Equipment finance cases rarely make it before the courts and,
when they do, they generally relate to the Personal Property
Security Act. The recent B.C. Supreme Court case of Summit
Leasing Corporation v. Virtual Softnet Canada Inc., 2012 BCSC
1858, nicely summarizes a few issues that, while neither new nor
particularly groundbreaking, confirm what we believe the law to be
in connection with equipment finance transactions. Specifically,
the court confirmed the following:
Interest Rate: there is no need to set out an effective annual
rate of interest where a lease contains a statement of an annual
interest rate with compounding over a shorter period of time, and
the Criminal Code only makes effective annual rates of
interest above 60% criminal offences. However, please note that
this is not true in consumer leases;
Relief under consumer protection legislation is only available
if a consumer transaction is involved;
Amending a lease is not a defence to non-payment of amounts
owing under that lease; and
Payment terms of the lease govern, even if the cumulative
amount of payments made under that lease may have exceeded the
actual value of the leased equipment.
The plaintiff brought an action for non-payment of required
regular monthly payments under a commercial lease (the
"Lease"). The plaintiff was ultimately awarded judgment
of $25,273.97 plus interest and special costs via summary trial
pursuant to Rule 9-7.
Interest: The court held that the interest
provisions in the Lease were enforceable, violating neither the
Interest Act, R.S.C. 1985, c. I-15 (the "Interest
Act") nor the Criminal Code, R.S.C. 1985, c. C-46
(the "Criminal Code"). Specifically, a statement of an
annual interest rate with compounding over a shorter time period
meets the requirements of the Interest Act and there is no
requirement to provide an effective annual rate. Accordingly, the
Lease satisfied the statutory requirements by stipulating a 36%
annual interest rate compounded monthly for interest on overdue
amounts. Further, section 347 of the Criminal Code only makes
effective annual rates of interest above 60% criminal offences, and
the rate in the Lease did not reach this level.
Consumer Protection: Despite the
defendants' attempt to obtain relief under Parts 6 and 7 of the
Business Practices and Consumer Protection Act, S.B.C.
2004, c. 2, which apply regardless of whether they involve a
consumer, neither of these Parts helped the defendants (Part 6
defines the limits on credit reporting and Part 7 relates to
prohibited debt collection practices). The court accepted that the
plaintiff does not finance consumer loans and relied on express
statements in the Lease limiting the uses to which the defendants
may put the equipment to commercial purposes only to conclude that
no consumer transaction was involved.
Amended Lease: The parties had entered an
earlier lease for the same equipment, which the defendants sought
to amend by extending the term to reduce the monthly payment
amounts; the Lease represents that subsequent agreement. Despite
the defendants' assertion that they should not be bound by the
Lease, that the defendants made consistent payments under the Lease
for many months indicated both their knowledge and acceptance of
Contractual Amount of Payment: The defendants
were bound by the payment terms of the Lease despite their argument
that there was no balance owing on the leased equipment, as they
had already paid more by the time of default in instalment payments
than the leased equipment was worth. Contractually, the defendants
had agreed to the amount of the monthly fixed charge and to make
those payments in accordance with the Lease, and the defendants had
been making those payments without complaint prior to the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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