Recent Developments in Prejudgment Interest from the ONCA
Recent rulings by the Ontario Court of Appeal (“ONCA”) in Henry v. Zaitlen, 2024 ONCA 614 (“Henry”), and Aubin v. Synagogue and Jewish Community Centre of Ottawa, 2024 ONCA 615 (“Aubin”) have clarified awards of prejudgment interest (“PJI”) on non-pecuniary damages.
A party entitled to a monetary award is also entitled to collect PJI on that award under s.128(1) of the Courts of Justice Act (“CJA”). For non-pecuniary damages in personal injury actions not involving a motor vehicle, the default interest rate is set at 5% under section 128(2) of the CJA and r.53.10 of the Rules of Civil Procedure(“Rules”). However, over the past decade, particularly during the COVID-19 pandemic, Canadians experienced historically low interest rates that fell well below 5%. As a result, many lower courts awarded PJI rates below 5% out of concern for overcompensating the plaintiffs.
The Presumed Rate of PJI for Non-Pecuniary Awards
In Henry and Aubin, the ONCA held that the language of s.128(2) of the CJA and r.53.10 of the Rules created a presumptive entitlement to 5% PJI on non-pecuniary awards. The presumed rate introduces consistency and certainty to PJI awards, aligning with legislative intent to fairly compensate plaintiffs while promoting early settlements. To deviate from the presumed rate, a party must demonstrate evidence of special or unusual circumstances justifying the departure. Judges looking to exercise their discretion under s.130(1) of the CJA to deviate from the 5% must have regard to all factors under s.130(2) before making a decision. In Henry and Aubin, the trial judges placed too much emphasis on one factor, changes in market rates, while overlooking the rest.
The trial judge in Henry found that the exclusion of motor vehicle actions from s.128 of the CJA suggests that the legislature did not intend to have PJI prevail beyond market rates. The ONCA disagreed, holding that since r.53.10 has not been amended despite fluctuations in interest rates, the legislature did not intend to change the presumptive PJI in non-motor vehicle contexts.
Similarly, the trial judge in Aubin found that the “mischief” that led to a legislatively prescribed presumed rate is no longer being served by the 5%. The ONCA again disagreed, holding that the trial judge had misinterpreted prior case law and emphasized that it is not the court’s role to overwrite legislation to reflect a different policy.
The ONCA rejected the approach taken by the trial judges in Henry and Aubin, who had relied on PJI under s.127(1) of the CJA to determine PJI for non-pecuniary damages. The court held that PJI for non-pecuniary damages is influenced by “market rates,” which are not equivalent to the PJI rates under s.127(1).
The Definition of “Market Rates” Under the CJA
The term “market rate” in s.130(2)(a) of the CJA is not defined in the statute, and the parties in Henry and Aubin mistakenly equated it to the bank rate. The ONCA, in both cases, held that since the CJA defined “bank rate” and “PJI,” “market rate” was intentionally left blank to allow s.130(2)(a) to be broad. Absent agreement, the party seeking to deviate from the 5% due to “changes in market rate” may require expert evidence to explain the relationship between a particular index and the corresponding market interest rates.
The ONCA Awarded 8.46% PJI in Aubin
The ONCA in Aubin held that the Appellants demonstrated special circumstances that justify PJI at higher than 5%. The Respondents did not bring evidence to lower PJI except that of bank rates during the relevant period, which the ONCA did not find convincing. On the other hand, the Appellants’ unchallenged evidence of the actual rate of return on investments for the Plaintiff’s investment portfolio and the Respondent insurer show that available market rates are about double the presumed 5%. The Respondent’s insurer had the benefit of using those funds from the return on investments and would still retain a benefit even if the PJI was paid at 8.46%. The ONCA was persuaded that if those funds were available to the Plaintiff, they would have been invested at comparable rates and awarded the Appellants PJI at 8.46%.
In Aubin, the ONCA held that the Appellants demonstrated special circumstances justifying a PJI rate higher than 5%. The Respondents failed to present convincing evidence to lower the PJI, relying solely on bank rates during the relevant period, which the ONCA did not find persuasive. Conversely, the Appellants provided unchallenged evidence showing that the actual rate of return on the Appellant’s and Respondent’s investments was approximately double the presumed 5% rate. The ONCA noted that the Respondent had benefitted from using those funds and would still profit even if the PJI was set at 8.46%. Convinced that the Appellants would have invested the funds at comparable rates had it been available, the ONCA awarded the Appellants PJI for non-pecuniary damages at 8.46%.
