Legal Blog

Contract Costs & Interest

Awards of costs and interest have been the subject of numerous textbooks and, accordingly, cannot be summarized in a newsletter. It is sufficient just to note that both costs and interest can be increased by way of contract. Mortgages invariably deal with both. The mortgage rate is usually greater than the prejudgment interest rate and legal costs are almost always held to be collectible on a full indemnity basis rather than the usual partial indemnity basis. There are exceptions, of course, but they are limited. In Everest Finance Corporation v. Jonker and Scimmi, a 2023 Ontario Court of Appeal case, the court dealt with both interest and costs in unusual circumstances.

At The Motion

The defendants had defaulted in making the required payments on a mortgage and the mortgagee commenced power of sale proceedings and an action for the full amount owing under the mortgage. After the defendants defended the action, the mortgagee brought a motion for summary judgment for arrears, costs, and interest.

The motion judge granted judgment for principal, but reduced the interest arrears from $63,000 to $20,000. She did so because the motion for judgment had been postponed due to the COVID-19 pandemic and she felt that the defendants should not bear the full cost of that postponement.

The motion judge also reduced costs from the claimed amount of $35,000 at a full indemnity rate to $20,000. She said she did so merely in the exercise of her “discretion.”

The mortgagee appealed both these reductions to the Court of Appeal.

Decision

As to interest, the court noted that the motion judge cited no authority for the proposition that a court could reduce interest owed on a debt pursuant to a contractual term merely because of delays in the court system. It also noted that although interest could be denied to a party who is dilatory in pursuing its rights, that was not the case in Everest; the mortgagee was not dilatory. The court therefore held that the defendants owed a contractual debt to the mortgagee that included interest accruing on the debt until it was paid and that there was “no basis to reduce the amount legally due out of some judicial sense of what is fair and equitable.”

As to costs, the court noted that a judge’s discretion in awarding costs did not extend to changing contractual terms of the mortgage. The judge certainly had a right to vary the amount sought if it included amounts that were not appropriate or the lawyers charged excessive rates or time, but she did not have the authority to essentially change the contractual full indemnity costs provision to a partial indemnity one. This does not come within the parameters of a judge’s discretion.

The court allowed the appeal on both issues.

Image courtesy of geralt.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.