Canada: The Latest Word On Prejudgment Interest

Overview

This is an appeal by the Basilian Fathers of Toronto of a jury verdict and an order for prejudgment interest. The Basilians claim the jury instruction on how to assess damages for past income loss was wrong, the punitive damages award was excessive, and prejudgment interest ought not to have been awarded at the rate of 5%.

The jury awarded the respondent, Roderick MacLeod, $350,000 in general damages, $75,000 in aggravated damages, $56,400 in future treatment costs, a $1,588,781 lump sum for income loss, and $500,000 in punitive damages. The jury award exceeded all offers to settle. The trial judge exercised his discretion pursuant to s.130 of the Courts of Justice Act ("CJA") and awarded MacLeod prejudgment interest on general and aggravated damages at the annual rate of 5%.

The Basilians successfully appealed the award of prejudgment interest.

The Law in Respect of Prejudgment Interest

Section 130 of the CJA provides that:

The CJA allows a person who is entitled to an order for the payment of money is also entitled to interest, at the prejudgment interest rate, calculated from the date the cause of action arose, to the date of the order: see CJA, s.128(1).

However, s.128(2) of the CJA provides that "[d]espite subsection (1), the rate of interest on damages for non-pecuniary loss in an action for personal injury shall be the rate determined by the rules of court." Rule 53.10 of the Rules of Civil Procedure provides that the prejudgment interest rate on damages for non-pecuniary loss in an action for personal injury is 5% per year.

The Court explains the reason for the 5% rate for non-pecuniary loss in personal injury actions: it was the legislative response to the 1987 Ontario Law Reform Commission Report for Compensation for Personal Injuries and Death which criticized the practice of awarding prejudgment interest on pecuniary and non-pecuniary damages at the same rate because there is a cap on non-pecuniary damages – the cap is adjusted for inflation. The Report concluded that giving the default interest rate (which, at the time, was much higher than 5%) was, therefore, more appropriate (see Awan v Levant, 2015 ONSC 2209, aff'd 2016 ONCA 970, 133 O.R. (3d) 401, at para. 23).

However, it is also noted in Awan that "the mischief that gave rise to subsection 128(2) is no longer served by a 5% rate given the interest rate climate throughout the period of time relevant to this case" as interest rates had dropped even further. For this reason, s.258.3(8.1) of the Insurance Act was amended through the enactment of the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, S.O. 2014, c.9, such that the 5% rate did not apply in the context of motor vehicle accidents.

Application to the Facts

The appellate court agreed with the trial judge that s.258.3(8.1) of the Insurance Act did not apply, but disagreed with his conclusion that the default prejudgment interest rate of 5% applied.

In coming to this conclusion, the court relied on the Supreme Court of Canada decision Stellarbridge Management v Magna International which made it clear that trial judges enjoy a wide discretion under s.130 of the CJA to allow pre- or post-judgment interest at a rate higher or lower than the rate of interest prescribed by the CJA where they consider it just to do so. The Supreme Court of Canada also held that an appellate court may interfere with the discretionary decision of a trial judge only where it reaches the clear conclusion that there has been a wrongful exercise of discretion by the trial judge in that no weight, or insufficient weight, has been given to relevant considerations (2004, 71 O.R. (3d) 263 (C.A.), at para. 85, leave to appeal refused, [2004] S.C.A. No. 371).

The court then went on to further quote from the Awan decision:

It must be remembered that an award of pre-judgment interest is compensatory. Even if s.128(2) did apply, I would exercise my discretion to impose the ordinary rate of 1.3%. In reaching that conclusion, I have had regard for the interest rates over the relevant period, the circumstances of this case and the different approach to assessing damages, in defamation cases from non-pecuniary damages in other areas.

Further, the court acknowledged that interest rates fluctuate over time and it only makes sense that the interest rates set by the court should reflect these changes as well. The goal is to fairly compensate an injured party and to restore to him or her, so far as money is able to do, all that he or she has lost as a result of the injury – but neither too much, nor too little (see Cobb v Long Estate, 2017 ONCA 717, 416 D.L.R. (4^th) 222, at para 86).

The trial judge, in this case, declined the Basilians' request that he exercise his discretion to impose prejudgment interest at 1.3% for non-pecuniary damages. He declined to do so and held that s.258.3(8.1) of the Insurance Act did not apply in damages from a historical sexual assault and concluded that the default prejudgment interest rate of 5% was applicable on the general and aggravated damages from the date of the Notice of Claim to the date of judgment.

In other words, the trial judge held that the 5% prejudgment interest rate was applicable because s.258.3(8.1) of the Insurance Act did not apply.

While the appeal court found the trial judge was correct that s.258.3(8.1) did not apply to this sexual assault case, his conclusion that the default prejudgment rate of 5% was applicable was not correct in law. According to the appellate court, the trial judge should have taken into account the factors listed in s.130(2) of the CJA, including the changes in market interest rates. He did not and, in so doing, he placed no weight or insufficient weight on the consideration of market interest rates.

The court concluded that during the period of time in question interest rates were low. Further, no issues were taken by the respondent with the 1.3% request, but for the argument that s.258.3(8.1) was not applicable.

The court accepted that the annual prejudgment interest rate should have been 1.3% and that ground of appeal was allowed.

Take Away

The Court of Appeal confirms that the default 5% prejudgment interest rate has been out of step with modern slow-growth interest rates. Defence counsel must be certain to refer to the Ministry of the Attorney General's Pre- and Post-Judgment Interest Rates chart before settling claims. And, it is encumbent on the trial judge to use his or her discretion, when awarding prejudgment interest, taking into consideration market rates.

See MacLeod v The Basilian Fathers of Toronto, 2019 ONCA 842

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