Prejudgment Interest

Prejudgment interest is interest on a sum of money that a Court awards to a person from the time the loss or damage occurred until the Court makes a decision. Simply put, prejudgment interest compensates for the time the person had to wait to receive the money they were owed.

Relevant Legislation and Discretion of the Court

Section 128 of the Courts of Justice Act (“CJA”) establishes a presumptive entitlement to prejudgment interest for persons awarded money by way of a court order. However, Section 128(4) of the CJA provides that interest shall not be awarded on the following:

• exemplary or punitive damages;
• interest accruing under this section;
• an award of costs in the proceeding;
• that part of the order that represents pecuniary loss arising after the date of the order that is identified by a finding of the court;
• with respect to the amount of any advance payment that has been made towards settlement of the claim, for the period after the advance payment has been made;
• where the order is made on consent, except by consent of the debtor;
• where interest is payable by a right other than under this section.

Furthermore, Section 130(1) of the CJA provides the Court with discretion to disallow interest, allow interest at a higher or lower rate, and/or allow interest for a period other than that provided in Section 128. In exercising their discretion, the Court shall consider the following factors:

• changes in market interest rate;
• the circumstances of the case;
• the fact that an advance payment was made;
• the circumstances of medical disclosure by the plaintiff;
• the amount claimed and the amount recovered in the proceeding;
• the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; and
• any other relevant consideration.

Common Law Guidance

In various cases, Courts have provided guidance on the intention of prejudgment interest whereby they have confirmed that prejudgment interest is compensatory, rather than punitive. In the case of Somers v. Fournier, quoting Graham v. Rourke in relation to a predecessor version of Section 130 of the CJA, the Court states:

Section 140 of the Act is worded widely enough to allow a trial judge to consider the conduct of the proceedings, including conduct of the parties or those acting through the parties, when determining the appropriate rate of pre-judgment interest. Pre-judgment interest cannot, however, become a means of punishing or rewarding a party to the proceedings. Rather, pre-judgment interest must be viewed as part of the compensatory package provided to the person wronged.

Furthermore, in the case of Henry v. Zaitlen, the Court confirmed that although the presumptive entitlement to prejudgment interest can be displaced, as established under Section 130(1) of the CJA, the presumption places the onus on the party seeking to depart form the prima facie entitlement to the statutory interest rate to demonstrate why the Court should exercise its discretion to do so. It was further confirmed that while the Court may exercise its discretion, it is not mandatory to do so and should only be exercised where the Court considers just.

Conclusion

Courts generally award prejudgment interest unless there is a compelling reason not to, in which they exercise their discretion based on the statutory factors discussed above and the principles of fairness and compensation for loss of use of money.

If you have any questions about seeking prejudgment interest or seeking to disallow such interest, we would be happy to discuss the options further with you.