Prejudgment and post-judgment interest are set in accordance with the Courts of Justice Act. These interest rates are relatively low. Often, in loan agreements and other contracts, the parties set an interest rate that is higher than the rates set under the Act. These are referred to as contractual rates. The Act gives a judge discretion to allow a rate higher or lower than that provided in the Act – but there has to be good reason to do so.
In Capital One Bank v. Carroll, a 2019 decision of the Ontario Divisional Court, a deputy judge of the Small Claims Court, without giving any reasons, refused to award interest at 19.8% as set out in the contract for a MasterCard credit card.
The Divisional Court, who decided the appeal, noted that the deputy judge erred in law by not providing reasons for his decision regarding the applicable rate of interest. The appeal judge also noted that the Supreme Court of Canada had stated “absent exceptional circumstances, the interest rate which had governed the loan prior to breach would be the appropriate rate to govern the post-breach loan. The application of a lower interest rate would be unjust to the lender.”
The appeal judge therefore determined that, since there was no evidence of exceptional circumstances, the deputy judge should have followed the binding authority dealing with contractual interest and should have awarded post-judgment interest at the contractual interest rate of 19.8%.
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Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.