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Interest

'Interest' is the normally straight-forward concept of a percentage annual fee placed on a debt or monetary judgment, although it isn't always so simple.

. MDS Inc. v. Factory Mutual Insurance Company

In MDS Inc. v. Factory Mutual Insurance Company (Ont CA, 2021) the Court of Appeal considered the standard of review that applies to an award of prejudgment interest (which it held to be discretionary):
The standard of review for the award of prejudgment interest

[22] The trial judge awarded prejudgment interest at MDS’ actual cost of borrowing, including compound interest, under ss. 128 and 130 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”).

[23] Provided that the exclusions to an award of interest set out in the CJA do not apply, the trial judge’s decision to award prejudgment interest at a rate higher or lower than provided for in ss. 128 and 129 is discretionary: see Tribute (Springwater) Limited v. Atif, 2021 ONCA 463, at paras. 26-27. In exercising discretion to award interest at a rate higher or lower than provided for in ss. 128 and 129, the trial judge must take into account changes in market interest rates, the circumstances of the case, the amount claimed and recovered, and other relevant considerations: CJA, s. 130(2).

[24] As this court held in Krieser v. Garber, 2020 ONCA 699, 70 C.C.L.T. (4th) 40, at para. 46:
The court will only interfere with the exercise of discretion if it was based on an error of law (determined on a correctness standard), a palpable and overriding error of fact, the consideration of irrelevant factors or the omission of factors that ought to have been considered, or if the decision was unreasonable in the sense that it is not compatible with the judicial exercise of discretion. [Citations omitted.]
In particular, the trial judge must consider the factors set out under s. 130(2) of the CJA.

[25] As such, the standard of review in respect of this issue is that of error of law or palpable and overriding error.
. MDS Inc. v. Factory Mutual Insurance Company

In MDS Inc. v. Factory Mutual Insurance Company (Ont CA, 2021) the Court of Appeal considered the awarding of compound interest (interest on interest):
[103] Courts of equity have always exercised the power to award compound interest whenever there is wrongful detention of money that ought to have been paid and which the company uses in its business: Enbridge Gas v. Michael Marinaccio et al., 2011 ONSC 4962, at para. 17, aff’d 2012 ONCA 650, 355 D.L.R. (4th) 333, at paras. 56-57, leave to appeal refused, [2012] S.C.C.A. No. 514 & [2012] S.C.C.A. No. 517; Brock v. Cole (1983), 1983 CanLII 1952 (ON CA), 142 D.L.R. (3d) 461 (Ont. C.A.). This is based on the theory that it is reasonable to assume that the wrongdoer made the most beneficial use of the money and is accountable for the profits. A reasonable use of money implies compounding interest at some appropriate interval.
. Alleghe Mortgage Fund Ltd. v. 1988758 Ontario Inc.

In Alleghe Mortgage Fund Ltd. v. 1988758 Ontario Inc. (Div Ct, 2021) the Divisional Court considered an issue of s.8 of the Interest Act:
[17] We find that the motion judge erred in finding that the interest rate provision in the mortgage commitment breached s. 8 of the Interest Act.

[18] Section 8 of the Interest Act provides:
8(1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
[19] For mortgages and other loans secured by real property, “default rates” of interest, whereby a higher rate of interest is triggered by default, effectively reserving a higher charge on arrears than that imposed on principal money not in arrears, are prohibited by section 8 of the Interest Act.

[20] The motion judge found that the First Interest Rate Provision – which provided that the interest rate is 8.25% for the first six months, and 18% per annum thereafter, unless the mortgage is renewed or discharged, or after the second renewal term has expired – breached s. 8 of the Interest Act, R.S.C. 1985, c. I-15. He said the following:
In accordance with the [First Interest Rate Provision], interest will be payable at 8.25% for the first six (6) months and will increase to 18.00% for the seventh (7th) month, unless the mortgage is renewed or discharged at the end of that month. If it is renewed so that the principal does not come due, then the interest will remain at 8.25%. But if it was neither renewed or if it was not paid on the date of maturity, then interest will go to 18.00%. If it was renewed and at the end of the second renewal not paid on the date of maturity, again the interest would increase to 18.00%.
[21] Although he acknowledged that the Supreme Court, in Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18 (CanLII), [2016] 1 S.C.R. 273 found that an interest rate will not breach s. 8 of the Interest Act if the interest increases with time, and not with default, the motion judge went on to say the following:
Here, however, just like in the case of Lee v. He, with a bit more verbiage perhaps in this case, in all circumstances, if the mortgagor pays the principal on time, then its interest rate is 8 percent. And if it defaults in repaying principal when it falls due, the interest rate becomes 18 percent. In my view, it is a plain breach of section 8 for interest to increase simply because money was not paid on the due date, and therefore the clause in this case cannot stand. Interest is chargeable at 8.25 percent, therefore, throughout the mortgage.
[22] In Krayzel, the Supreme Court considered two different loan agreements. The first agreement established one rate of interest (prime plus 3.125% per annum), that applied for most of the term of the loan, and a second higher rate (25.00%) that became effective in the final month of the term. These are the facts of this case.
. Tribute (Springwater) Limited v. Atif

In Tribute (Springwater) Limited v. Atif (Ont CA, 2021) the Court of Appeal considered the court's discretion over interest awards:
[26] Section 127 of the Courts of Justice Act (“CJA”) provides for prejudgment and postjudgment interest at prescribed rates. A court “shall not” award prejudgment interest under s. 128 or postjudgment interest under s. 129 where “interest is payable by a right other than under” either statutory provision: ss. 128(4)(g) and 129(5). These provisions preclude the court from ordering prejudgment and postjudgment interest in accordance with the statutory interest rates under the CJA if interest is otherwise payable in some other way (such as by virtue of a contract). Section 130(1) provides for the court’s discretion to disallow interest under either s. 128 or s. 129, to allow interest at a rate higher or lower than provided under either section, or to allow interest for a period other than that provided in either section. Section 130(2) sets out the factors relevant to the exercise of such discretion.

[27] The motion judge reduced the interest rate, relying on her “inherent jurisdiction”. Contrary to the respondent’s argument, I do not agree that s. 130, which speaks to discretion to depart from prejudgment and postjudgment interest under ss. 128 and 129, is exhaustive of the court’s discretion, and that there is no discretion to depart from a contractual rate of interest. In the exercise of the court’s common law and equitable jurisdiction, the departure from a contractual rate of interest can be justified by “special circumstances”: Gyimah v. Bank of Nova Scotia, 2013 ONCA 252, at para. 10; Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at paras. 46-50. The contractual rate of interest has also been disallowed in circumstances where it is “extremely onerous or unfair” and adequate notice of the contractual term was not provided: see Tilden Rent-A-Car Co. v. Clendenning (1978), 1978 CanLII 1446 (ON CA), 18 O.R. (2d) 601 (C.A.); MacQuarie Equipment Finance Ltd. v. 2326695 Ontario Ltd. (Durham Drug Store), 2020 ONCA 139, at paras. 23, 37-38; Forest Hill Homes v. Ou, 2019 ONSC 4332, at paras. 19-20.
. 7550111 Canada Inc. v. Charles

In 7550111 Canada Inc. v. Charles (Ont CA, 2020) the Court of Appeal made some useful comments on criminal interest rate, although it declined to decide the issue due to an inadequate evidence record:
[20] With respect to the criminal rate of interest submission, the question is whether the terms of the mortgage, including the ten percent interest rate and the various fees and charges, exceed an effective annual rate of interest of 60 percent as prohibited under s. 347 of the Criminal Code. On its face, the mortgage provides for a ten percent interest rate.

[21] Under s. 347(2) of the Criminal Code, “interest” is broadly defined to include “the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit… but does not include any repayment of credit advanced or any insurance charge, official fee, overdraft charge, required deposit balance or, in the case of a mortgage transaction, any amount required to be paid on account of property taxes”. A “criminal rate” of interest means “an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement”.

[22] As a result, where, as here, a mortgage does not contain on its face a criminal rate of interest, the party alleging that a mortgage contravenes s. 347 must identify the fees or other charges that it alleges are “interest”, and then provide evidence that the effective annual rate of interest calculated in accordance with “generally accepted actuarial practices and principles” exceeds sixty percent.
. Solar Power Network Inc. v. ClearFlow Energy

In Solar Power Network Inc. v. ClearFlow Energy (Ont CA, 2018) the Court of Appeal sets out the definition of interest:
[33] Solar Power does not challenge the legal test used by the application judge, at para. 20:
1. Interest is the return or consideration or compensation for the use or retention of money that is owed to another person;

2. interest must relate to a principal amount or an obligation to pay money; and,

3. interest must accrue over time: Saskatchewan (Attorney General) v. Canada (Attorney General), 1947 CanLII 32 (SCC), 1947 S.C.R. 394 at para. 47; Ontario (Attorney General) v. Barfried Enterprises Inc., 1963 CanLII 15 (SCC), [1963] S.C.R. 570, 42 D.L.R. (2d) 137 at para. 5.


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