The Dekagram 17th October 2022

Articles, News | Mon 17th Oct, 2022

This week has seen interesting developments in the law relating to the recoverability of Spanish penalty interest and in recognition of judgments, as well as the publication of a consultation on proposed alterations to CPR Part 21, most notably in relation to the way child Claimants bring claims. As well as all this, Tom Yarrow has found time to prepare a special briefing on the Brexit Freedoms Bill; look out for that later in the week.

The Latest Installment in Mr Hamdi Ipek v Koza Altin Isletmeleri AS [2022] EWCA Civ 1284

This litigation has kept the Business and Property Court, the Court of Appeal and the Supreme Court in business for the last six years.  Hamdi Ipek is a Turkish businessman resident here.  His family owned a Turkish gold mining company, whichThis week has seen interesting developments in the law relating to the recoverability of Spanish penalty interest and in recognition of judgments, as well as the publication of a consultation on proposed alterations to CPR Part 21, most notably in relation to the way child Claimants bring claims. As well as all this, Tom Yarrow has found time to prepare a special briefing on the Brexit Freedoms Bill; look out for that later in the week. had a subsidiary in London, which in turn had £60m in a Luxembourg bank.

Mr Ipek was the sole director of the London subsidiary.  In 2015, with Turkey wobbling politically, he beefed up his control over it by changing its articles of association.  (He may have had one eye on the £60m in the Luxembourg bank.)  The next month, a judge in Ankara appointed trustees to take over the Turkish parent, holding it to be a front for funding Gulenist terrorism.  As Mr Ipek saw it, the judge was thoroughly corrupt and had expropriated his family business for political reasons.  As the Turkish authorities saw it, Mr Ipek was a terrorist financier and they were tracing and seizing his assets.  Mr Ipek failed to persuade the Turkish Constitutional Court to overturn the judgment. 

The trustees, appointed by the Turkish court, sought to use English company law to wrest back control of the London subsidiary (and its £60m in Luxembourg).  Mr Ipek obtained an injunction to stop them, submitting that the Turkish judgment appointing the trustees was corrupt.  Since the trustees had been appointed to take over his family company as a result of a corrupt Turkish judgment, the English court ought not to recognise their authority.

He obtained permission to serve the Turkish parent outside the jurisdiction, establishing jurisdiction under Article 24(2) of Regulation (EC) No. 1215/2012, Brussels Recast.  Three years later, in 2019, the UK Supreme Court decided that this was wrong: the English court can’t assume jurisdiction over the Turkish parent and its directors, just because there’s an issue about the English subsidiary’s constitution.

So in 2021 Mr Ipek started again, this time seeking permission to serve the Turkish parent (and its court-appointed trustees) under CPR 6.36.  In the High Court, Trower J stated the test as follows:

”i)  The claimants have a good arguable case that the claim falls within one of the jurisdictional gateways listed in paragraph 3 of PD 6B (see CPR 6.36). This means that the claimant must have the better argument on the available material, which must supply a plausible evidential basis for the application of the gateway: Brownlie v Four Seasons Holdings Inc [2018] 1 WLR 192 at [7] .

 ii)  There must be a serious issue to be tried on the merits of the claim, which means asking the question whether there is a real as opposed to a fanciful prospect of success: (Altimo Holdings v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804 at [71]).

 iii)  England must be clearly or distinctly the appropriate forum for the resolution of the dispute.”

The judge held that the claim for an injunction fell within para. 3.1(2) of PD6B: “a claim is made for an injunction ordering the defendant to do or refrain from doing an act within the jurisdiction.”

The issue was over “serious issue to be tried”.  Mr Ipek led expert evidence from Professor Sir Jeffrey Jowell KC to the effect that the Turkish judicial system did not operate independently of the government.  Therefore there was a serious issue to be tried as to whether the Turkish judgment, appointing the trustees, was corrupt.  But Trower J dismissed this argument and refused permission to serve out.  He held that the fact (if true) that the Turkish judgment was corrupt, was neither here not there.  The answer was in the choice of law.  The parent company was incorporated in Turkey.  The trustees certainly had authority to act on behalf of the parent company as a matter of Turkish law.  An English court will recognise a foreign state’s expropriation law: Willams & Humbert v. W&H [1986] AC 368.  (This is true at least up to a point: Oppenheimer v. Cattermole [1976] AC 249 concerned the Nazi race discrimination laws depriving Jewish citizens of their nationality, and a foreign law such as that will be regarded as so disgraceful as not to be a law at all.)  Mr Ipek had no prospect of persuading an English court to injunct the trustees from exercising the parent’s rights over the subsidiary (and its £60m in Luxembourg).

Mr Ipek managed to persuade the Court of Appeal (Flaux C, Newey and Simler LJJ) that the judge had been wrong to hold that the English court’s hands would be tied by the Turkish judgment.  The trustees derived their status from the Turkish judgment.  To prove they had authority to act for the Turkish company, they would have to persuade the English court to recognise that Turkish judgment.  It was not about choice of law but about recognition of judgments.  If Mr Ipek had an arguable case that the Turkish judgment was corrupt, there would be a serious issue to be tried as to whether the English court should recognise the authority the trustees derived under it.

Unfortunately for Mr Ipek, he didn’t have an arguable case that the Turkish judgment was corrupt.  The Turkish Constitutional Court had okayed it, and its 30-page judgment seemed pretty honest and careful.  Furthermore, the ECtHR had rejected Mr Ipek’s challenge to it.  And even if the Turkish judgment had been corrupt, the trustees were clearly not appointed under it but rather under subsequent Turkish legislation and executive acts.

A big win on the law, followed by a big loss on the facts.

About the Author

Ben Rodgers was called in 2007 and is a cross border practitioner with a particular specialism in accidents at sea (having once been a passable sailor), but he also undertakes general personal injury, insurance and commercial work.

The Latest Installment in the Spanish Penalty Interest Saga

Regular readers will recall that the team has written before about the vexed question of whether the incidence of interest on damages is a matter governed by substantive law or procedural rules, and it seems that we are destined to continue reading judgments on the subject for the next few months at least. The latest in the line of cases all, seemingly, providing different answers to the question is the decision of Her Honour Judge Walden-Smith in Woodward v Mapfre, unreported, 14^th October 2022.

First, a reminder of why the question is important. When a claim is brought before the courts of England and Wales it is common for interest to be claimed on both general and special damages, but for many years now the rate of interest applied has been so low that any interest award is invariably dwarfed by the damages awarded. Not so in Spain. Pursuant to Article 20 of the Spanish Insurance Contract Law 50/1980 of 8^th October:

1. the Spanish courts are empowered to award interest at a penalty rate on damages in a claim brought directly against an insurer or, where there is no insurer, against the Spanish Guarantee Fund (the Spanish equivalent of the UK Motor Insurers’ Bureau);
2. the aim of the penalty interest regime contained in Article 20 is to discourage delay (by the insurer) in responding to a claim in those cases where the insurer is aware of its contractual obligation to make a payment (under the policy);
3. the Spanish Supreme Court has held that interest under Article 20 should be calculated as follows, (i) for the first two years after the relevant date (usually the date of accident), interest will accrue at the annual rate prescribed in Spanish law, increased by a substantial percentage increment; (ii) two years after the relevant date, interest accrues at 20% per year;
4. these penalty interest provisions will not apply where, “… the absence of satisfaction in indemnity or payment of the minimum amount is based on a justified cause or is not attributable to them [the insurer]”: Article 20(8). To this extent, an award of penalty interest does not follow automatically.
5. penalty interest will be levied on the entirety of the award made to the Claimant (not just, as in England, on past losses and general damages).

The combined effect of these provisions is often that the interest claimed under them is the largest item of loss claimed, with significant six figure sums being commonplace. It is therefore of obvious advantage to Claimants for claims subject to Spanish applicable law for interest to be awarded in accordance with the Spanish provisions on interest; and of equally obvious advantage to Defendants for such claims to be subject to the English rules on recoverability of interest. The question has therefore arisen: will the courts of England and Wales, when considering whether to make an award, do so using the Spanish provisions or the English rules on interest?

Articles 1(3) of Regulation (EC) No.593/2008 (‘Rome I’) and of Regulation (EC) No.864/2007 (‘Rome II’) provide that ‘this Regulation shall not apply to evidence and procedure …’. The result of this is that even where the English courts are applying foreign law to a contractual or tortious claim, the law of the forum (namely, English law) will continue to apply to matters of procedure. Therefore if the recoverability of interest is a matter of substantive law, the Spanish rules will be applied by the English courts, whereas if it is a matter of procedure, the English rules will be applied.

In Scales v MIB [2020] EWHC 1747 (QB) the court awarded Spanish penalty interest. Cavanagh J stated:

“The existence of a right to claim interest as a head of loss is a substantive matter to be determined by reference to the foreign law, the lex causae.”

Which is fairly definitive.

In Troke v Amgen [2020] EWHC 2976 (QB), by contrast,the court awarded interest on the English scale. Griffiths J, in rejecting the Appellant’s appeal, said this:

“[the answer is suggested] by the characterisation of the Spanish rates as “a penalty interest”, which arose “where insurers have not made a relevant interim payment within three months from the accident”. Interim payments on account of a substantive award or settlement to be determined later seem to me to have the quality of procedural matters. A penalty, also, is to be distinguished from a substantive right. A penalty is a procedural sanction (or incentive). It is not a fundamental right. It is also to be expected that a penalty award will ultimately be in the discretion of the court (and so procedural) rather than being claimed as an absolute right (and so part of the substantive as opposed to procedural law). This is reinforced by the expert saying that the “penalty interest” is something which the Spanish law “contemplates” rather than Spanish courts awarding it automatically and as of right.

… Consequently, on the materials before the Judge, and consistently with his findings …I reject the argument that the Expert Report was describing a substantive as opposed to a procedural right to interest. It follows that the Judge was right not to apply the Spanish rates as a matter of substantive right to be governed by the lex causae.”

Which is also quite definitive, albeit in a completely different way.

The decision in Woodward v Mapfre offers a third alternative. In that case HHJ Walden-Smith rehearsed the arguments set out in Scales and in Troke, and concluded:

“In my judgment, 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.

I am satisfied that whilst this penalty interest is not automatic, and is therefore a matter of procedure rather than substance, I am not satisfied that the defendant’s situation in this case is exceptional.   The defendant is to be taken to know of the accident through its insured from the date it occurred and did not take any steps to resolve the case or make any interim payment even after the claim had been issued in 2020.   The defendant, in my judgment, through its officers made a decision not to resolve this issue at an early stage and, while it is clear that accidents of this nature are designed to be resolved at a much earlier time in the courts of  Spain than in the courts of England and Wales, that does not mean that the defendant could not have brought this to an end at an earlier stage.

Consequently, it is my conclusion that while the lex fori rather than the lex causae applies to the interest to be added to the final judgment on both general and special damages, I determine that the interest to be applied is in accordance with the penalty interest to be applied in the Spanish court pursuant to the discretion under section 69 of the County Courts Act 1984.”

Neatly, then, although the Defendant succeeded on the legal point (interest is a matter of procedural and not substantive law) it failed on the discretion point (as a matter of judicial discretion the English courts may award Spanish penalty interest).

In some ways the present situation is the worst of all worlds; we now have three different judgments coming to three different conclusions, and the upshot is that no one can currently predict what the English courts are likely to do when faced with this question. It need hardly be said that this is an unsatisfactory state of affairs, exacerbated by the question of whether either or both parties might appeal the judgment, and by the fact that there is also currently a High Court decision on the issue outstanding.

For the time being, however, practitioners can only advise clients that taking these matters to court is a risky business and that they should be prepared for a trip to the Court of Appeal if they decide to do so.

Matthew Chapman KC was instructed by Slater & Gordon for the Claimant in Woodward v Mapfre.

About the Author

Called to the Bar in 1997, Sarah Prager has been listed in the legal directories as a Band 1 practitioner in travel law for many years. Together with her colleagues at 1 Chancery Lane, Matthew Chapman QC and Jack Harding, she co-writes the leading legal textbook in the area, and has been involved in most of the leading cases in the field in the last decade. Last year she was named Best Lawyers’ Travel Lawyer of the Year 2020/2021 and the Lawyer Monthly Women in Law Awards 2020: Personal Injury, and she was a member of the Consultative Group of Experts to the UNWTO Committee for the Development of an International Code for the Protection of Tourists, and is a member of the Admiralty Court Users’ Committee. She undertakes purely domestic high value personal injury work as well as cross border work and has a wealth of experience of difficult and sensitive cases.