Divisional Court Addresses Prejudgment Interest Rate

January 3, 2017 | James D. Bromiley

Although the recent decision of the Divisional Court in Carr v. Modi was mentioned in our previous blog, the decision warrants further commentary. This decision provides much needed clarity on the proper rate to be used when calculating prejudgment interest (“PJI”) on damage awards in Ontario personal injury cases arising from motor vehicle accidents.

In Modi, the parties reached a settlement in respect of an action commenced in 2010 arising from a motor vehicle accident that occurred on January 30, 2008.  The settlement required the defendants to pay $42,500 for all damages. It further provided that the defendants would pay PJI at an amount to be agreed upon or assessed, plus costs.

The parties were unable to agree on the applicable rate to calculate PJI. A motion was brought before Justice Lederer for the determination of the appropriate rate. Lederer J. held that the applicable rate was 5%, consistent with legislation in effect prior to January 1, 2015.

The appeal court phrased the issue as whether a legislative change that came into force on January 1, 2015, which effectively reduces the applicable interest rate, has retroactive effect.   The Defendant asserted that the legislative change was retroactive so that the proper interest rate should be calculated with reference the applicable lower bank rate at the time of loss, not at 5%.

This appeal was heard in Toronto on November 18, 2016 in front of Justices Shaw, Molloy and Pattillo.  Justice Molloy, speaking for the 3 judge panel, agreed with the motions judge, holding that the new legislation is substantive, not procedural, and is presumed not to have retroactive effect.  The Court added that there is no language in the legislation, expressed or implied, to support giving the amendment retroactive effect.  Molloy J. found the appropriate PJI rate to be 5% and dismissed the defendant’s appeal.

Modi clarifies the issue of the applicable PJI rate to be used, at least until the Court of Appeal provides further direction.  For motor vehicle accidents that occurred before January 1, 2015 the applicable rate is 5%; for accidents that occur after January 1, 2015, the applicable rate is the lower bank rate.

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