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Posted on April 1, 2008 | Posted in Collections

The Courts of Justice Act sets out both pre-judgment and post-judgment interest rates. Pre-judgment interest is interest that will be added to an award up to the date of judgment. Post-judgment interest is, you guessed it, the interest that is awarded on the entire judgment starting from the date of the judgment. The rates set out in the Act are set quarterly and are based on the bank rate. These rates are lower than the rates one would normally see in any ordinary loan from a financial institution and significantly lower than the rates charged for unpaid credit card balances.

The contracts between financial institutions and borrowers invariably set out the applicable interest rate, both before and after default. When setting out pre-judgment and post-judgment interest in a judgment, what rates apply: the rates set out in the loan agreement or the rates set out in the Act?

There have been a number of decisions on this question, but the latest two are Capital One Bank v. Matovska and Bank of Montreal v. Dabeka, each a 2007 decision of the Ontario Superior Court of Justice.

In each of these cases, the judge preferred to use the contractual credit card rates because a contractual agreement is an “exceptional circumstance” that would take the parties out of the rates set in the Act. As stated in Capital One, unless the terms regarding interest are vague or unclear or the rate is sufficiently high that it is a criminal rate, the court should give effect to the contractual rate for both pre-judgment and post-judgment interest.


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