As A Matter of Interest…

In Agribrands Purina v. Kasamekas, 2010 ONSC 2597 (CanLII), Mr. Justice Michael G. Quigley wrote fairly extensive reasons on the issue of how prejudgment interest should be calculated on a cause of action that arose in 1992 and in which judgment was given on January 6, 2010. This case and the present economic conditions make a consideration of the law of prejudgment interest timely.

Agribrands Purina v. Kasamekas

Here, Justice Quigley awarded damages of $954,213 to the plaintiffs by counterclaim. The damages were stated to be compensation for one full year of lost revenue caused by conspiracy and breach of contract by the defendants by counterclaim. In his reasons, His Honour dealt with prejudgment interest and awarded interest at 6.65% for 18 years, resulting in interest totalling $1,142,193. However, he came to this conclusion without counsel having made submissions on the issue of interest so when the defendant by counterclaim sought permission to argue the issue, Justice Quigley agreed. In the result however, he did not change his decision.

The counterclaim that gave rise to the award of damages was commenced during the fourth quarter of 1992. According to s. 128 of the Courts of Justice Act, the rate of interest for actions commenced during that quarter was 5.1 percent. (Under the provisions of s. 128, interest at that rate would then be applied to the damages from the date the cause of action arose to the date of judgment. Justice Quigley concluded that the cause of action here arose in early 1992.)

As noted above, His Honour had used a rate of 6.65%, rather than the “presumptive” rate of 5.1% prescribed by s. 128. The rate of 6.65% was the average of the Courts of Justice Actrates for the four quarters of 1992. The defendants by counterclaim urged him to use instead either the average of the rates for the entire period from 1992 to the date of judgment (4,29%) or the “presumptive” rate of 5.1 percent. Justice Quigley’s justification for using the average of rates for 1992 only was as follows:

[S]ection 128(1) of the Courts of Justice Act shows that the appropriate starting point for the calculation is not the date on which the claim was actually filed, but rather the date on which the cause of action arose: see also Sedigh v. Lange, [2000] O.J. No. 3606 (S.C.J.) at para. 11. I focused on when the cause of action arose as the relevant time and found as a fact that the plaintiffs’ cause of action arose at some point in 1992 at or about the time that the business failed owing to the actions of the defendants, rather than focusing on the date upon which the plaintiffs filed their claim. As such, I continue to regard it as appropriate to average the quarterly rates for 1992 in the manner that I did at paragraph 219 of my Reasons for Judgment.

Oddly, His Honour rejected the submission of the defendant by counterclaim, that the rate should be averaged over the period from 1992 to 2009, to 4.29%, saying, “a variance from the prescribed rate should arise only where the court exercises its discretion to deviate from the prescribed regime”. We say, “oddly” because Justice Quigley did not seem to think that using a rate that represented the average for all quarters of 1992 constituted “a variance from the prescribed rate”, even though, according to the reasons, the result was to increase prejudgment interest by 23 percent over what it would have been, had the “presumptive rate” of 5.1% been used.

In other words, Justice Quigley refused to exercise his discretion to vary the rate of interest in the manner advocated by the defendant by counterclaim, but did not seem to think that by using a rate other than the one prescribed by statute, he had exercised his discretion in favour of the plaintiff by counterclaim. At paragraph 11, he said:

Here, the defendants have advanced a range of reasons for their claim that a lower rate should be applicable, but I find that they have done nothing to discharge the onus that rests upon them of persuading me that it is appropriate that I should exercise discretion in this case to deviate from what would otherwise be the applicable interest rate specified by the Courts of Justice Act. The very nature and existence of such a discretion recognizes that the Court may quite properly choose not to exercise it to alter the applicable interest rate: see Norton v. Kerrigan, [2004] O.J. No. 165 (S.C.J.) at paragraph 11.

The defendants in this case had asked Justice Quigley to exercise his discretion pursuant to the power conferred upon him by s. 130 of the Courts of Justice Act. That section allows the court to disallow interest or to vary the prescribed rate or period. Subsection 130(2) sets out seven factors that the court, in exercising its discretion, “shall” take into account. That subsection reads as follows:

For the purpose of subsection (1), the court shall take into account,

(a) changes in market interest rates;

(b) the circumstances of the case;

(c) the fact that an advance payment was made;

(d) the circumstances of medical disclosure by the plaintiff;

(e) the amount claimed and the amount recovered in the proceeding;

(f) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; and

(g) any other relevant consideration.

Here, the defendants by counterclaim relied on paragraphs (a), (c), (e), (f) and (g).  Justice Quigley rejected all of their arguments and we haven’t summarized them in this commentary because, for the most part, they are specific to this case. One, however, is of more general application and deserves mention.

“Market interest rates”

Paragraph 13(2)(a) directs the court to take into account “changes in market interest rates”. Justice Quigley observed that “the statutory scheme accepts that there may be real divergence between ‘market interest rates’ and the PJI rate or the ‘bank rate’ at any particular time”. He went on to say:

However, while this might in some cases be a relevant consideration, it cannot be here for the simple reason that the defendants have not offered meaningful evidence relating to “market interest rates” during the relevant period and have thus failed to discharge the onus on them to show that such a consideration was relevant here and ought to merit the exercise of the courts discretion in favour of a rate reduction.

This is interesting. What evidence might the defendants have attempted to lead on this point? For that matter, what are “market interest rates”? One of the cases cited by Justice Quigley, Triten Corp. of Canada v. Borden & Elliott, [1998] O.J. No. 3386 (G.D.),  affd. [1998] O.J. No. 4750 (C.A.) considered this question. There, Justice Rivard heard an appeal from an arbitral award in which the arbitrator had applied an average rate of 7% instead of the presumptive rate of 13.9 percent. The appellants argued that he had erred by conflating “market interest rates” with “bank rates”.

Justice Rivard noted that the Courts of Justice Act does not define “market interest rates”, but he provided his own description:

The market interest rate is tied to the bank rate. It is also dependent upon other factors such as the nature of the enterprise borrowing the funds, the level of debt of the borrower, and the security given. In my view, the market interest rate must necessarily be different from the prescribed prejudgment interest rate and the bank rate; were it not the case, the legislature would have employed the defined terms “prejudgment interest rate” or “bank rate” instead of the term “market interest rate”.

The plaintiff/appellant in the Triten case led evidence of its actual cost of borrowing. The defendant had offered no evidence on the issue. As did Justice Quigley in Agribrands, Justice Rivard cited the Court of Appeal’s decision in Graham v. Rourke, (1990), 75 O.R. (2d) 622 at p. 627, 74 D.L.R. (4th) 1 (C.A.), for the proposition that the onus lies on the party who seeks to have the court exercise its discretion under s. 130, to “justify a deviation from that ‘presumptive rate’.” Rivard J. allowed the appeal, finding that an award of interest at the rate applied by the arbitrator would have resulted in the plaintiff not being compensated for its actual borrowing costs.

It seems to us doubtful that the phrase, “market interest rates” in s. 130(2)(a) was intended to require evidence of the actual borrowing costs of the party in the litigation, as was done in Triten. To begin with, it is not necessarily the case that a party who eventually receives an award of damages in court, has borrowed money to replace those amounts, pending the award. That fact would not deprive the litigant of an entitlement to prejudgment interest. Nor would it prevent the opposing party from asking the court to exercise its discretion under s. 130.

Secondly, where a litigant does borrow money (as was the case in Triten), the cost of borrowing for that particular party will reflect a number of circumstances, many of which are peculiar to him or her and not at all reflective of the wider “market rates”. A particular litigant might happen to be particularly uncreditworthy, resulting in a high cost of borrowing. Should that justify a higher rate than would otherwise apply?

From our review of the caselaw, most judges have not distinguished between “market interest rates” and “bank rates” or “prejudgment interest rates”. Usually, the courts have simply looked at the fluctuations, over time, in the rates prescribed by s. 127 of the Courts of Justice Act. See: Vanasse v. Seguin, 2009 CanLII 4237 (ON S.C.) at paras. 33-36, Rowe v. Unum Life Insurance Company of America, 2006 CanLII 15772 (ON S.C.) at paras. 428-430, Hanis v. University of Western Ontario, 2005 CanLII 45970 (ON S.C.) at paras. 114-118,  155-162, Hall v. Atto, 2004 CanLII 5853 (ON S.C.) at paras. 5-7, Waxman v. Waxman (Trustee of), 2003 CanLII 32907 (ON S.C.) at paras. 2-27, Gardner v. John, 1998 CanLII 14861 (ON S.C.) at paras. 7-13.

Likewise, we are not aware of any other case, besides Triten and Agribrands, in which it has been held that a party seeking to rely on s. 130 must lead evidence about “market interest rates”. For the reasons discussed above, if evidence really is required, we question whether evidence of the litigant’s actual cost of borrowing is what is contemplated by s. 130(2)(a) (although it might validly fall within s. 130(2)(g), “any other relevant consideration”).

Rule 53.10: Prejudgment interest on non-pecuniary general damages in personal injury actions

We turn now to a somewhat related issue: the rate of prejudgment interest prescribed by Rule 53.10 on damages for non-pecuniary loss in an action for personal injury. That rate is 5 percent per year.

The “presumptive interest rate” has not been as high as 5 percent since the second quarter of 2001. Beginning in the third quarter of 2009 and continuing to date, it has been only 0.5 percent. So, for the last three quarters, prejudgment interest on non-pecuniary general damages awarded at the rate provided for in Rule 53.10 will be ten times as high as prejudgment interest on other types of damages, calculated at the rate provided for in s. 127 of the Courts of Justice Act. Given that interest on special damages is typically calculated using one-half of the rate otherwise applicable (see Borland v. Mutterbach), the discrepancy is even bigger (20 times) when comparing interest on non-pecuniary general damages to that awarded on special damages.

It might be argued that, in these times of low interest rates, personal injury plaintiffs are deriving something of a windfall on their claims for non-pecuniary general damages. We are not aware of any cases in which this issue has been raised. Section 130 of the Courts of Justice Act, discussed above, permits a judge to vary the rate of interest payable under s. 128 or 129 (postjudgment interest) of that statute. Does a court also have a discretion to vary the rate provided by R. 53.10? We don’t yet have the answer…

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