In MacLeod v Marshall, 2019 ONCA 842, the Ontario Court of Appeal (“ONCA”) dealt a blow to the long-standing notion that the prejudgment interest rate (“PJI”) for non-pecuniary general damages in personal injury cases is 5% per year.
In MacLeod, a personal injury action involving allegations of sexual abuse, the ONCA reversed the trial judge’s ruling of a 5% PJI. The ONCA substituted a 1.3% rate to reflect the low bank rate in the time period from when the action was commenced to the date of judgment.
Writing for the court, Thorburn JA explained that the reasoning for the 5% PJI is outdated, a legislative response from a time period when the bank interest rate was much higher than 5%. The reasoning, in 1987, was that non-pecuniary general damages are already adjusted for inflation. Allowing the high-interest rate at the time to be the same as the PJI was effectively double compensation for inflation. But since then, the interest rate has dropped considerably. The market rate has not been 5% since 2001. Today, it is 1.75%.
This was the impetus for the 2015 legislative change to PJI in motor vehicle accidents, where s 258.3(8.1) of the Insurance Act changed the 5% PJI to be in line with the interest rate, subject to the court’s discretion to vary.
The ONCA is of the view that the PJI rate in all other personal injury cases should follow suit. Thorburn JA said that the PJI rate in a personal injury case should be based on the market rates for the relevant time period. The trial judge ought to have considered the factors listed in s. 130 of the Courts of Justice Act, which includes the fluctuation in market rates from the time the claim was commenced to the time judgment was rendered. He did not. He simply applied the customary 5% rate with no consideration of other factors. This was a reversible error.
Defence counsel in particular should have this case in their back pocket when negotiating settlement in their next personal injury case, particularly in cases with high non-pecuniary general damages exposure. The monetary difference between a 5% and 1.3% PJI can be significant.