An environment of rapidly rising interest rates needs to be reflected in court decisions that call for the payment of pre-judgment interest, Ontario’s Superior Court of Justice says.
Following a ruling in a family law case that resulted in a judgment for $233,131 plus interest, a dispute arose over the rate of interest that should be applied.
The woman ordered to pay interest argued that the applicable rate should be 0.5%, which was the bank rate that prevailed when the couple’s relationship broke down and proceedings were commenced in early 2021 — whereas her ex argued that the rate should be 2.75%, which is an average of rates over the course of the litigation.
In its decision, the court acknowledged that, under the law, the presumptive rate for pre-judgment interest in this case is just 0.5% — however, it said that it has discretion to apply a different rate in the interests of justice.
In Ontario, the law on pre-judgment interest rates applies the bank rate that prevails at the end of the quarter before a proceeding is launched, rounded to the nearest tenth of a percentage point.
In this case, interest rates rose sharply over the course of the litigation — ultimately rising from 0.5% in the third quarter of 2022 up to over 5% by the fourth quarter of 2023.
“This is a significant fluctuation in the market interest rate,” the court said — noting that the recipient of the judgment argued that his former partner will receive a “windfall” if the lower rate is used.
“He was entitled to the money on the day they separated in March 2021. He submits that if I fix the pre-judgment interest rate at 0.5%, [his ex] will effectively receive the unfair benefit of a low interest loan of the money for five years,” it noted.
Ultimately, the court sided with the recipient, concluding that interest should be paid at the average rates over the course of the litigation.
“Such an order will appropriately compensate him for the loss of the use of the money, which is the fundamental purpose of a pre-judgment interest award,” it said, in ruling that interest should be paid, “at the averaged rate of 2.75%.”