Law Times recently published an article (see “Ontario courts differ on prejudgment interest,” Oct. 19) on the temporal application of the new prejudgment interest rate on non-pecuniary damages in motor vehicle accident cases.
The debate, as framed in the article and the conflicting case law, misses the point. It is founded on the misunderstanding that the immediate application of the new rate to ongoing actions would be retroactive.
On its face, the new s. 258.3(8.1) of the Insurance Act takes immediate and prospective effect with respect to all proceedings, including ongoing matters. The characterization of this as retroactive depends on the mistaken assumption that plaintiffs in ongoing proceedings have an existing right to prejudgment interest at a certain rate that is being taken away.
In fact, s. 128(1) of the Courts of Justice Act specifies that a right to prejudgment interest only arises once a plaintiff has become a “person who is entitled to an order for the payment of money.”
Plaintiffs are not entitled to an order for the payment of money merely by virtue of having commenced an action; they need to have obtained a judgment in their favour first. There is no right to prejudgment interest (at a particular rate or at all) until the condition of being a “person who is entitled to an order for the payment of money” is satisfied. Plaintiffs in ongoing actions do not have a vested right to prejudgment interest. They only have the contingent possibility of a right to prejudgment interest if they establish their claims for damages at trial or on a dispositive motion and if the law does not change in the interim.
Instead of addressing the foregoing, a great deal of the Law Times article is devoted to exposition of the idea that the immediate application of the new prejudgment interest rate would be incorrect because it would result in a windfall to insurers. This point is a red herring that requires rebuttal. Most importantly, the purpose of prejudgment interest is to compensate the plaintiff, not to prevent alleged windfalls to non-party insurance companies. Commentators who focus on the latter are engaged in low-level populist rhetoric, not legal argument.
We also ought to recall the genesis of the separate prejudgment interest rate on non-pecuniary damages. It was introduced following amendments to the Courts of Justice Act in 1989 as deliberately and substantially lower than the prevailing bank rate-based prejudgment interest rates of the time. The goal was to avoid double compensation to plaintiffs for the effect of inflation. Prejudgment interest is intended in part to compensate for the effects of inflation, but non-pecuniary damages are already adjusted for it.
The retention of the five-per-cent rate even as bank rates have plunged below that level resulted in an even more acute problem of overcompensation than the situation that prompted the adoption of the five-per-cent rate in the first place.
The real question is why the five-per-cent rate remains in place for non-pecuniary damages in personal injury actions not based on motor vehicle accidents.
Buset & Partners LLP,
Thunder Bay, Ont.