September 15, 2008, adds to the growing number of class action judgements that focus on substance over form in identifying illegal interest charges under s. 347 of the Criminal Code.
The action arose as a result of an administration fee Bell ExpressVu charged its customers sixty days after the date of billing, if payment had not occurred. This charge was in addition to interest fees levied on overdue accounts beginning thirty days after billing. The representative plaintiff, Peter De Wolf, claimed that the administration fee fell within the broad definition of "interest" in s. 347 of the Criminal Code and far exceeded the criminal rate of 60%. The average monthly bill from Bell ExpressVu services is approximately $50/month; the administration fee in 2008 was a $25 charge, meaning that the interest rates charged to De Wolf on his overdue account often neared 350%. Bell ExpressVu argued that the charge represented liquidated damages, and was intended to offset the costs incurred by outstanding accounts.
With a class action, De Wolf sought to recover the impugned charge and punitive damages. The proceeding was certified as a class proceeding (see [2008] O.J. No. 592). The certified class included "all former and current customers of the [Bell ExpressVu] who have been charged one or more administration fees.beginning January 1, 2003.up to the date of certification [February 6, 2008]." Bell ExpressVu serves more than 1.7 million customers in Canada; it is estimated that every month more than 33,000 customers are charged this administration fee.
Both parties moved for summary judgement, agreeing that there was no genuine issue of material fact requiring a trial in respect of the first common issue, namely whether the administration fee set out in Bell ExpressVu standard form contract could be characterized as interest under s. 347 of the Criminal Code.
Taking significant guidance from Garland v. Consumers' Gas Co. ([1998] 3 S.C.R. 112, a similar case that was also decided on summary judgment), the Court held that the administration fee constituted "in substance, a cost incurred by customers to receive credit under an arrangement" and therefore, fell within the Criminal Code definition of interest and was thus barred by s. 347. In coming to this conclusion, Perell J. focused on the timing of the charge to assess whether credit had in fact been advanced. The billing schedule was such that payment was due on Day 25 (following the billing), interest on the account began to accrue on Day 30, the administration fee was charged on Day 60, and service was disconnected on Day 75.
Bell ExpressVu argued the charge was an attempt to enforce the contract, rather than an arrangement to permit later payment. The Court rejected this argument, finding that Bell ExpressVu's actual continuation of service after the charge belied such a premise. Since the service continued for an additional fifteen days following the administration charge, it was likely customers believed they were paying for credit rather than contractual remedies for breach.
The Court held that in this case there was a consensual granting of credit and the fifteen-day period between the charging of the administration fee and actual service termination rendered the administration fee "credit." Further, Perell J. refused to accept the argument that Bell ExpressVu's right to terminate service from Day 30 was an indication that credit had been unilaterally taken, stating that the "difference between 'did not' and 'could not' [disconnect service] does not negate.there was an extension of credit."
While the case falls within the reasoning espoused in Garland, it does provide further valuable distinctions between allowable charges and criminal interest. Building on the principle of substance over form, the Court refused to classify the administration fee based on either its title or Bell ExpressVu's understanding of the charge. Rather, the final characterization was heavily influenced by what the consumer's understanding of such a charge would be. Interestingly, the Court acknowledged that the fee was a genuine pre-estimate of actual costs incurred due to delinquent accounts, but this was not enough to save it from the scope of s. 347.
The question of timing of such charges was clearly significant to Perell J. in identifying whether credit had been advanced, as opposed to efforts to enforce a contract. In this instance the Court found that the fact the administration charge was levied prior to service interruption was critical to the characterization of the fee as interest. In fact, Perell J. stated that service disconnection prior to the charge might have been enough to save the fee from the scope of the Criminal Code.
With the main substantive issue in the common issues trial established, it remains to be seen how the parties will proceed next. The defendants may yet appeal.
The author thanks Alison Forbes, articling sudent at Stikeman Elliott, for her assistance in writing this article.
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