Legal Blog

Interest

Just weeks after our May 2000 newsletter, we noticed another case on interest. Fortunately, the case of NBC Mechanical Inc. v. Lundberg Equipment, a December 1999 decision of the British Columbia Court of Appeal, bears out everything we said in our newsletter.

Contract

The purchase order made no reference to interest. However, in a subsequent fax, the sub noted that it would be claiming interest at 2% per month on unpaid invoices. All invoices repeated this. The judge decided that because the general was aware that the sub would be charging interest, the general had agreed to it. He initially awarded interest at 2% per month. Just prior to the judgment being entered, the solicitor for the general woke up and notified the judge of the provisions of section 4 of the Interest Act. The trial judge amended his judgment to award interest at the Interest Act rate of 5% per year because 2% per month had never been expressed in terms of an annual rate, contrary to the Interest Act.

The general appealed, we assume because the statutory pre-judgment interest rate was less than 5% per year, and the sub cross-appealed to get its 2% per month (26.825% per year).

Appeal 

Before the sub could argue that the trial judge erred in reducing the interest rate due to the provisions of the Interest Act, it had to satisfy the Court that the sub was entitled to contractual interest in the first place.

The Court noted that “where there is no express agreement to pay interest, agreement may be inferred from a course of conduct or an acknowledgement by the debtor subsequent to the contract being entered into.” However, it decided that one unacknowledged fax and a group of invoices demanding interest, was insufficient evidence to support the contention that there was an agreement to pay interest.

The Court noted that in recent years the courts were less willing to imply a contract to pay interest because of the automatic provision of interest under the various provincial Courts of Justice Acts, which provide a statutory based interest rate, usually dependent on the prime rate. The Court stated that “If the parties have clearly agreed on such a term, then so be it. But there is no longer any reason to stretch the concept of implied contract to create a basis for awarding interest.”

Since the general was successful, the Court did not need to deal with the Interest Act issue and awarded pre-judgment interest under the B.C. equivalent of the Ontario Courts of Justice Act. Had the Court concluded that there was an implied contract, the sub would have lost on its argument to obtain 2% per month; it was clearly contrary to the Interest Act.