Court File and Parties
Court File No.: CV-17-588646 Date: 2020-04-16 Superior Court of Justice - Ontario
Re: Between: Madison Joe Holdings Inc. (Plaintiff/Defendant by Counterclaim) – and – Mill Street & Co. Inc., All Source Security Container MFG. Corp., Roy Murad and Noah Murad (Defendants/Plaintiffs by Counterclaim)
Before: Kimmel J.
Counsel: Jason M. Berall, for the Plaintiff (Defendant by Counterclaim)/Moving Party Micheal Simaan, for the Defendants (Plaintiffs by Counterclaim)/Responding Parties
Read: April 15, 2020
Endorsement – post-judgment interest and costs
[1] Following the release of my reasons for decision in this matter on March 10, 2020 (Madison Joe Holdings v. Mill Street & Co. Inc., 2020 ONSC 1429), counsel jointly asked for the opportunity to make submissions on the post-judgment interest rate to be applied to the judgment I granted in favour of the plaintiff. Counsel also advised that they had reached agreement that the partial indemnity costs payable by the defendants to the plaintiffs would be $60,000.00 all inclusive, and I have signed a separate order to that effect in the form provided to me by counsel.
[2] I agreed to the proposal that counsel would provide written submissions and allowed them to set their own timetable for the exchange of initial and reply submissions on the interest rate issue. In accordance with the agreed-upon timetable, I received submissions regarding the post-judgment interest rate dated April 6, 2020 and April 9, 2020 from both sides.
Reasons for Decision on Summary Judgment Motion
[3] At paragraph 84 of my reasons for decision, I granted summary judgment in favour of the plaintiff, MJH:
a. For the monthly interest payments under the VTB Note and Note A from and after December 1, 2017 and under Note B from and after January 28, 2018, as against All Source (unless to pay these accrued amounts all at once now would offend the Inter-Creditor Agreement);
b. For the monthly interest payments under the VTB Note and Note A from and after December 1, 2017 and under Note B from and after January 28, 2018, as against the Guarantors, Mill Street and Noah and Roy Murad, on a joint and several basis; and
c. For the principal amounts of each of the Notes, totalling $1,108,588.70 as against the Guarantors, Mill Street and Noah and Roy Murad, on a joint and several basis.
[4] Earlier in my reasons for decision, I found that:
[50] The Notes all state as follows: “The unpaid Principal amount remaining from time to time outstanding shall bear interest at the rate of six per cent (6.00%) per annum, calculated and payable only monthly.” I find that, on a plain reading of the words of these Notes, interest continued to be payable monthly on the unpaid principal amounts outstanding, even after maturity. That is what the Notes say and, pursuant to the “cardinal rule” of contract interpretation, I am entitled to assume that the parties meant what they said (See Ventas at para. 24).
[51] There is nothing in the factual matrix of this share purchase transaction that would support the defendants’ interpretation, which is contrary to the express provision that interest is payable monthly on the unpaid principal amount remaining from time to time. The Notes do not limit the provision for the payment of interest to the period before their respective maturity dates. I find, on an objective view of the transaction and the inter-related contracts, that interest continued to be payable monthly, calculated on the principal amounts remaining outstanding from time to time under each of the Notes, both before and after maturity.
[78] No updated calculation of the interest payments due under the Notes has been provided. I expect that this is a straightforward calculation that can be undertaken to determine the monthly interest amounts due to date from and after the last interest payment made under each Note (and that will continue to be due and payable until the principal amounts of the Notes have been repaid). All Source, Mill Street and Noah and Roy Murad are jointly and severally liable for these amounts.
[emphasis added]
The Positions of the Parties on the Post-Judgment Interest Rate
[5] The plaintiff seeks post-judgment interest at the contractual rate of 6% per annum in accordance with the Promissory Notes, until the principal amounts due under each of the Notes have been paid in full. The plaintiff argues that this rate of interest should continue to apply post-judgment because:
a. That is the contractual rate provided for in the Notes;
b. At paragraph 78 of my reasons for decision, I found that the 6% interest rate “will continue to be due and payable until the principal amounts of the Notes have been repaid.” Similarly, paragraph 84(a)-(b) of my reasons for decision ordered the defendants to pay the 6% interest rate on the Notes from and after the last dates that interest had been paid under each of the Notes;
c. Section 129(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43 ("CJA") provides that: “interest shall not be awarded under this section where interest is payable by a right other than under this section”; and
d. The Supreme Court of Canada has held that a contractual interest rate takes precedence over the CJA post-judgment interest rate, to avoid inequity and to avoid the incentive to breach contracts. (See Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, at paras. 40, 45-52.)
[6] The defendants argue that the post-judgment interest rate under s. 129 of the CJA should be considered mandatory, although they concede that there is discretion to award a higher or lower rate, which the courts have exercised to award the contractual interest rate in cases where the primary purpose of the transaction was lending money. They contend that this is not such a case.
[7] The defendants challenge the contention of the plaintiff that this point has already been decided by my reasons for decision at paragraphs 78 and 84, which the defendants say only relate to their liability and not the amount of interest. The defendants also argue that the post-judgment interest would compound on previous outstanding and unpaid interest payments and that would be unfair.
[8] The defendants further argue that ordering the contractual rate of post-judgment interest would be unfair because the effect would be that the higher contractual rate of interest is applied to the agreed-upon costs, but those costs do not form part of the principal payable under the Notes to which the contractual rate of interest applies.
[9] The plaintiff observes that no cases were provided by the defendants in support of the contention that the contractual rate is only applied to transactions involving the lending of money. In any event, the plaintiff says this is a case about lending money. The issues came down to the enforcement of payments of principal and interest owing under the Notes that were advanced by way of what was, in essence, a vendor take-back loan.
[10] The plaintiff argues that there is nothing unfair or inequitable about requiring the defendants to pay the contractual rate of interest that they agreed to on all amounts that remain outstanding under the Notes, including unpaid interest. MJH argues that, otherwise, there is no incentive on the defendants to pay any interest while the case works its way through the appeals process, which are expected to be delayed more than usual due to the COVID-19 pandemic.
[11] The plaintiff also observes that the agreement with respect to the payment of costs expressly provides for post-judgment interest of 3%, so there is no basis for complaint about the higher contractual rate of interest being applied to the costs.
Ruling on Post-Judgment Interest Rate
[12] The plaintiff is correct that the intention and effect of paragraphs 50, 51, 78 and 84 of my reasons for decision was to require the defendants to pay the 6% per annum contractual rate of interest under the Notes until the principal amounts under each of the Notes have been repaid, irrespective of whether that repayment occurred before, or occurs after, the date of my judgment (March 10, 2020). Section 129(5) of the CJA explicitly allows for interest to be awarded based on a contractual right instead of under that section, and s.130 of the CJA gives the court discretion to allow for a higher interest rate than that provided for in s.129. The rationale for doing so articulated by the Supreme Court of Canada in Bank of America Canada v. Mutual Trust Co. applies equally to a case such as this involving unpaid promissory notes.
[13] The defendants (the principal debtor and guarantors) failed to repay the Notes upon maturity and failed to pay interest under the Notes after they matured based on an interpretation of the Notes that the court did not accept. To apply a lower rate of interest than they agreed to would incentivize or reward them for adopting an aggressive interpretation of the Notes and to potentially further delay repayment of the principal amount owing, taking advantage of the lower CJA interest rate. To avoid that result by applying the contractual rate of interest to the persisting unpaid principal amounts under the Notes after judgment is not inequitable or unfair.
[14] However, the Notes did not provide for compound interest or specify a rate of interest to be applied on unpaid interest, and that was not expressly addressed in my reasons for decision. In the absence of a contractual right, I do not think it would be equitable or fair to impose the contractual rate of interest on the unpaid interest. The CJA post-judgment interest rate, rather than the contractual interest rate, should be applied to the unpaid interest that had accrued and continues to accrue under the Notes from and after March 10, 2020.
[15] To be clear, my judgment provides for post-judgment interest to be paid on the outstanding principal under the Notes at the contractual rate of 6% per annum, until the principal has been repaid and for post-judgment interest to be paid on the unpaid interest amounts accrued and due, or as may accrue and become due in the future, at the applicable CJA rate from and after the dates each interest payment was due, pursuant to s.129(2) of the CJA.
Judgments Signed
[16] I have revised the form of judgment provided to me to reflect my ruling and have signed and returned it to counsel, together with the signed consent order re: costs.
[17] Notwithstanding Rule 59.05, this endorsement and the judgment and order made and referred to herein are effective from the dates they were made. In accordance with Rule 1.04, they are enforceable without any need for the entry and filing of a formal judgment or order.
[18] If required for an appeal or motion for leave to appeal in an appellate court, leave is granted for a formal order and judgment to be taken out based on the signed copies that I will return to counsel electronically, since it will not be possible for them to obtain the originals under the current operating conditions of the courts due to the COVID-19 pandemic. Any party may nonetheless submit a formal judgment or order for original signing, entry and filing when the Court returns to regular operations.