By: Douglas Treilhard
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 in 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
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
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 precedent 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.
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
compensating plaintiffs for the effect
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
overcompensation problem than that which
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.