De Wolf v. Bell ExpressVu Inc. et al. [Indexed as: De Wolf v. Bell ExpressVu Inc.]

97 O.R. (3d) 1

Court of Appeal for Ontario,

O'Connor A.C.J.O., Goudge and Rouleau JJ.A.

September 11, 2009

Interest -- Criminal rate -- Administration fee charged by satellite television providers to delinquent subscribers not constituting "interest" for purposes of s. 347 of Criminal Code -- Fee not paid or payable for advancing of credit -- Criminal Code, R.S.C. 1985, c. C-46, s. 347.

The defendants provided satellite television services. The plaintiff brought a class action against the defendants alleging that the administration fee which they charged subscribers who were delinquent in the payment of their accounts was "interest" for the purposes of s. 347 of the Criminal Code and that it amounted to a criminal rate of interest. The defendants' motion for summary judgment dismissing the action was dismissed, and the plaintiff's cross- motion for summary judgment declaring the administration fee to be "interest" for the purposes of s. 347 was granted. The defendants appealed.

Held, the appeal should be allowed.

The administration fee was not paid or payable for the advancing of credit. The motion judge made an unchallenged finding that the administration fee represented a legitimate estimate of the cost the defendants incurred in collecting on overdue accounts. Charging a subscriber for the legitimate cost of collecting on an overdue account for the provision of programming services is more properly characterized as recovery of a disbursement than as a cost or penalty for the advancing of credit.

APPEAL by the defendants from the order of Perell J., 2008 CanLII 46128 (ON SC), [2008] O.J. No. 3548, 298 D.L.R. (4th) 526 (S.C.J.) dismissing their motion for summary judgment and granting the plaintiff's cross- motion for summary judgment.

Cases referred to Garland v. Consumers' Gas Co. (1998), 1998 CanLII 766 (SCC), 40 O.R. (3d) 479, [1998] 3 S.C.R. 112, [1998] S.C.J. No. 76, 165 D.L.R. (4th) 385, 231 N.R. 1, 114 O.A.C. 1, 129 C.C.C. (3d) 97, 20 C.R. (5th) 44, 49 M.P.L.R. (2d) 77, 83 A.C.W.S. (3d) 283, 40 W.C.B. (2d) 49, apld Kilroy v. A OK Payday Loans Inc., [2007] B.C.J. No. 820, 2007 BCCA 231, 278 D.L.R. (4th) 193, [2007] 8 W.W.R. 480, 240 B.C.A.C. 151, 66 B.C.L.R. (4th) 360, 30 B.L.R. (4th) 87, 218 C.C.C. (3d) 467, 156 A.C.W.S. (3d) 693, 73 W.C.B. (2d) 198, distd Other cases referred to De Wolf v. Bell ExpressVu Inc., [2008] O.J. No. 592, 164 A.C.W.S. (3d) 929, 58 C.P.C. (6th) 110 (S.C.J.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 19(1)(b) [as am.] Criminal Code, R.S.C. 1985, c. C-46, s. 347 [as am.] [page2 ]

Earl A. Cherniak, Q.C., Hugh M. DesBrisay and Jason Squire, for appellants. Kirk Baert and Laura Young, for respondent.

The judgment of the court was delivered by

ROULEAU J.A.: -- Overview

[1] The appellants, Bell ExpressVu Inc. and Bell ExpressVu L.P., appeal from an order dismissing their motion for summary judgment in which they sought to have the action against them dismissed. They also appeal the motion judge's order granting the respondent, Peter De Wolf's, cross-motion for summary judgment declaring the administration fee charged by the appellants to be interest for the purposes of s. 347 of the Criminal Code, R.S.C. 1985, c. C-46.

[2] On November 20, 2008, pursuant to s. 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, the Divisional Court granted the appellants leave to appeal the motion judge's order dismissing their motion for summary judgment. On December 1, 2008, this court ordered that the appeal to the Divisional Court be transferred to the Court of Appeal and heard together with the appellants' appeal of the motion judge's order granting summary judgment to the respondent.

[3] The issue in these appeals is whether the administration fee charged by the appellants to subscribers who are delinquent in the payment of their accounts is "interest" for the purposes of s. 347 of the Criminal Code. This determination turns on the interpretation and application of s. 347, which defines interest as "charges . . . paid or payable for the advancing of credit under an agreement or arrangement". It is an offence under s. 347 to receive, or to enter into an agreement or arrangement to receive, interest at a rate exceeding 60 per cent per year.

[4] For the reasons that follow, I conclude that the administration fee charged by the appellants is not interest for purposes of s. 347 of the Criminal Code. As a result, I would allow the appeals, set aside the orders of the motion judge and dismiss the action. [page3 ]

Facts

[5] The underlying action in these appeals is a certified class proceeding in which the respondent is the representative plaintiff: see De Wolf v. Bell ExpressVu Inc., [2008] O.J. No. 592, 58 C.P.C. (6th) 110 (S.C.J.). Certification of the class action was ordered on April 2, 2008. The class is defined as "[a]ll former and current customers of the Defendants who have been charged one or more Administration Fees (the fees of $19 and $25 charged by the Defendants beginning January 1, 2003 for the payment of an account after the due date) and have paid those fees up to the date of certification of this proceeding": para. 45.

[6] The appellants provide satellite television services to about 1.7 million homes and businesses in Canada. The service agreements they enter into with their subscribers ("Subscriber Agreements") call for monthly billing, and the average account charge is approximately $50 per month. Although there are different forms of agreement for residential, multiple dwelling unit, condominium and commercial subscribers, the terms of the Subscriber Agreements are similar. All of the agreements include some form of the following provisions: (a) Billing is monthly in advance of providing the service. The bill stipulates a payment due date, being 25 days after the bill date (in practice, payment is due before about two- thirds of the services have been provided); (b) overdue amounts are charged interest at the following rates: (a) a compound interest rate of 2 per cent (2%) per month (26.82 per cent per year); or (b) the highest interest rate permissible by law, at the appellants' discretion, until paid in full; (c) the appellants have the right to disconnect a service, without notice or demand, if an account is not paid in full within 30 days after the due date, and to charge a deactivation fee of $50; (d) if an account remains unpaid for 60 days (45 days for multiple dwelling units), an administration fee of $25 may also be charged to offset the collection costs associated with delinquent accounts.

[7] The appellants communicate bill-payment requirements to subscribers in several ways. Billing notices are sent monthly, advising the subscriber of the payment due date. These monthly bills also provide the subscriber with an update on the status of [page4 ]the account balance from the previous month, and notify the subscriber when previous bills remain unpaid and the account is in default. Further, the appellants have implemented an automated courtesy-call system, also known as "call blasting", to remind subscribers when their account is overdue for payment. Client service representatives also discuss account payments with subscribers who initiate calls themselves.

[8] The billing and collection cycles vary somewhat between the different types of Subscriber Agreements, depending on whether the subscriber has a residential, multiple dwelling unit, condominium or commercial account. However, for the purposes of these appeals, the billing timelines provided in the Subscriber Agreements and the appellants' collection practices can be summarized as follows:

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[9] As noted above, the appellants have the right under their various Subscriber Agreements to disconnect a subscriber as soon as an account is 30 days past due. Their usual practice, however, is to wait until an account is 50 days overdue before disconnecting service. This is a unilateral decision on their part to forbear. In some cases, the appellants do not wait until an account is 50 days past due and instead choose to disconnect a subscriber's service as soon as it is permissible under the terms of the contract. [page5 ]

[10] The appellants incur costs when an account enters their collection stream and they are required to follow-up to obtain payment. Because tracking the collection costs associated with individual accounts is impracticable, the appellants undertook a review of the collection-related costs incurred when subscribers' accounts remain outstanding for more than 60 days. The appellants conducted their first such review in 2002 and determined that the average collection cost was $19 per subscriber. They undertook a second review in 2004, which determined that the average collection cost had risen to at least $25 per subscriber. Following the second review, the appellants increased the administration fee in the Subscriber Agreement from $19 to $25 where a subscriber's account remains unpaid for 60 days. An account that is unpaid for 60 days is overdue by 35 days.

[11] It is the administration fee charged by the appellants when an account is 35 days overdue ($19 between 2002 and 2004, and $25 from 2004 to present) that is the subject of the class action. Following certification of the action, both the appellants and the respondent brought motions for summary judgment with respect to the legal characterization of this administration fee.

The Reasons of the Motion Judge

[12] The motion judge concluded that that the administration fee, together with the interest charged on accounts at least five days overdue, forms part of an agreement or arrangement to advance credit. Consequently, he held that the administration fee constitutes interest and depending on how promptly it is paid, it translates into an interest rate exceeding 60 per cent per year, contrary to s. 347 of the Criminal Code.

[13] Central to the motion judge's analysis was the evidence that, although the administration fee is charged on day 60 (35 days past the due date), the appellants' practice is to disconnect a subscriber's service only on day 75 (50 days past the due date). Applying the Supreme Court of Canada's decision in Garland v. Consumers' Gas Co. (1998), 1998 CanLII 766 (SCC), 40 O.R. (3d) 479, [1998] 3 S.C.R. 112, [1998] S.C.J. No. 76, the motion judge stated, at para. 54: "In the case at bar, practically speaking, there was a definite extension of credit at least until 15 days after the administration fee was imposed, at which time the service would be disconnected. The price of this extension of credit was the administration fee, which makes the administration fee interest" (emphasis in original).

[14] In arriving at this conclusion, the motion judge found that a subscriber is permitted to pay after the due date because the [page6 ]appellants "tolerate[], accept[], agree[] or acquiesce[] to the state of affairs that the debtor may pay after the due date, which is to say that [they] will not enforce the contract by claiming compensation; i.e., damages, or other remedies for the breach otherwise entailed by the late payment": at para. 36. In his view, this arrangement gives subscribers the impression that, if they pay the interest and administration fee, they may delay payment for the services they have already received and yet continue to receive service.

[15] The motion judge rejected the appellants' attempt to distinguish the case at bar from the Supreme Court's decision in Garland and stated as follows, at para. 52:

The majority of the Supreme Court in Garland concluded that there had been an advance of credit. Justice Major stated at para. 48 that: "Under the terms prevailing between the parties, customers are permitted to defer their payment, albeit for a price. That is an arrangement for the advancing of credit under the broad language adopted in s. 347." In my opinion, much the same thing can be said about the case at bar.

[16] He also rejected the appellants' submission that the administration fee is simply a means to recover damages caused by a breach of contract. He observed that, if the administration fee was charged after disconnection of the service, the appellants' argument that the fee is a genuine pre-estimate of damages would have "considerable traction": at para. 43. Notwithstanding his observation in this regard, the motion judge also found as a fact that the administration fee is a legitimate estimate of the appellants' actual costs of collecting on delinquent accounts that are overdue. That finding has not been challenged on appeal.

[17] In concluding that the administration fee is interest within s. 347, the motion judge noted that "the administration fee is like the late fee in Kilroy v. A OK Payday Loans Inc. (2007), 2007 BCCA 231, 278 D.L.R. (4th) 193 (B.C.C.A.)": at para. 44. In that case, the B.C. Court of Appeal upheld the finding of the trial judge that a $75 fee charged for defaulting on a payday loan constituted interest within s. 347.

[18] In summary, the motion judge held that "there is the legal look and the legal feel of an advance of credit" and that the administration fee constitutes illegal interest within s. 347 of the Criminal Code: at para. 55. The motion judge granted the respondent's motion for summary judgment and dismissed the appellants' motion.

Section 347 of the Criminal Code

[19] At issue in this appeal is the interpretation of s. 347 of the Criminal Code. This section provides as follows: [page7 ]

Criminal interest rate

347(1) Despite any other Act of Parliament, every one who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or practical payment of interest at a criminal rate, is (a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or (b) guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

Definitions

(2) In this section,

"credit advanced" means the aggregate of the money and the monetary value of any goods, services or benefits actually advanced or to be advanced under an agreement or arrangement minus the aggregate of any required deposit balance and any fee, fine, penalty, commission and other similar charge or expense directly or indirectly incurred under the original or any collateral agreement or arrangement;

"criminal rate" means an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement; . . . . .

"interest" means the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under an agreement or arrangement, by or on behalf of the person to whom the credit is or is to be advanced, irrespective of the person to whom any such charges and expenses are or are to be paid or payable, but does not include any repayment of credit advanced or any insurance charge, official fee, overdraft charge, required deposit balance or, in the case of a mortgage transaction, any amount required to be paid on account of property taxes.

Taux d'intérêt criminel

347(1) Malgré toute autre loi fédérale, quiconque conclut une convention ou une entente pour percevoir des intérêts à un taux criminel ou perçoit, même partiellement, des intérêts à un taux criminel est coupable: a) soit d'un acte criminel passible d'un emprisonne-ment maximal de cinq ans; b) soit d'une infraction punissable sur déclara-tion de culpabilité par procédure sommaire et passible d'une amende maximale de 25,000 $ et d'un emprisonnement maximal de six mois, ou de l'une de ces peines.

(2) Les définitions qui suivent s'appliquent au présent article.

"capital prêté" L'ensemble des sommes d'argent et de la valeur pécuniaire globale de tous biens, services ou prestations effectivement prêtés ou qui doivent l'être dans le cadre d'une convention ou d'une entente, déduction faite, le cas échéant, du dépôt de garantie et des honoraires, agios, commissions, pénalités, indemnités et autres frais similaires résultant directement ou indirectement de la convention initiale ou de toute convention annexe.

"taux criminel" Tout taux d'intérêt annuel effectif, appliqué au capital prêté et calculé conformément aux règles et pratiques actuarielles généralement [page8 ]admises, qui dépasse soixante pour cent. . . . . .

"intérêt" L'ensemble des frais de tous genres, y compris les agios, commissions, pénalités et indem-nités, qui sont payés ou payables à qui que ce soit par l'emprunteur ou pour son compte, en contrepartie du capital prêté ou à prêter. La présente définition exclut un remboursement de capital prêté, les frais d'assurance, les taxes officielles, les frais pour découvert de compte, le dépôt de garantie et, dans le cas d'un prêt hypothécaire, les sommes destinées à l'acquittement de l'impôt foncier.

The Supreme Court of Canada's Decision in Garland v. Consumers' Gas Co.

[20] Both parties rely on the Supreme Court of Canada's decision in Garland in support of their positions. In Garland, the Supreme Court considered whether a late payment penalty for unpaid gas bills constituted interest pursuant to s. 347 of the Criminal Code. The monthly bills sent by Consumers' Gas Co. to its customers stipulated a date by which payment was due and provided that customers who did not pay by the due date were assessed a one-time late-payment penalty equal to 5 per cent of the unpaid bill.

[21] The court in Garland laid out the basic interpretive framework for s. 347. As a preliminary observation, it noted that "for the purposes of s. 347 'interest' is an extremely comprehensive term, encompassing many types of fixed payments which would not be considered interest proper at common law or under general accounting principles": at para. 27. The court further noted that s. 347 applies to a wide range of transactions, as "mandated by the extremely broad compass given to [the terms 'credit' and 'interest'] by Parliament under s. 347": at para. 51. [page9 ]

[22] The Supreme Court directed that, as a first step, the court should determine whether the charge in question is paid or payable for the advancing of credit. In analyzing this question, the court should look beyond the form of the payment relationship between the parties and focus on its substance. The Supreme Court held that s. 347 applies not only to traditional lending relationships but also to contracts for the provision of services, as was the case in Garland, where the "agreement or arrangement permits a debtor to pay later than the time at which the payment would otherwise have been due": at para. 35.

[23] If credit is found to be advanced, the second step of the analysis is to determine whether it is advanced pursuant to an agreement or arrangement between the parties. In this context, the court held that s. 347 would "not apply to situations in which a buyer or consumer fails to pay on time, without the consent of the other party, for goods, services or benefits provided": at para. 45. Put another way, where the agreement provides the subscriber with an option to pay late, the parties are taken to have reached an agreement where credit may be extended in exchange for payment of a fee. Where the late payment fee is "[c]ompensation for the cost of payment deferred", it is considered interest under s. 347: at para. 47.

[24] Importantly, the Supreme Court noted that the intention of the creditor in implementing a late payment fee, for instance, to deter customers from late bill payments, is not determinative of whether the fee falls within the definition of "interest" in s. 347. In the court's view, "[t]he nature of the arrangement between Consumers' Gas and its customers is a question of law. That question turns on how the [late payment penalty] operates in substance, not on what [Consumers' Gas] hopes to achieve by imposing it": at para. 48.

[25] The Supreme Court noted that the terms of the standard agreement between the company and its subscribers provided "in plain language, that a customer's gas bill may be paid either before or after the due date": at para. 45. Therefore, the court concluded that the 5 per cent late-payment penalty "incurred, pursuant to the terms of a standing arrangement between the parties, for the deferral of payment of a specified amount of money owing for goods, services or benefits is an 'interest' charge within the meaning of s. 347": at para. 53.

Position of the Parties

[26] The appellants argue that the motion judge erred in characterizing the administration fee as interest under s. 347 of [page10 ]the Criminal Code. They advance two related, but distinct, reasons in support of their position.

[27] First, the appellants submit that the terms of the Subscriber Agreements require that bill payments be made by the due date. In their submission, the Subscriber Agreements do not offer a deferral option. If a subscriber takes credit from the appellants by deferring bill payment while still receiving services, the subscriber is taking this credit unilaterally, in breach of and not in accordance with the terms of the agreement. Unlike the situation in Garland, where the standing arrangement provided for payment of one price on the due date and another price after the due date, the Subscriber Agreements between the appellants and their subscribers provide no contractual right to defer bill payment. Therefore, there is no arrangement between the appellants and their subscribers that expressly or impliedly gives subscribers an option to defer payment.

[28] Second, the appellants submit that the administration fee is not a charge for advancing credit. Rather, it is a charge to recover the costs actually incurred when they are required to collect from subscribers whose accounts are overdue and who are, therefore, in breach of contract. In the appellants' view, the administration fee is solely directed at the recovery of collection costs and is different from the late payment penalty in Garland, which was found to be a charge payable by the subscriber in exchange for the option to defer bill payment.

[29] The appellants challenge the motion judge's finding that, because the appellants continue to perform under the Subscriber Agreements and normally do not disconnect a subscriber's service until the account is 50 days past due (15 days after the administration fee is levied), the administration fee can be characterized as the cost of advancing credit. They submit that the administration fee is expressly authorized by the terms of the Subscriber Agreements and is levied as liquidated damages where an account holder has breached the terms of the contract by not paying the account in a timely manner. Allowing a subscriber's service to continue is unrelated to the administration fee and does not provide a basis for implying a term into the Subscriber Agreements that payment of the fee allows the subscriber to have credit.

[30] The respondent argues that, in continuing to provide service under the Subscriber Agreement even after a subscriber has failed to pay the monthly bill by the due date, the appellants have, in effect, arranged to provide credit to the subscriber. In other words, by their actions, the appellants are accepting that there may be a delay in bill payments. [page11 ]

[31] Because of this, the respondent submits that the Subscriber Agreement is no different, in substance, to the agreement in Garland. Although the Subscriber Agreement provides that the subscriber must pay the bill by the due date, the substance or effect of that agreement is quite different. When the subscriber "breaches" the agreement by failing to pay his or her bill by the due date, interest starts to accrue at a rate of 2 per cent per month. There is, it is argued, no breach of the agreement in the true sense because the appellants cannot, in accordance with the terms of the agreement, terminate the service for at least 30 days. This is what the respondent referred to in oral argument as the "first phase" of the credit advance.

[32] The "second phase" of the credit advance, as characterized by the respondent, begins when the administration fee is levied. In this second phase, a subscriber technically in default under the terms of the Subscriber Agreement is normally allowed to continue to receive service for a period of approximately 15 days after the administration fee is charged. According to the respondent, because the appellants' practice is, for this 15-day period, to take no action to discontinue service or otherwise collect the debt of a subscriber who pays the administration fee, this fee constitutes interest.

[33] In broad terms, the respondent submits that after day 25 -- the date on which the bill payment is due -- the relationship between the appellants and the subscriber becomes one of lender and borrower. The terms of that lending arrangement are set out in the Subscriber Agreement and by the appellants' established practice. Essentially, although bill payment is technically required by the due date, the Subscriber Agreement effectively allows a subscriber to delay payment, initially, at a cost of 2 per cent interest per month. When the account is 35 days overdue, the subscriber is charged an administration fee which, by virtue of the appellants' established practice, allows a further delay in payment of 15 days. Because the Subscriber Agreement prevents disconnection of the account before it is 30 days overdue and the established practice is to extend this period to 50 days, the respondent's decision not to pay by the due date cannot be seen to be in breach of the agreement. Rather, it is to be taken as the respondent exercising the option provided in the Subscriber Agreement to receive credit.

[34] By entering into such an arrangement, the respondent maintains that the appellants advance credit to subscribers who choose to pay their bills late. As such, the Subscriber Agreement is subject to the Criminal Code provisions which prohibit a return on lending at an interest rate in excess of 60 per cent. [page12 ]

Analysis

[35] In Garland, the Supreme Court of Canada articulated the proper approach for determining whether a fee or charge levied by a service provider is interest for the purposes of s. 347 of the Criminal Code. On the facts of this case, we are to determine whether the $25 administration fee "may be said to constitute a charge or expense 'paid or payable for the advancing of credit under an agreement or arrangement'": at para. 32.

[36] In answering this question, the Supreme Court cautioned that a court should look at the substance of the payment relationship between the parties and not merely its form. The broad language of s. 347 reflects Parliament's intention that the court examine all charges levied pursuant to a credit arrangement with a critical and discerning eye.

[37] There are two steps to be taken in analyzing whether a fee or charge constitutes interest within s. 347. The first step is to determine whether the fee or charge is for the advancing of credit. If so, the second step is to determine whether the credit is being advanced pursuant to an agreement or arrangement: see Garland, at paras. 33 and 41.

Step 1: Advancing of credit

[38] It is clear from the Supreme Court's decision in Garland that "[s]ection 347 applies to arrangements involving the monetary value of goods, services or benefits even in the absence of an outright advance of money": at para. 34. However, it is also important to note the court's view that s. 347 "is essentially concerned with regulating the relationship between creditors and debtors, not the relationship between commercial actors in the ordinary course of business": at para. 37.

[39] In my view, for the purposes of analysis, a distinction must be made between institutions whose business it is to lend money or advance credit on the one hand, and service providers like the appellants and Consumers' Gas Co. on the other hand. Where the relationship between the parties is exclusively one of lending money, any additional charges or fees are inherently connected to the lending of money or the advancing of credit, regardless of their label. Generally speaking, such fees are likely to fall within the definition of interest in s. 347.

[40] However, where the relationship between the parties is principally one of service provider and subscriber, extra charges and fees may be, but are not necessarily, connected to the advancing of credit. Therefore, even where a service agreement is found to have an advancing of credit component because it allows a [page13 ]subscriber to defer bill payment at a cost, fees and charges that are properly related to the service being provided are not somehow transformed into fees or charges related to the advancing of credit. In such cases, the court is called upon to look at the true nature of the arrangement and of the charges incurred to determine whether the charges are interest as defined in s. 347 of the Criminal Code.

[41] In this context, a parallel between the late payment penalty at issue in Kilroy [Kilroy v. A OK Payday Loans Inc., 2007 BCCA 231, [2007] B.C.J. No. 820, 278 D.L.R. (4th) 193 (C.A.)] and the administration fee in the case at bar cannot, as the motion judge suggested, be drawn. Kilroy involved a late payment penalty and processing fee charged by a lender on paycheque advances made to borrowers. In determining that the late payment penalty in that case was interest within s. 347 of the Criminal Code, the B.C. Court of Appeal agreed with the trial judge that the late fee was a penalty tied to the advancement of credit and "not merely the recovery of a disbursement": at para. 20. Given that the motion judge in the present case made an unchallenged finding that the administration fee charged by the appellants represents a legitimate estimate of the cost they incurred in collecting on overdue accounts, Kilroy is clearly distinguishable.

[42] As the Supreme Court noted in Garland, it is both "formalistic and unpersuasive" to contend that a fee or charge falls within the scope of s. 347 simply because it is in the nature of a penalty. Rather, "[t]he issue is whether that penalty constitutes, in substance, a cost incurred by customers to receive credit under an arrangement" with the service provider: at para. 30. In other words, the fee or charge at issue must be sufficiently connected to the credit in order to be considered "paid or payable" for its advance.

[43] In my view, charging a subscriber for the legitimate cost of collecting on an overdue account for the provision of programming services is more properly characterized as recovery of a disbursement than as a cost or penalty for the advancing of credit. As I have noted, the motion judge found that the $25 administration fee is a legitimate pre-estimate of the costs incurred by the appellants when accounts remain outstanding for more than 60 days.

[44] There is some confusion in the present case because the Subscription Agreements allow (or at least tolerate) deferral of bill payment for 30 days without loss of service at an additional cost of 2 per cent interest per month. The respondent has argued that this 30-day grace period constitutes an advance of credit. The respondent further argues that, because the administration fee is charged shortly after the end of the grace period and, in [page14 ]practice, extends the period before service is disconnected, both the fee and the 2 per cent interest charge form part and parcel of the cost of deferring payment.

[45] I cannot accept this argument. On the facts of this case, the administration fee represents the cost to the appellants of dealing with accounts overdue by 35 days against which the fee is levied. It is clear that such a fee would be entirely legitimate as liquidated damages if the Subscription Agreement provided that it was to be levied the moment the account became 35 days overdue, and on the same day the appellants immediately discontinued service. In my view, the character of the administration fee is not changed simply because the appellants might, in most cases, unilaterally decide to delay disconnection.

[46] Further, accepting for the purposes of this decision that the 30-day grace period constitutes the advancing of credit, this still does not change the character of the administration fee. The fee continues to be unrelated to the advancing of credit. In fact, imposing the administration fee on day 60 (35 days overdue) signals to the subscriber the end of any grace period and that service disconnection is imminent. The fee is levied after the appellants are entitled, by contract, to terminate the service. It comes after the subscriber has received an automated call on day 45 advising that, in order to avoid the possible interruption of service and the levying of the administration charge, payment must be received within ten days. This call is followed up by a final notice in the next monthly bill advising that, because payment was not received in the last 60 days, the account has been subjected to "both a 2% interest charge and a $25 administration fee". The customer is told that in order to avoid disconnection, payment must be sent "immediately".

[47] On the facts, therefore, nothing suggests that the $25 administration fee levied on day 60 (35 days past due) entitles or allows the customer to defer payment of the account.

[48] Levying the fee ends the grace or credit period either because the customer will, as demanded, immediately pay the outstanding account or, alternatively, because the appellants will disconnect the service and take steps to recover the amounts owing.

[49] The motion judge considered it significant that the appellants' practice is to not disconnect a subscriber's service until after the administration fee is levied. He noted at, para. 42 of his reasons, that "[u]nder this arrangement, it would appear to the [subscriber] that he or she can delay payment for the services . . . without losing the benefit of the contract for television services". In my view, the record does not support this conclusion and, [page15 ]even if it did, such a perception is of no relevance to the issues to be determined.

[50] Although the appellants conceded that it is their general practice not to disconnect a subscriber's service until day 75, there was evidence that in some cases service is disconnected on day 55, as soon as permitted under the Subscriber Agreement. It may well be that a frequently delinquent subscriber, like the respondent, knows from experience that the appellants are not likely to disconnect service on day 55. However, the appellants' unilateral decision to delay disconnection until day 75 may be changed at any point in time and would not be apparent to the vast majority of subscribers. It is not a term of the Subscriber Agreement and there is no evidence to suggest that it has been communicated to subscribers by way of written or oral representations. To the contrary, the "call blast" on day 45 advises a subscriber that service may be disconnected. In fact, there is some evidence to suggest that frequently delinquent subscribers are more likely to have their service disconnected on day 55.

[51] In any event, the appellants' business decision regarding whether or not to disconnect service is, in my view, irrelevant. It is the deferral of payment, not the continued provision of service, that constitutes an advancing of credit. As explained in Garland, credit under a service agreement is not advanced until payment for the service is otherwise due. Under the terms of the Subscriber Agreement, the payment for continued service on any account, overdue or not, is not due until 25 days after the monthly bill for that continued service is sent to the subscriber.

[52] In my view, therefore, the motion judge ought not to have considered how the $25 administration fee is perceived by subscribers in coming to his conclusion that the fee is paid for the advancing of credit under an agreement or arrangement. As set out in Garland, the nature of the agreement or arrangement between the parties is a question of law. The determination turns on how the arrangement operates in substance, not on what either party hopes to achieve by implementing and/or agreeing to it. On the facts of this case, the evidence established that the administration fee is a legitimate estimate of the costs incurred by the appellants in dealing with an individual overdue account.

[53] In my view, the administration fee is, in substance, a reimbursement rather than a charge "paid or payable for the advancing of credit".

Step 2: Under an agreement or arrangement

[54] Having concluded that the administration fee is not a charge for the "advancing of credit" as provided in s. 347 of the [page16 ]Criminal Code, I need not address the second step of the analysis to determine whether credit was advanced pursuant to any agreement or arrangement between the parties.

[55] In the result, the administration fee does not fall within the scope of s. 347 of the Criminal Code.

Conclusion

[56] For these reasons, I would allow the appeals, set aside the motion judge's order granting summary judgment in favour of the respondent and substitute an order dismissing the respondent's claim in its entirety. If the parties are unable to agree on the issue of costs, brief written submissions are to be provided by the appellants within 20 days hereof and the response of the respondent within ten days thereafter.

Appeal allowed.