue, they do provide a limited measure of support for Mr Janusz’s submission. My preliminary view is that he may be right to suggest that Article 11(3) envisages the bringing of third party proceedings by the insurer against the insured, rather than providing an independent route by which the injured party can bring the wrongdoer before his own courts in circumstances not within the special jurisdiction provisions in the previous articles.

But this does not affect my conclusion as stated above. In summary, my view is that the assessment of the Claimants’ damages resulting from the road accident is a matter of procedure to be determined by reference to English law as the law of the forum as arising in tort in accordance with Harding v Wealands and earlier authority.

It will be recalled that the issue as reformulated relates to pre-judgment interest only. This is because interest payable on an English judgment debt is governed by English law as the lex fori (see Dicey, Morris & Collins, ibid, para 33-400).

According to the Defendant’s skeleton argument, French law with regard to interest payable in this case circumscribes the situations in which interest can be awarded and has a fixed legal rate of interest which can be awarded. It is submitted therefore the quantum of interest is fixed by the lex causae in precisely the same way that it would be fixed if there were a specified rate of interest in a contract. Accordingly, the award of interest should be determined in accordance with French law. I note however that there is no evidence to support the factual basis for these assertions, which are not accepted by the Claimants, and are not explained further. The questions raised in the preliminary issues are not perhaps ones which are ideally dealt with in the abstract.

As regards the Claimants’ submissions, there is powerful support for the proposition that the Court’s power to award interest under s. 35A Supreme Court Act 1981 is procedural and thus applicable as part of the law of the forum. It was so held by Hobhouse J in Midland International Trade Services Ltd v. Al Sudairy (11 April 1990) Financial Times Law Report May 2nd 1990, and by Moore-Bick J in Kuwait Oil Tanker Co SAK v. Al Bader, unreported, 17 December 1998, at p 155. On the other hand, these authorities are not supported by the editors of Dicey, Morris & Collins (ibid paras 33-393 and 33-396), who say that:

“Despite the uncertainty of the outcome reached by the common law, the current position depends upon the proper interpretation of Pt III of the Private International Law (Miscellaneous Provisions) Act 1995, and in particular on whether the right to claim interest by way of damages is to be regarded as an issue in tort, for the purposes of that Act, which is governed by the choice of law rules for issues in tort which are contained in that Act. It is submitted that the right to claim interest by way of damages in a claim in tort is properly characterised as an issue of tort and is not, in any sense, a procedural question for the law of the forum. Accordingly, whether there is such a right depends on the law which is found to apply to the tort”.

The editors’ view is “essentially based on the premise that a claim for interest is in substance a claim for damages in the sense that it is awarded as compensation to the plaintiff for being kept out of money justly due to him, and that the question of whether or not such a claim or award is available to a claimant is (like the availability of heads of damage strictly so called) governed by the law applicable to the contract or tort sued upon”: see Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 at para 205 (per Nourse LJ giving the judgment of the Court). In that case, the position was expressly left open by the Court of Appeal.

Furthermore, in Somers v Fournier (2002), 60 O.R. (3d) 225, (2002) 214 D.L.R. (4th) 611, the Court of Appeal of Ontario held that the right to pre-judgment interest under an Ontario statute was a matter of substantive and not procedural law. In any case, as Mr Janusz says, the reasoning in cases like Al Sudairy may need to be reconsidered in the light of the decision of the House of Lords in Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 561 (overturning previous authority to the contrary) that the courts have a common law jurisdiction to award interest as damages in claims for breach of contract and tort.

Depending on rates, which will vary according to the currency of the claim, interest can of course be an important component, and these difficult questions will need to be resolved at a higher level at some point. But I have to answer the preliminary issue in this case, and (in the absence of clear appellate authority) propose do so on the basis of the law as set out in Dicey, Morris & Collins. With the caveat that the factual position has only been touched on so far, my view is as follows. The claim for interest on damages should be characterised as an issue in tort (see para 33-396 that I have quoted above). Any question as to whether there is a right to claim interest by way of damages (such as the Defendant has obliquely raised in its skeleton argument), depends therefore on French law as the applicable law under s. 11 Private International Law (Miscellaneous Provisions) Act 1995. I should add however that the result appears to be the same if s. 35A Supreme Court Act 1981 is applied simply onto the basis that it is a procedural provision and so applicable as part of the lexi fori. This is because under s. 35A(2), interest in personal injuries cases may be excluded where there are “special reasons” for doing so. A similar approach was adopted by Moore-Bick J when exercising his s. 35A discretion in the Kuwait Oil Tanker case in dealing with the contention that since interest was (allegedly) irrecoverable under the law of Kuwait the same result should follow under s. 35A also (see pages 155 and following of the judgment). I respectfully think that it is the right approach.

Assuming that interest is recoverable, the rate is to be determined under English law as the lex fori: see in this respect the views expressed in Dicey, Morris & Collins, ibid, at para 33-397. But this does not necessarily mean that the rate will be the domestic English rate. The principles governing the Court’s discretion under s. 35A are sufficiently flexible to enable the court to arrive at an appropriate rate, whether English or French (ibid, at para 33-398).

Finally, as a practical matter, the onus will be on the Defendant insurer to raise and prove any points of French law or practice which it wants to argue require the Court to depart from dealing with the claim for interest in the way in which it otherwise would do under s. 35A. So none of these theoretical issues may in the event arise at all, which in personal injury cases which have been dealt with particularly speedily following the introduction of the 1999 Civil Procedure Rules would be a welcome result.

I would answer the preliminary issues as follows: