Court of Appeal Clarifies Pre-Judgment Interest Rates for Personal Injury Damages
Over the last five years, there have been a handful of cases in which the Court has exercised discretion and altered the rate of pre-judgment interest (PJI) in personal injury actions. This judicial discretion caused confusion and unintended consequences.
Pre-judgment interest is a legal principle that is meant to address an imbalance best described with a common phrase: “a dollar today is worth more than a dollar tomorrow.” In personal injury litigation, the same principle is articulated with a slight modification: a dollar X years ago would have been worth more than a dollar today.
The Court of Appeal recently released two decisions to clarify the correct approach to determine pre-judgment interest for personal injury damages, and the way judicial discretion should be applied.
Legislation
Rule 53.10 prescribes a presumptive PJI rate of 5% per year for non-pecuniary damages for pain and suffering. Section 130 of the Courts of Justice Act allows for the Court to exercise discretion to alter the pre-judgment interest rate depending on certain factors (including changes in market interest rates).
Past pecuniary damages have a different pre-judgment interest rate as prescribed by s. 127 of the Courts of Justice Act. The PJI rate is set by the Attorney General based on the quarterly bank rate at the time the claim is issued.
Motor vehicle accident claims are excluded from the prescribed 5%. Section 258.3(8.1) of the Insurance Act provides that the PJI rate for both pecuniary and non-pecuniary damages in MVA claims shall be calculated in accordance with s. 127 of the Courts of Justice Act.
2019-2023: Inconsistent Judicial Discretion
In MacLeod v. Marshall et al.,[1] the plaintiff was sexually assaulted as a teenager. He was almost 70 years old at the time of trial. Pre-judgment interest began to accrue 30 years before trial. At the conclusion of the trial, the jury awarded general damages for pain and suffering in the amount of $350,000.
The trial judge followed Rule 53.10 and fixed PJI at 5% per year (30 years x 5% per year = 150%). As such, the value of pre-judgment interest was $525,000.
The defendants appealed. The Court of Appeal concluded that the trial judge should have applied the factors listed in s. 130 of the Courts of Justice Act, including the changes in market interest rates. The Court of Appeal concluded that interest rates were low over the 30+ years that it took this case to get to trial. As such, the Court varied the PJI rate to 1.3% (1.3% per year for 30 years = 39%). The corresponding effect reduced the recoverable PJI by almost $400,000 (from $525,000 to $136,500).
MacLeod is unique because of the 30+ years that elapsed between the notice of claim and trial, and because the market interest rates were historically low for the majority of those years.
MacLeod opened the door to an onslaught of challenges regarding the appropriate rate for pre-judgment interest. Trial judges grappled with arguments about interest rates set by the Bank of Canada, the strength of would-be investments at the Toronto Stock Exchange, changes to the Consumer Price Index, and the financial impact of the COVID-19 pandemic. The consequence was that trial judges inconsistently altered the pre-judgment interest rate.
Henry v. Zaitlen was a medical negligence case.[2] PJI began to accrue in 2010, and the trial verdict was delivered in 2022. The trial judge focused on arguments regarding the market interest rates and reduced the rate of pre-judgment interest to 1.3% per year.
Aubin v. Synagogue and Jewish Community Centre of Ottawa was a trip and fall case in which the plaintiff sustained a severe brain injury.[3]
Regarding non-pecuniary damages for pain and suffering, the defendant argued that the 5% pre-judgment interest rate was too high because it overcompensated the plaintiff (relative to the lower bank interest rates from the inception of the claim to trial). The plaintiff sought to maintain the presumptive 5%. The trial judge departed from the presumption and fixed PJI at 1.3% per year.
The jury verdict also included an award for past loss of income and out-of-pocket expenses. The total value of past pecuniary damages was $665,000. The Aubin action was commenced in December 2016, and the pre-judgment interest rate at the time was 0.8%.
The plaintiff sought to vary the pre-judgment interest rate on past pecuniary damages at 8.46% per year (instead of the default rate of 0.8%). In support of this claim, the plaintiff’s spouse delivered an affidavit to explain that she handled the family finances and that they would have invested the money in a manner similar to their existing investment portfolio. The affidavit included annual reports from the plaintiffs’ investment portfolio showing a weighted average rate of return of 8.46% per year, from the commencement of the claim to the date of trial. The affidavit also included evidence to demonstrate that the defendant insurance company earned an average annual rate of return of 12.99% on its investments from the date of the incident until the jury’s verdict. The plaintiff argued that market interest rates are higher than the pre-judgment interest rate and that they should receive full compensation for their loss of use of the funds awarded by the jury.
The defendant argued that there was no reason to deviate from the pre-judgment interest rate of 0.8% prescribed by s. 127 of the Courts of Justice Act.
The trial judge concluded that the plaintiff failed to persuade the Court that it would be just to increase the pre-judgment interest rate on the plaintiff’s past pecuniary loss to 8.46% or at all. The Court fixed PJI at the default rate of 0.8%.
Therefore, the total pre-judgement interest payable to the plaintiff Aubin was approximately $55,000, calculated as follows:
- Non-pecuniary general damages – PJI 1.3% per year for approx. 6 years = 7.8%
- $300,000 – total non-pecuniary general damages
- = $23,400 – pre-judgment interest
- Past pecuniary damages – PJI 0.8% per year for approx. 6 years = 4.8%
- $665,000 – total past pecuniary damages
- = $31,920 – pre-judgment interest
2024: The Court of Appeal Clarified the Correct Approach To Assess PJI
The Court of Appeal granted leave to appeal the decisions in Henry and Aubin. On August 15, 2024, the Ontario Court of Appeal released these decisions in tandem. In unanimous decisions written by Justice Roberts, the Court provided clarity and direction regarding the correct approach to assessing PJI for personal injury damages.
In Henry v. Zaitlen,[4] Justice Roberts explained that the legislative intent and statutory interpretation was clear: the presumptive rate of pre-judgment interest is 5% for non-pecuniary damages.
Justice Roberts concluded that the presumptive PJI rate shall only be varied where there are unusual or special circumstances sufficient to justify such a departure, having regard to the mandatory criteria under s. 130(2) of the Courts of Justice Act, and all other relevant considerations. The onus of proof is on the party seeking to depart from the presumptive 5% pre-judgment interest rate.
The Court of Appeal explained that the trial judge erred because he only reviewed “changes in market interest rates” and ignored the myriad of other factors listed in s. 130(2). Furthermore, Justice Roberts identified that the legislature intended to create a broad definition for “changes in market interest rates” which encompassed complex financial and economic considerations. Justice Roberts explained that expert evidence may be required to demonstrate the meaning of any particular index (ie. stock exchange, consumer price index, etc.) and its relationship to “market interest rates.”
The Court of Appeal determined that there was no basis to depart from the presumptive 5% pre-judgment interest rate. The plaintiff was successful on the appeal; therefore, the recoverable PJI increased by more than $120,000.
In Aubin v. Synagogue and Jewish Community Centre of Ottawa[5] Justice Roberts explained that the default position is to determine PJI at the prescribed rate. However, there is a “rebuttable presumption that should only be deviated from where the party seeking a higher or lower rate demonstrates unusual or special circumstances sufficient to justify such a departure.” Justice Roberts cautioned that all factors under s. 130 of the Courts of Justice Act must be considered, not just interest rates.
Regarding non-pecuniary general damages, Justice Roberts explained that interest rate fluctuations are well known to the legislature. Nevertheless, the legislature has maintained the presumptive rate of 5% per year. Justice Roberts explained that even though the 5% interest rate has recently been higher than bank interest rates, there are other factors included in the interest rate provision. For example, the 5% per year does not include compound interest, nor does it measure the incalculable cost of delay. As such, even at 5% per year, the plaintiff is not fully compensated, and the lost value of the money may not be fully achieved.
Regarding past pecuniary damages, Justice Roberts analyzed the uncontested evidence regarding the actual rates of return earned by the defendant insurer, as well as of the actual rates of interest earned on the plaintiff’s investment portfolios, and evidence of market interest rates and changes in market interest rates.
Justice Roberts concluded that the plaintiff missed the opportunity to invest the money and earn returns at an amount that was almost double the presumptive interest rate. On the other hand, the insurer was able to invest the money and earn returns that were 2x higher than the 5% general rate, and 10x higher than the 0.8% pecuniary damages rate. The defendant insurer “had the benefit of the use of the funds that were ultimately paid to the plaintiff.”
The Court of Appeal concluded that it was in the interest of justice to depart from the presumptive interest rate by increasing the rate of PJI. The Court determined that a pre-judgment interest rate of 8.46% per year should be applied to both pecuniary and non-pecuniary damages.
The plaintiff was successful on the appeal. Therefore, the recoverable PJI increased by more than $435,000 (from $55,000 after trial, to approximately $490,000 following the appeal).
Key Takeaways
Where there is no compelling reason to depart from the presumptive interest rates, the Court shall not do so.
However, where there is evidence of the lost opportunity to invest the money, and the plaintiff can prove that a dollar X years ago would have been worth more than a dollar today, then the Court may alter the PJI rate if it is in the interest of justice.
In Aubin the plaintiff provided evidence of how and why the money would have been invested, and the average rate of return on those investments. The plaintiff also adduced evidence regarding the insurer’s rate of return on its investments. Insurance companies have an obligation to report on their investment returns for their shareholders, and this information is readily available. The plaintiff provided compelling (and unchallenged) evidence to persuade the Court that it was in the interests of justice to increase the rate of PJI above the presumptive interest rate.
Going forward, personal injury lawyers will want to marshal evidence to argue that there are compelling reasons to depart from the presumptive interest rates and increase the pre-judgement interest rates.
[1] MacLeod v. Marshall et al., 2018 ONSC 5100 rev’d 2019 ONCA 842
[2] Henry v. Zaitlen, 2022 ONSC 7259
[3] Aubin v Synagogue and Jewish Community Centre of Ottawa, 2023 ONSC 3926.
[4] Henry v. Zaitlen, 2024 ONCA 614
[5] Aubin v. Synagogue and Jewish Community Centre of Ottawa, 2024 ONCA 615
