Clients often ask us to review the clauses in their sale
contracts or various standard-form contracts that stipulate
We all know that some businesses have established practices in
this regard and that there is a tendency in the market to use such
clauses. But how do the courts view them?
In its decision in Diamantopoulos v. Construction
Dompat Inc.1, the Quebec Court of Appeal addressed
this issue a little more clearly in a case where the contract in
question stipulated a 24% per annum interest rate on any unpaid
claim, plus a 20% penalty if judicial recovery proceedings had to
The contract stipulated that interest at the rate of 2% per
month, or 24% per year, was to be paid by Diamantopoulos on any
overdue amount. Plus, in the event of any claim by Construction
Dompat Inc. to recover any unpaid amount, a penalty was stipulated,
calculated on the total amount owing including interest.
In examining the 2% monthly interest and the 20% penalty, the
Court of Appeal looked at Article 1623 of the Civil Code of
Québec as well as its decision in 9149-5408
Québec Inc. v. Groupe Ortam
Inc.2and concluded that an annual interest rate of
24% was not in itself necessarily and intrinsically abusive, and
could even be justified in some cases. In this instance however it
was the combination of the interest rate and the penalty clause
that was abusive, according to the Court of Appeal.
The respondent argued that the practices of three other
contractors were similar, but the Court of Appeal observed that the
practices of three contractors did not constitute a prevalent
usage, particularly where two of them charged 6% less than the
third, and stated the following:
"Nor is it necessarily the case
that the interest so claimed was not abusive per
Caution must therefore be used when drafting late-payment
provisions or advising clients who maintain that such clauses are
an established practice, engaged in by their competitors. In
drafting such provisions, the overall context must be taken into
account, as well as the nature of the contract.
The courts consider such late-payment clauses to be penalty
clauses, but will generally seek to reduce their severity, as
opposed to nullifying them. One thing is certain however: there is
no magic rate of interest that will always pass muster, and each
case will be considered on its own merits.
Since this most recent decision of the Court of Appeal, other
courts in Quebec have considered the cumulative effect of interest
and penalty clauses4 and have ordered their reduction.
Obviously, we must all proceed with caution when drafting or
attempting to enforce such clauses.
1. 2013 QCCA 929
2. 2012 QCCA 2275
3. Supra,note 1at 26.
4. Dubé & Loiselle Inc. v.
Pâtisserie française Duc de Lorraine 1952
Inc., 2014 QCCS 4; Alimplus Inc. v. Placements
Les Airs Inc., 2014 QCCQ 4774.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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