The Starting Point
Everything begins with the Ontario Courts of Justice Act (the “Act”)– in particular sections 127 and 128, which authorize the court to award prejudgment (and post-judgment) interest, and to a limited extent, it outlines how to calculate prejudgment interest. As a stand-alone section, it tells us the following:
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- Non-pecuniary damages (ie: damages for pain and suffering) are treated differently from pecuniary damages (ie: breach of contract, loss of income, care expenses, out of pocket expenses, etc);
- Non-pecuniary damages are calculated by taking the full amount of the non-pecuniary damages awarded or agreed upon, multiplying this figure by the prescribed prejudgment interest rate, dividing this total by 365 to calculate the per diem rate, and then multiplying the daily interest by the number of days from the start date to the date of the order/judgment (or settlement, as the case may be);
- Special damages, by contrast, require the parties to figure out how much of the past pecuniary losses were incurred in six month intervals, and then calculate the interest on that amount to the date of the order/judgment (or settlement as the case may be);
- Regardless of the type of damages being awarded under the Act, interest is calculated from the “date the cause of action arose to the date of the order;”
- Prejudgment interest is not to be awarded on exemplary damages, punitive damages, on prior interest awarded (ie: no compounding interest), costs, post-trial damages (ie: future care costs, future loss of income), consent orders (unless all the parties consent to a prejudgment interest award in the consent order);
- Prejudgment interest capable of being awarded under section 127 and 128 can be superseded by other legislation dealing with prejudgment interest, or where the parties entered into a contract that stipulates a prejudgment interest rate; and
- The prejudgment interest rate to apply is the bank rate (as formally published by the Attorney General’s office) for the quarter in which the proceeding was commenced.
So, in simple terms, to calculate prejudgment interest on:
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- non-pecuniary general damages, the parties must first identify the date the claim was commenced, then lookup the published prejudgment interest rate for that quarter, and then apply that prescribed interest rate from the date the cause of action arose (typically a year or two prior to the date the action was commenced); and
- special pecuniary damages, the parties must first identify the date the claim was commenced, then lookup the published prejudgment interest rate for that quarter, and then apply that prescribed interest rate for the special damages accrued in six month intervals from the date the cause of action arose (typically a year or two prior to the date the action was commenced);
Already inherent in the “definition” of prejudgment interest is a built-in complication, at least as it pertains to special pecuniary damages. The list of “complications” doesn’t end there however. The next section explores these complications and nuances pertaining to prejudgment interest.
THE COMPLICATIONS AND NUANCES
Periodic Special Damages
The first thing to address is the built-in inherent complication pertaining to special damages – how does one go about readily calculating interest at six month intervals? It is easy to understand the intention behind this section: to recognize that some types of pre-trial losses or expenses are not incurred all at once, thereby making it potentially unfair to award interest for a period before there has been a loss. Say for example, that a portion of the loss of income claim was based on the young plaintiff earning $50,000.00 after they graduated from university three years after the accident. In theory, the loss of pre-trial income remains at zero for the first three years post-accident. In year four, however, the pre-trial income loss is triggered, and that is the start of the claimant’s pre-trial income losses. It would be unfair to the at-fault party to have to pay interest on pre-trial loss of income for those first three years.
But as can be appreciated, calculating the interest at the end of each six-month period can be quite cumbersome. The parties often have to retain economic loss experts to calculate the prejudgment interest for pecuniary losses, but this is also a little unfair to the parties because of the increased costs and disbursements involved, which shouldn’t have been the intention behind the legislation.
When the parties don’t hire economic loss experts, the judges then have to figure out the amount to award for prejudgment interest on pecuniary losses, and thankfully judges (like lawyers) find the prejudgment interest formula set out in the Act (for special damages) too cumbersome, and hence was born a relatively ingenious work-around. In this regard, the Ontario Court of Appeal, in the 1985 decision Borland v. Muttersbach, ruled that instead of calculating interest in this manner, it was permissible to use a more streamlined approach by applying a rate that is one-half of what would otherwise be applicable. Obviously this approach can be used, without too much controversy, for those pecuniary losses that accumulate relatively evenly throughout the entire period between the date of the cause of action to the date of the order, judgment or settlement. However, if some pecuniary losses were incurred all at once rather than over time, such as perhaps some early hospital expenses incurred in the first three months, but never again, a court would likely not use the “one-half” rate, and would likely apply the full rate.
When does the cause of action arise?
For most cases, the day the accident or event occurred is the day that the cause of action arose: but not necessarily. This can be an entire topic on its own, but in the context of limitation period disputes, the issue of when a cause of action arose is often hotly debated. Often the court accepts the argument that the cause of action started many years after the event. The same elements and arguments applied in those limitation period disputes could (and perhaps should) theoretically apply to establish the date upon which to start the prejudgment interest calculation, because otherwise there would be incongruity: in other words, it shouldn’t be permissible to have one “cause of action” commencement date for a limitation period consideration, and another separate and distinct “cause of action” commencement date for a prejudgment interest calculation.
The Date the Cause of Action arose is not the Start Date for Prejudgment Interest in Motor Vehicle Accident Claims
The Ontario Insurance Act effectively alters the commencement date from the date the cause of action arose (in the Courts of Justice Act) to the date the at-fault parties received their notice of action. This is accomplished through section 258.3(8) of the Insurance Act, which applies to actions for “loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile.”
More specifically, the Insurance Act provides that “no interest shall be awarded under section 128 of the Courts of Justice Act for any period before the plaintiff served the notice under clause (1)(b)”. The notice referred to is “written notice of the intention to commence the action on the defendant within 120 days after the incident or within such longer period as a court in which the action may be commenced may authorize, on motion made before or after the expiry of the 120-day period.”
As such, section 258.3(8) of the Ontario Insurance Act varies the period during which prejudgment interest is recoverable, but it has no effect on the pre-judgment rate, which is either governed by the prescribed rate under the Courts of Justice Act or, in non-auto personal injury cases, by Rule 53.10.
In many instances, a party may completely forget or omit to send a notice of intention to claim personal injury damages arising from an automobile accident, and in those instances, the court will typically use the date of the Statement of Claim was served on the defendant as the date of first notice of claim. See for example Brady v. Lamb, 2004 CanLII 27491.
Pre-judgment interest on Non-Pecuniary Damages is different than the Prescribed Rate, in Non-Automobile related Claims for Personal Injury Damages
To add to the confusion, there is a special rate prescribed for non-pecuniary damages in personal injury claims: 5% per annum, regardless of when the action was commenced. This rate is established under Rule 53.10 of the Ontario Rules of Civil Procedure. It is also noteworthy that this 5% rate is still subject to the court's discretion - see "Court Continues to have Broad Discretion" below.
However, for automobile related personal injury or death claims, the prescribed publicized prejudgment interest rate applies.
Court Continues to have Broad Discretion
A court has very broad discretion to vary the rate or period of interest that is calculated under sections 127 and 128. This is conferred by section 130 of the Courts of Justice Act. Indeed, in a contractual setting, the court even went so far as to award compounded prejudgment interest in the circumstances where an unsuccessful party wrongfully withheld money from a successful party (Edper Brascan Corporation v. 177373 Canada Limited (2001), 53 O.R. (3d) 331 (S.C.J.)), and in an insurance setting, compound prejudgment interest was awarded when an insurer wrongfully denied a profit loss claim (MDS Inc. v. Factory Mutual Insurance Company, 2020 ONSC 1924). The court in 1157391 Ontario Inc v. Ortiz, Tremblay, Meridian Credit Union, 2020 ONSC 6604 awarded compound interest on an outstanding lien amount, citing that “in the ordinary commercial parlance the words ‘at the rate of 12% per annum, calculated daily, not in advance, until paid’ … would be understood to mean compound interest.”
Conversely, in the sexual assault case of MacLeod v. Marshall, 2019 ONCA 842, the appellate court reduced the 5% rate prescribed in Rule 53.10 (as awarded by the trial judge) to 1.3%, citing that market interest rates had historically been much lower than 5%: thereby making 5% too high.
In the case of McFlow Capital Corp. v. James, 2020 ONSC 6167, both parties unsuccessfully asked the court to exercise its inherent discretion to deviate from the 1.3% interest rate prescribed by the Courts of Justice Act, at the time the action was commenced. In this case, the successful plaintiff asked the court to apply the 2.5% interest rate that was applicable in the prior quarter (which would almost double their prejudgment interest recovery), and the defendant requested that the court to apply a rate of 1.2%, which they asserted was the average of all the quarterly rates from when the case started, to judgment. In the end, the court was “not satisfied that either party … raised a sufficient basis for departing from the applicable prejudgment interest rate under the CJA, which is the interest rate when the action was commenced, or 1.3 percent.”
Contractual Prejudgment Interest Governed by the Interest Act
As noted earlier, the Courts of Justice Act permits parties to contractually set the prejudgment interest rate. In those circumstances, the parties are bound by the provisions of the Federal Interest Act, R.S.C., 1985, c.I-15. Some provisions uplift the prejudgment interest rate, such as section 3 which stipulates that if the contract is silent on interest, the interest rate to be applied is 5% per annum.
Other provisions are restrictive. For example, pursuant to section 4 of the Interest Act, if a contract (other than a mortgage on real property) stipulates an interest rate payable at intervals other than annual (ie: the contract states interest on a daily, weekly, monthly, etc. basis) (the “Short Term Rate”), the Short Term Rate will be capped to a 5% annual rate unless the contract also contained a provision that expressly converted the Short Term Rate into an annual rate. Pursuant to section 5 of the Interest Act, if interest was improperly collected, it is owed to the debtor (either by way of repayment, or by way of offset).
One very interesting application of the foregoing principle occurred in the case of Sylvite v. Parkes, 2020 ONSC 5569, involving the enforcement of a personal guarantee given as part of a settlement reached earlier between two corporate bodies. In simple terms, if there was default in the payment of the settlement by the corporate debtor, the plaintiff could move on the personal guarantees provided by the principals, which included a provision that interest was to accrue “at the rate of 2% per month from the date of default.” During the enforcement of the guarantee proceeding, the court, on its own initiative, raised the potential conflict with the Interest Act¸ being that nowhere in the settlement or guarantee documentation was the 2% per month stipulated as 24% per year, bringing into question whether the interest should be capped to 5% per annum: none-surprising, the court capped the prejudgment interest rate to 5% per annum, based on this oversight.
When a Pecuniary Loss is not a Pecuniary Loss that Attracts Prejudgment Interest
One controversial area is awards for loss of competitive advantage. In an interesting case called Cerilli v. Ottawa (City), the lower court awarded prejudgment interest on an award of loss of competitive advantage. However, this decision was overruled by the Ontario Court of Appeal, which concluded that the award for loss of competitive advantage represented a pecuniary loss arising after the date of the order, and as such, fell within section 128(4)(a) of the Ontario Courts of Justice Act, thereby exempting the loss of competitive advantage from prejudgment interest.
Prejudgment Interest to be Applied after the Deductibles
In the early phases of no-fault automobile insurance legislation in the 1990’s, with the introduction of the deductibles to be applied to non-pecuniary general damages arising from automobile related injury or death claims, the parties often argued over which figure to use when applying prejudgment interest: was prejudgment interest to be applied to the gross non-pecuniary damages, or to the net non-pecuniary damages after applying the deductible? The correct method is to calculate prejudgment interest on the net non-pecuniary damages: that is, after applying the deductible. See for example Sonnenberger v. Creamer, 2009 CanLII 7767 (ON S.C.) and Laudanski v. Proheny, 2008 CanLII 31417 (ON SC).
OHIP Subrogated Claims also Attract Pre-Judgment Interest
This is often overlooked, but when an injured party is advancing a subrogated recovery claim on behalf of the Ontario Ministry of Health, prejudgment interest should be sought and recovered. The applicable prejudgment rate would be the prescribed rate under the Courts of Justice Act because it is a special damage (or pre-trial pecuniary loss). See for example Molinaro v. Bamford and Lampman Auto Wreckers Ltd., 2011 ONSC 7240 (CanLII), and K.M. v. Marson, 2018 ONSC 5278 (CanLII).
OHIP subrogated claims can also include an amount attributed to future medical expenses prospectively to be incurred by the Ministry, and these amounts should be excluded from the prejudgment interest calculation, keeping in mind that prejudgment interest is not calculated on post-trial (or post-settlement) damages.
Prejudgment Interest Not Payable over-and-above the Insurance Policy Limits
It must be remembered that insurance policy limits are generally inclusive of prejudgment interest, and exclusive of post-judgment interest. See, for example, Allstate Insurance Co. v. Lappalainen, [1984] O.J. No. 428, and Kosanovic v. Wawanesa Insurance, [2002] O.J. No. 4131.
As such, regardless of what the prejudgment amount may work out to be, it may, in certain circumstances, not be fully recoverable, at least not through the insurance policy defending and indemnifying the at-fault party.
Does Prejudgment Interest Apply to Settlements?
The short answer is usually. Keeping in mind that entitlement to prejudgment interest doesn’t arise until there is “an order for the payment of money,” in pure theory there is no entitlement to prejudgment interest during a settlement. However, during mediation (or any settlement discussions), the parties generally attempt to assess what the aggrieved party would be entitled to if the matter were to proceed to trial, and hence, claims are typically settled with the parties calculating (or trying to calculate) the pre-judgment interest that would be payable if there were an order, and settle their disputes accordingly.
CONCLUSION
As is evidenced from the foregoing, calculating prejudgment interest actually requires up to three different dates, as follows:
For all Cases
- the date the cause of action arose, in order to establish the start date for pecuniary damages, and the start date for non-automobile related general damages; and
- the date the Statement of Claim was commenced, in order to establish the prescribed interest rate; and
For Automobile Related Cases
- the date the Plaintiff gave Notice of Claim, to set the new start date for automobile related general damages.
The following chart summarizes these elements in a bodily injury claim (ie: not a contractual claim), assuming that special damages (or pecuniary damages) are calculated at half the prejudgment interest rate that would otherwise apply, as per the principals laid out in Borland v. Muttersbach,
| AUTO B.I. CLAIM | NON-AUTO B.I.-CLAIM | ||||
| PJI RATE | PJI START DATE | PJI RATE | PJI START DATE | ||
| GENERAL DAMAGES | Prescribed Rate on Date Claim Commenced | Date Notice was Given | 5% | Date the Cause of Action Arose | |
| PECUNIARY DAMAGES | Half the Prescribed Rate on the Date the Claim was Commenced | Date Notice was Given (or failing notice, the date the Claim was served on defendant) | Half the Prescribed Rate on the Date the Claim was commenced | Date the Cause of Action Arose | |
The other option is to simply use the Prejudgment Interest Calculator provided by David, which makes short work of calculating the plaintiff’s entitlement to prejudgment interest in a bodily injury case.
Authored by: David M. José (B.A, LL.B)
* The information in this article or paper is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from 360Mediations, or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.