Legal Blog

Interest

Solar Power Network Inc. v. ClearFlow Energy Finance Corp. 2017 Ont SCJ

Section 4 of the Canada Interest Act specifies that, on all portions of non-mortgage loans, the yearly rates or percentages must be specified; otherwise, the interest rate will be 5% per year. The loan documents specified a base rate at 12% per year compounded and calculated monthly, an administration fee of between 1.81% and 3.55% of the principal at the start and any renewal of the loan, and a discount fee of 0.003% per day for every day that the loan was outstanding. The judge held that: (i) the administration fee was not interest because there were significant administrative tasks being covered by this fee; (ii) the discount fee had nothing to do with administration was categorised as interest; it was not linked to the creation of a new loan document or renewal, was not tied to risk, was calculated at a daily rate, and was not tied to a specific event, such as a renewal; (iii) since the discount fee was held to be interest and an annual rate was not given, this fee ran afoul of the Interest Act; (iv) since one of the components of the loan did not comply with the Interest Act, all of the interest provisions (even the proper provision at 12% per year) were tainted and all were subject to an interest rate at 5% per year – even those that complied with the Act.

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