The appellant advanced a commercial loan to the respondent with an effective annual interest rate exceeding 90 percent, violating the criminal interest rate provisions of the Criminal Code.
The respondent sought a declaration that the agreement was illegal.
The application judge applied 'notional severance' to reduce the interest rate to the legal maximum of 60 percent.
The Court of Appeal reversed this, applying the traditional 'blue-pencil' test to strike out the interest provision entirely.
The Supreme Court of Canada allowed the appeal, holding that notional severance is available as a remedy for statutory illegality under s. 347 and was appropriate in this case given the commercial context and the parties' intentions.
