Canada: Court Of Appeal Confirms Retrospective Application Of Amendments To Prejudgment Interest, Statutory Deductible And Costs Considerations

Last Updated: October 5 2017
Article by Nick P. Poon

The Ontario Court of Appeal recently released the much anticipated decision in Cobb v. Long Estate, 2017 ONCA 717, which addressed the issue of whether legislative amendments in 2015 to prejudgment interest on non-pecuniary damages, statutory deductible and costs considerations apply retrospectively in motor vehicle accident litigation.

Ever since Gilbertson Davis LLP's blog post in November 2014, judges in the Superior Court of Justice and Divisional Court have made divergent rulings on this issue including retrospective application, prospective application and relying on their discretion for something in between. This appellate decision provides much needed guidance and clarity to the claimants, counsel and insurance companies in tort actions involving motor vehicle accidents. Although it is unknown at this time whether the Plaintiff intends to apply for leave to appeal to the Supreme Court of Canada, it is safe to assume that will be the case given the significance of this decision.

Prejudgment Interest for Non-Pecuniary Damages

On January 1, 2015, the Insurance Act was amended to change the prejudgment interest for non-pecuniary damages from 5% under Rule 53.10 of the Rules of Civil Procedure to the prescribed rate under the Courts of Justice Act (which was as low as 0.5% in 2009/2010). However, there was uncertainty as to whether the amendment applied retrospectively to actions commenced prior to January 1, 2015 but went to trial after that date, or whether the amendment applied only to actions commenced after January 1, 2015.

For example, in the companion decision in El-Khodr v. Lackie, 2017 ONCA 716, released concurrently with Cobb v. Long Estate, the trial judge held that entitlement to prejudgment interest was a matter of substantive law and therefore the amendment did not apply retrospectively. In Cobb v. Long Estate, the trial judge declined to make a ruling on the issue, and instead, exercised his discretion under s. 130 of the Courts of Justice Act to set the prejudgment interest rate at 3%.

In this case, after performing a contextual analysis of legislative intent, the Court of Appeal held that the prejudgment interest amendment was intended to have retrospective effect. In other words, the prescribed prejudgment interest rate under the Courts of Justice Act applies to all actions that are tried after January 1, 2015 regardless of when the action was commenced. It is important to note that court still retains its overriding discretion to vary the interest rate, interest period and to even disallow interest after considering all of the relevant factors.

First, the Court of Appeal reasoned that since the Courts of Justice Act gives the court discretion to vary the interest rate and period, the plaintiffs in tort actions involving motor vehicle accidents do not have a vested right in a particular rate of prejudgment interest until the trial judge determines the interest rate. Therefore, the amendment would not interfere with any vested rights if it was applied retrospectively.

Second, the real issue was not whether the amendment affected substantive rights but whether the legislature intended the amendment to apply to causes of action that had arisen prior to the amendment but had not yet reached trial. A review of previous amendments to the prejudgment interest regime found temporal language that clearly indicated the changes were to have a prospective effect. In contrast, the absence of similar temporal language in the subject amendment was significant and supported the view that the legislature intended the current change to have retrospective application. Furthermore, the Hansard transcripts indicated the amendment was intended to reduce auto insurance rates within two years, and that would only be possible if the amendment applied to actions already commenced and in the system when the amendment came into effect.

Statutory Deductible for Non-Pecuniary Damages

On August 1, 2015, the Court Proceedings Regulation was amended to change the statutory deductible for non-pecuniary damages from $30,000 to $36,540 (and adjusted for inflation on January 1st of each year).

In this case, the issue was whether the non-pecuniary damages award of $50,000 should be reduced by the statutory deductible in force at the time of the accident ($30,000), or the statutory deductible in force at the time of judgment ($36,540). Although the disputed amount of $6,540 is relatively small, this amount will continue to increase with inflation each year, and more importantly, may have a significant effect on a party's entitlement to costs, as will be discussed below.

The Court of Appeal held that the statutory deductible amendment was intended to have retrospective application based on a contextual analysis of related provisions of the Insurance Act and the reasoning that "since the jury awards damages in today's dollars, the quantum of the deductible should

similarly be calculated in today's dollars". Statutory Deductible Considered in Entitlement to Costs

Effective August 1, 2015, section 267.5(9) of the Insurance Act was amended to expressly state that the statutory deductible was to be considered in determining a party's entitlement to costs. In other words, the Plaintiff's net recovery would be considered in determining costs consequences when comparing damages awards with offers to settle.

In this case, the trial judge did not take the statutory deductible into consideration in awarding costs of $409,098.48 to the Plaintiff because it would be "unfair". The trial judge found that the Defendant's offer to settle of $40,000 inclusive of all damages was less than the jury's award of damages of $69,185 (after reductions for collateral benefits but not the statutory deductible).

The Court of Appeal held that the costs consideration amendment was intended to have retrospective application because there was no vested right to costs and costs legislation is procedural in nature. Therefore, the Defendant's offer to settle of $40,000 exceeded the Plaintiff's damages recovery after reductions for collateral benefits and taking into consideration the statutory deductible ($22,136.60). As a result, the Court of Appeal overturned the trial judge's costs award of $409,098.48 and ordered the parties to bear their own costs.

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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