National Leasing Group Inc. v. Verbanac Law Firm Professional Corporation, 2015 ONSC 145
COURT FILE NO.: 4057-SR-13
DATE: 2015 Jan15
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
National Leasing Group Inc.
Plaintiff
– and –
Verbanac Law Firm Professional Corporation
Defendant
Patrick Thompson, for the Plaintiff
Brian Kelly, for the Defendant
HEARD: November 20, and 21, 2014
Justice J. C. Kent
REASONS FOR JUDGMENT
Introduction:
[1] The Corporate Defendant entered into four leases and one rental agreement with the Plaintiff. Bernard Verbanac, a principal of the Defendant acknowledged the Defendant’s indebtedness to the Plaintiff pursuant to the lease and rental agreements. He disputes, however, the quantum of that indebtedness.
ISSUES
[2] Four issues arise that bear on the calculation of the Defendant’s indebtedness to the Plaintiff. They are:
What order should be made concerning the sum of $9,100.00 paid into court pursuant to the Order of Master Dash?
Has National Leasing Group Inc. (National) calculated the buyout provisions and administrative fee provided for in each agreement correctly?
Has National properly charged Verbanac Law Firm Professional Corporation (Verbanac) for insurance?
What rate of pre-judgment interest should Verbanac be required to pay from the date of default or demand?
1. Funds in court
[3] The parties appear to have resolved this issue and reached an agreement that the funds in court in the amount of $9,100.00 together with any accrued interest shall be paid out of court to the Plaintiff and the total will be deducted from the amount that the court finds owing by the Defendant to the Plaintiff. Order accordingly.
2. Calculation of buyout provisions and administrative fees
[4] All the agreements contain identical clauses relating to insurance, purchase options, administrative fees and default. Micaela Reeve, who testified on behalf of National, conceded during cross-examination that the buyout provisions on all four leases may have been miscalculated by National. The purchase option (or buyout) provision did not come into operation because the business relationship between the parties broke down. The administrative fees, therefore, were prematurely charged to the defendant. This makes the calculations of the Defendants as set out on Exhibits 7, the more accurate calculation. That exhibit shows the total outstanding indebtedness of Verbanac to National as $44, 410.91.
3. The insurance fee charged
[5] The agreements provided that Verbanac agreed to:
“…keep the Equipment Insured against all risk of loss in amounts and on terms acceptable to us. You will also obtain, at our request, comprehensive public liability insurance in amounts and on terms acceptable to us. You will list us as loss payee and give us written proof of this insurance. If you do not give us proof of insurance, we may (but are not obligated to) obtain insurance on the Equipment and you will pay us an asset protection fee for this service.”
[6] National relies on the above provision to charge an “asset protection fee” on each of the agreements even though it appears that Verbanac complied with the obligation to keep the equipment insured.
[7] Verbanac testified that he was aware of his obligation to keep the equipment insured and produced a copy of his insurance policy for the relevant period of time, Exhibit 9. This court has reviewed the document. It indicates coverage for all of the contents of the Verbanac office as well as comprehensive public liability insurance. Micaela Reeve testified that a charge was added by National to the account when a lessee did not have insurance. It follows, therefore, that when the lessee did have insurance as did Verbanac, there should have been no charge.
[8] Exhibit 6 is a calculation of the amounts charged to Verbanac by National for insurance. The total is $2,309.44. That amount should be deducted from the previous total outstanding, leaving a net amount owing of $42,101.47.
4. Prejudgment Interest
[9] A further issue arises when prejudgment interest is considered and that is a determination of the date that prejudgement interest starts to run.
[10] There are 5 possible options for determining that date. It is common ground that once Verbanac was in default all payments to the end of the term of the agreement immediately became due and payable on demand.
[11] The 5 options for a starting point are:
a) Verbanac’s last missed payment;
b) Verbanac’s last made payment;
c) National’s formal notice of demand for payment of the total indebtedness;
d) National’s counsel’s formal notice of demand for payment of the total indebtedness; and
e) The date that the counsel for National commenced this action.
[12] The determination of the starting point is made somewhat more difficult by the fact that after National’s formal demand on 20 August 2010, National accepted further payments from Verbanac on 1 September 2010, totalling $2,120.29.
[13] Given the relationship between the parties who had previously made several arrangements for payment of arrears and continued their business relationship, one can understand that Verbanac may have been misled into believing that the plaintiff was not going to carry through on its formal demand or on the demand made by its counsel.
[14] In view of the foregoing, it seems appropriate to select that last payment date 1 September 2010 as the date of default for purposes of calculating prejudgment interest.
[15] Turning now to the determination of the rate of interest to be paid. It is common ground that it will be simple interest calculated monthly, but counsel differ significantly concerning the rate.
[16] Counsel for the Plaintiff submits that the contract between the parties should govern, in which case the interest rate would be 24% per annum.
[17] Counsel for the Plaintiff relies on a decision of Lederman, J. of this court, Hav-a-Kar Leasing Ltd. v. Vekselshtein, 2011 ONSC 478. Paragraph 46 of that decision points out that the courts should be loath to interfere with the parties’ freedom of contract.
[18] Paragraph 47 of the case reviews a series of cases in which the court enforces the full effect of the contract.
[19] Counsel for the Defendant points out that if the court were to find that the Defendants indebtedness to the Plaintiff was $42,101.47 which the court has so found, the 24% calculation virtually doubles the amount owed. He argues that this is a situation in which the court should exercise its discretion and apply the court rate rather than the contract rate. He has provided the appropriate court rates for this action which was commenced 22 September 2010:
September 22, 2010 to September 30, 2010 - 0.80%
October 1, 2010 to December 31, 2010 - 1.00%
January 1, 2011 to November 21, 2014 - 1.30%
The difference is obviously very significant. In view of that difference, at the conclusion of their oral submissions on 21 November 2014, I gave counsel an opportunity to provide me with additional case law on the issue of whether this was a situation where the court should exercise its discretion and apply a lower rate than that which was provided for in the contract.
[20] I have now had an opportunity to review the case law provided by counsel and have concluded that the contractual rate of interest should apply.
[21] The Supreme Court of Canada addressed the issue in Bank of America Canada v. Mutual Trust Co., 2002 SCC 43.
[22] More recently, my colleague Wein, J. observed, although she was sympathetic to the circumstances of the defendants, that:
“…absent exceptional circumstances, a creditor is entitled to recover both pre-judgment and post-judgment interest at the contact rate.”
“Exceptional circumstances that would cause a court to decline to apply a contractual interest rate must be more than just financial hardship for the borrower: vague or unclear terms, overriding policy concerns such as a criminal interest rate, unconscionable conduct on the part of the lender, or commercially unsophisticated parties. None of these apply here.”
See: Citi Cards Canada Inc. v. Ross, 2014 ONSC 114 at par. 26 and 27. I make the same observation in the present case.
[23] In the event the parties are unable to agree on the matters of interest and costs, written submissions may be made to me; with the submissions of the plaintiff to be delivered in writing within 30 days from the date of this judgment and those on behalf of the defendants, 21 days thereafter; with reply, if any, 14 days after that date. Submissions are limited to 4 pages together with a costs outline.
Justice J. C. Kent, SCJ.
Released: January 15, 2015