The Continuing Legal Education Society of Nova Scotia

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1 The Continuing Legal Education Society of Nova Scotia A Review of Pre-Judgement Interest Raymond F. Wagner. The Law Practice of Wagner & Associates Suite Hollis Street, Halifax, Nova Scotia, CANADA B3J 1 V Tel or Fax admin@cie.ns.ca

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3 \, \ Since the preparation of my original paper on prejudgment interest concerning Bush v. Air Canada, the decision of Hiltz and Seamore Co. v. Nova Scotia (Attorney General), [1997] N.S.J. No. 47 (C.A.) has come to my attention. This decision radically differs from the conclusions stated in my paper. In Hiltz and Seamore Co., Justice Stewart at trial held that her award was made in present day dollars. Nevertheless she awarded commercial interest rates on the nonpecuniary award. She did not apply the principles in Bush because neither counsel raised them in summation. Justice Pugsley on behalf of Justices Freeman and Hallett stated that the decision in Botiuk did not explicitly overrule Bush. The court took a very narrow view of the decision of the Supreme Court of Canada in deciding that no "guarantee" right to commercial rates of interest exists in Nova Scotia, hence, distinguishing Botiuk. At page 28 of the court's decision, Justice Pugsley stated: 212 I would interpret these words to mean that the decision in Borland was correct, in light of the provisions of the Ontario Judicature Act then in force, and that the reasoning should apply to the fact situation in Botiuk, which was determined pursuant to the provisions of the Ontario Courts of Justice Act. 213 It is clear from the decision of Justice Barr, in Borland, that the prima facie right of a plaintiff in Ontario to receive pre-judgment interest on non-pecuniary damages at prime rates was the critical issue. 214 The following passage from Justice Cory's decision, at p. 40, illustrates the point:

4 The trial judge in Borland had observed that the award adjusted for inflation buys no more than the original figure did in He went on to determine that whatever the award, the statute gives the plaintiff the prima facie right to receive prejudgment interest on it at the prevailing prime rate. In the absence of such a guarantee, there would be no incentive for defendants to make advance payments, thereby foregoing investment income. He concluded that the fact of inflation is not a proper ground for depriving plaintiffs of their prima facie right to receive prejudgment interest. (emphasis added) 215 The reference to Justice Barr's conclusion would appear to be taken from comments Justice Barr made, at the top ofp. 188, which included the phrase "at the prime rate". 216 I set them out: I conclude that the fact of inflation is not proper ground to deprive the plaintiffs of their prima facie right to receive prejudgment interest at the prime rate. 217 The Judicature Act of Nova Scotia, unlike the Judicature Act of Ontario in force at the time of Borland, did not "guarantee" to a plaintiff the right to receive pre-judgment interest at the prime rate. 218 Accordingly, I conclude that the decision in Botiuk has not impliedly reversed the decision of the Court in Bush. In light of these comments, Bush v. Air Canada remain a thorne in the plaintiffs side, until, and if, the Supreme Court of Canada ever address this issue directly in the context of the Nova Scotia Act.

5 Prejudgment Interest - Non Pecuniary Awards INTRODUCTION Issues relating to interest and its calculation raise a number of interesting issues. Although under the Judicature Act, R.S.N.S. 1989, c. 240 the court has wide discretion in setting the amount of interest and the period of time over which it applies, certain guiding principles have been formulated. [See: Wilson v. Robb (1998),169 N.S.R.(2d) 20(N.S.C.A.)] In this paper I propose to address one fundamental issue relating to interest. Which of the two competing lines of cases concerning the method of calculation of pre-judgment interest is the law? Is 2.5% rate on non-pecuniary general damages a proper method to calculate interest if the award is made in present day dollars? The question is of particular importance to personal injury practitioners in Nova Scotia. The Nova Scotia Court of Appeal decision in Air Canada v. Bush(1992),109 N.S.R.(2d) 91 has been interpreted in different ways, generally to the distinct disadvantage of plaintiffs. Two streams of thought have emerged from the case. 1. Defence counsel argue that the case is authority that on non-pecuniary damages the interest rate of 2.5 % is applicable. 2. A second interpretation of the decision is that when the non-pecuniary award is made in today's dollars 2.5% is the applicable interest rate, but if the award is not in today's dollars regular interest rates apply. The rationale behind this view is that if the award is in present day dollars, the Plaintiffs would achieve double recovery if regular interest rates were applied because inflation is factored into the award.

6 Page 2 There does appear, however, to be authority from the Supreme Court of Canada that is directly opposed to the two interpretations of Air Canada v. Bush as noted above. The following is a presentation of the history of the 2.5% interest rate from 1985 to Borland et al v. Mutterbach (1985) In the case of Borland et al v. Mutterbach (1985), 23 D.L.R. (4th) 664 (Ont. C.A.), the Plaintiff was awarded a substantial claim for severe and totally disabling injuries. A significant part of the claim related to interest. The Ontario Judicature Act R.S.O. 1980, c. 223, prescribes rates of interest for special and general damages. Counsel agreed at trial that interest on the specials should be calculated by the usual practice of awarding one-half the rate otherwise applicable under s.36( 4) of the Act. Furthermore, even though the trilogy cap on non-pecuniary general damages was awarded with inflation, regular interest rates were also applied. The Court of Appeal upheld the trial decision to apply the regular rate of interest on special and non-pecuniary damages. The Court of Appeal noted at page 679:... Both awards were made by the learned trial judge under the power conferred on him by s. 36(6) of the Judicature Act... That subsection permits the judge to vary the rate of interest and the period for which it is applicable, "where he considers it to be just to do so in all the circumstances" from the rate prescribed in s. 36(3)... and in s. 36(4)... The Defendants had appealed the interest award on specials arguing the trial judge erred in failing to give reasons for not following the usual practice. The Court of Appeal responded at page 680 of the decision: In this case, it is not necessary to decide whether the trial judge was obligated to express precise reasons for exercising his discretion either to depart from

7 Page 3 the statutory fonnula or to fix a higher rate than that proposed by the appellant because his reasons for doing so are so readily apparent from his judgment relating to general damages... He (trial judge) said it must have been apparent at an early stage that damages in this case would far exceed the limits of liability... both insurers enjoyed the advantages of retaining the insurance moneys on hand. It was not until 32 months after the accident and only a short time before trial that a payment of $50, was made to the victims. The learned trial judge described the conduct of the insurer as "remarkably callous". The Court of Appeal went on to note: It seems to us that this is sufficient reason for not exercising his discretion in favor of the insurers in departing from the statutory rate. It is also consistent with this Court's interpretation of the policy of the legislation providing for the payment of prejudgment interest as being "intended to provide an. incentive for early settlements or payments... " The Defendants' appeal on the general damages rate of interest (21.25%) was based on the contention that the award of $170, reflected inflation and that the interest awarded allowed double recovery because the award included the rate of inflation. The Defendants relied on the decision in Graham et al v. Persyko (1984), 30 C.C.L.T. 85, where the trial judge reduced prejudgment interest to 2.5% and stated: It is clear, however, that my assessment carries an element of inflation with it. It is above the old upper limit. In these circumstances the award of $125, will bear interest at only 2Y2 percent... The Ontario Court of Appeal upheld a rejection of this reasoning and rate of interest noting the trial judge in Borland gave careful consideration to the reasoning in Graham and rejected it. The Court referring to the trial judge's decision noted that he rejected it "for the following reasons...

8 Page 4 The award of $170,000 will purchase no more goods and services than $100,000 in The plaintiff receiving $170,000 in 1984 is receiving the same compensation as the plaintiff receiving $100,000 in 1978 although expressed in different dollars. Whatever the award, the statute gives the plaintiff the primajacie right to receive prejudgment interest on it at the prime rate prevailing in the month before it was issued. A defendant who is prepared to forego investment income may reduce or extinguish the plaintiff's claim for prejudgment interest by making an advance payment or payments. An insurer who wishes to invest the money at current high rates should not profit by having the benefit of such rates while being required only to pay a nominal rate of interest to the plaintiff. In my view, this would discourage advance payments, thereby adding to the distress of the victims and would be contrary to the policy reflected by s. 36. I am troubled too by the practical application of the Graham case. The context suggests that the trial judge there had in mind inflation occurring since the Trilogy. If inflation continues the upper limit, and presumably awards, will double in a matter of years if awards are adjusted for inflation. A case tried ten years hence will have an upper limit (assuming inflation at 7% per annum continuing) of $350,000, an increase of $250,000, an amount which will undoubtedly exceed the prejudgment interest accumulated after the statutory rate. To follow the Graham case would result in a refusal of prejudgment interest and, in effect, the abolition of prejudgment interest on non-pecuniary damages in such cases. I conclude that the fact of inflation is not a proper ground to deprive the plaintiffs of their prima facie right to receive prejudgment interest at the prime rate. While there are prescribed rates of interest in the Ontario legislation, the general discretion at setting rates of interest is similar to the discretion conferred on the Courts in Nova Scotia by our Judicature Act. Borland concludes that regardless whether the award is made in present day dollars or not,

9 PageS the Plaintiff still has a prima facie right to interest at regular rates. The rationale is to prevent discouraging early settlement or part payments. In some cases the Graham logic is effectively eliminating the right to interest altogether. The rationale for rejecting the 2.5% interest rate is as applicable to Nova Scotia as to Ontario. Air Canada v. Bush (1992) - Our Judicature Act similarly allows for pre-judgment interest: 41 In every proceeding commenced in the Court, law and equity shall be administered therein according to the following provisions: (i) (k) in any proceeding for the recovery of any debt or damages, the court shall include in the sum for which judgment is to be given interest thereon at such rate as it thinks fit for the period between the date when the cause of action arose and the date of judgment after trial or after any subsequent appeal; the Court in its discretion may decline to award interest under clause (i) or may reduce the rate of interest or the period for which it is awarded if (i) interest is payable as of right by virtue of an agreement or otherwise by law, (ii) the claimant has not during the whole of the prejudgment period been deprived of the use of money now being awarded, or (iii) the claimant has been responsible for undue delay in the litigation. In the Bush case, our Court of Appeal upheld an award of pre-judgment interest at 10%.

10 Page 6 The Court recognized that there were two lines of cases relating to prejudgment interest and inflationary factors. One line of cases say that if the award is in present day dollars, i.e. inflation has been taken into account, regular interest rates do not apply. [See: Melnychuck v. Moore et ai, [1989] 6 W.W.R. 367; Graham v. Grant, (1990) B.C. I. No. 1299; Leishner v. West Kootenay Power and Light Company (1986), 24 D.L.R. (4th) 641 (B.C.C.A.)] The second line of cases allow for a regular interest rate even if the inflationary factors have been taken into account and the general damage award is given in today's dollars. [See: Gaudet v. Doucet (1991), 101 N.S.R. (2d) 309(T.D.); Pickett v. British Rail and Engineering Ltd., [1980] A.C. 136 and Borland v. Muthersbach (1985), 12 O.A.c. 84 (C.A.)] Chipman, I.A. in Bush noted there were two lines of authority and that Leishner and Graham approach to interest was preferred. His Lordship noted at paragraph 58 to 60 that the approach taken in the regular interest rate line of cases allowed for double recovery and that double recovery should be avoided in exercising discretion under the Judicature Act when awarding interest. The reasoning in the Borland decision was specifically rejected by our Court of Appeal. Even though the Court of Appeal addressed the issue in stating that if awards were made in present day dollars a 2.5% interest rate was appropriate, the Court did not change the trial judge's decision to grant interest in the then-normal method of calculation. Despite the upholding of the calculations on interest and the endorsement of the trial judge's ruling on interest to provide interest at the normal rate the principle of calculating a 2.5% interest rate on non-pecuniary damages became the norm. This led to the doctrinal interpretation of the case by most insurers and Defence Counsel which suggested that 2.5% be applied to non-

11 Page? pecuniary general damages in all cases. The Court of Appeal of Nova Scotia spoke again on the issue in Bush, was not intended to be an absolute rule of law but rather a discretionary one. This was pointed out in Parker v. Parsons(1997), 160 N.S.R.(2d) 321 (N.S.C.A.). At page 338 Justice Roscoe in speaking for the court said: [40] Counsel for the appellant submits that the trial judge, in fixing the rate of pre-judgment interest on the amount of general damages and on the amount of lost past income (at 6%), erred in law in failing to take into account the principle established by this court in Bush, supra. [41] The principle which was enunciated by Chipman, J.A., in Bush only applies to an award of non-pecuniary damages. If such an award includes a factor for inflation, from the date of the accident to the date of trial, judgment interest at the full "commercial rate" from the date of the accident because, in that case, the plaintiff would get double recovery for inflation. [44] It is clear from the decision of the trial judge that he did not include in the general damages award a factor for inflation. I would, therefore, dismiss this ground of appeal. It appears from the Parker case that no reference was made to the dicta of Justice Cory in an important decision of the Supreme Court of Canada on interest. Supreme Court llfcanada (1995) In the Supreme Court of Canada decision of Bardyn et al v. Botnik (1995), 126 D.L.R. (4th) 609, Cory J. writing for the majority in a libel case reviewed the issue of prejudgment

12 Page 8 interest on general damages. The Appellants had argued that Borland was wrongly applied or decided where an interest rate of 13% was awarded for general damages which was explicitly given in today's dollars, i.e. inflation was factored into the award. Specifically referring to the Borland decision, the Supreme Court stated at page : [116] In Borland consideration was given to the question of prejudgment interest. Objection was taken to the award of prejudgment interest on the nonpecuniary general damages of one of the plaintiffs. The award was made under the discretionary power conferred on the trial judge by s. 36(6) of the Judicature Act, R.S.O. 1980, c That subsection permits the judge to vary the rate of interest and the period for which it is payable, "where he considers it to be just to do so in all the circumstances", from the rate prescribed in s. 36(3) of the Act for general or non-pecuniary damages. [117] It was contended in Borland that since the ceiling on awards for nonpecuniary damages established by the "trilogy" of cases from this court could be increased to reflect inflation (Lindal v. Lindal (1981), 129 D.L.R. (3d) 263, [1981]2 S.c.R. 629, 19 C.C.L.T. 1), the award of prejudgment interest on the inflated sum amounted to a double payment. The Court of Appeal did not agree and upheld the trial judge's decision on this matter. [118] The trial judgment in Borland had observed that the award adjusted for inflation buys no more than the original figure did in He went on to determine that whatever the award, the statute gives the plaintiff the prima facie right to receive prejudgment interest on it at the prevailing prime rate. In the absence of such a guarantee, there would be no incentive for defendants

13 Page 9 to make advance payments, thereby forgoing investment income. He concluded that the fact of inflation is not a proper ground for depriving plaintiffs of their prima facie right to receive prejudgment interest. [119] In my view, the decision in Borland is correct and the reasoning should be applied to the award to Botiuk. This is what the trial judge did and, with great respect, the Court of Appeal erred in varying his decision pertaining to the award of interest. The trial judge considered the delays occasioned by Botiuk's counsel and rightly concluded that they had been taken into account in the Court of Appeal's disposition of the 1990 motion to dismiss the action. In the result, I would restore the trial judge's determination that Botiuk was entitled to prejudgment interest for a period of 12lh years. (Emphasis added) The Supreme Court of Canada approved the reasoning in Borland, the same reasoning that was specifically rejected by our Court of Appeal in Bush. The basic reasoning in Borland was that $170, in 1984 is not going to buy you more than $100, would in More importantly, even if inflation is factored into an award regular interest is still applicable. The rationale or policy used in Borland was that discretion in setting an interest rate must be exercised in light of a party's prima facie right to prejudgment interest. Such prima facie right must be interpreted from the statute because there would be no incentive for Defendants to make advance payments or settle early when they could otherwise use the funds to earn investment income to their benefit. ~ versus Bardyn - Is ~ dead? The only distinguishing factor between Bush and Parker, and Bardyn and Borland is that the former cases are not from the Ontario jurisdiction. The legislation in Nova Scotia differs

14 Page 10 from that in Ontario in that Nova Scotia does not have a fixed prejudgment interest rate but statutes in both Provinces do give the "the judge an overriding discretion to set whatever rate appears just". The discretion must be exercised judicially in accordance with guiding principles. The Supreme Court of Canada clearly upholds the line of cases that award regular interest regardless whether the award is made in today's dollars or dollars at the time of the accident. The highest Court accepts that increased awards to take into account inflation do not negate a prima facie right to regular interest rate award -- the policy of encouraging partpayments or early settlement is adopted. The notion of double recovery to the Plaintiff is rejected. The decision could not be clearer. In light of the amendments to the Nova Scotia Civil Procedure Rules relating to interim payments, this decision is even more important. CPR 33.01(A) mandates interim payments in certain circumstances. The restoration of regular interest rates to non-pecuniary general damages is compatible with this laudable goal. The Supreme Court of Canada's decision to follow the Borland line of cases cannot be circumvented by disallowing interest or arbitrarily reducing that rate to 2.5%. The court in acting judicially cannot ignore the conclusion to the raging debate between Bush, and Borland. Barlyn closes this chapter. CONCLUSION The restoration of historical interest rate calculations on non-pecuniary loss will surely add stability to award comparisons. Counsel and courts have been caught in the unacceptable quandary of comparing the proverbial "apples and oranges". Whether an award for pain and

15 Page 11 suffering was made at the time of the injury or at the time of judgment taking into account inflation had to have been considered in comparing awards. Adjustments to various awards would have to be adjusted in order to ensure their proper comparison. An award of $20, non-pecuniary damages in 1995 with regular interest would be different than $20, with inflation taken into account and a 2.5% interest rate. The above illustrates the difficulty in using the Bush as well as the Borland method at the same time. Comparisons become difficult at best. In stating that regardless whether the award is in present day dollars or not regular interest rate principles are to be applied, the Supreme Court of Canada, in adopting Borland, has restored commercial interest calculations for non-pecuniary general damages.

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