The Ontario Superior Court of Justice held in April, 2015, that recent amendments to the rules for calculating prejudgment interest apply retroactively. The amendments apply to car accident injury cases that were already before the courts when the Ontario Legislature changed the rules on Jan. 1, 2015. The result is that lower prejudgment interest rates will apply to non-pecuniary damages in all car accident lawsuits, even if the action was commenced before Jan. 1.
On Jan. 1, 2015, the Insurance Act was amended and section 258.3(8.1) was introduced. The amendment changed the way that prejudgment interest is calculated. Section 258.3(8.1) provides that section 128(2) of the Courts of Justice Act, which allows prejudgment interest on non-pecuniary damages to be calculated at 5 percent per year as set out in the Rules of Civil Procedure, no longer governs calculation of prejudgment interest on non-pecuniary damages in motor vehicle accident cases.
This means that the same rate that applies to pecuniary damages now applies to non-pecuniary damages as well. This is the rate described in section 127(1) of the Courts of Justice Act as the “prejudgment interest rate”. It’s defined as the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which the proceeding was commenced.
But until last month when Cirillo v. Rizzo, 2015 ONSC 2440 (“Cirillo”) was decided, it was not clear whether the amendment would apply to actions commenced before January 1, 2015, or only to actions commenced after the amendment.
Cirillo arose out of a car accident. The plaintiff accepted an offer to settle made by the defendant for $50,000 for non-pecuniary damages. The plaintiff later moved for judgment pursuant to the accepted offer to settle. The motion concerned the rate and calculation of prejudgment interest.
The relevant timeline is as follows:
- The motor vehicle accident occurred on Oct. 1, 2005.
- The Statement of Claim was served on Jan. 29, 2007.
- The offer to settle was made on March 24, 2014.
- On Jan. 1, 2015, section 258.3(8.1) of the Insurance Act was amended.
- The offer to settle was accepted on Jan. 26, 2015.
The Court held that the amendment applies retroactively. In this case, the applicable rate for the quarter preceding the date on which the Statement of Claim was issued was 4.5%. The Court held that the 4.5% rate applied to the settlement funds.
Is the Amendment Substantive or Procedural?
The court’s decision turned on whether the legislative amendment was substantive or whether it was procedural. If an amendment is procedural in nature, it can be applied retroactively, but amendments to substantive rights do not apply retroactively. An amendment to a substantive right applies from the date of the amendment forward.
The importance of this distinction was discussed by the Ontario Court of Appeal in Somers v. Fournier (2002), 60 O.R. (3d) 225 (“Somers”). The Court stated that entitlement to prejudgment interest is a matter of substantive law, whereas the Court’s discretion to displace, vary or reduce prejudgment interest is a matter of procedural law.
In Cirillo, both parties agreed that entitlement to prejudgment interest is a substantive right, as stated in Somers. However, the parties disagreed as to whether or not quantifying that entitlement is substantive or procedural. The plaintiffs argued that it’s substantive. The defendant argued that it’s procedural.
The Court found for the defendant and held that the means by which entitlement to prejudgment interest is quantified is procedural. Since the amendment concerned a procedural matter, it applied retroactively.
The prejudgment interest rate is determined by when the action was commenced. The rate is set every quarter and in recent years the rate in some quarters has been quite low. For example, in the third and fourth quarters of 2009, the rate was only 0.5%.
The rate for the applicable quarter in Cirillo was 4.5%. That’s not too far off the pre-amendment rate of 5%. And the non-pecuniary damages award at $50,000 is modest. So the impact on the Cirillo plaintiffs was low. But the consequences of the decision for a plaintiff with a larger non-pecuniary damages claim, especially in an action that has been ongoing for several years, may be significant. For that plaintiff – formerly secure in the notion that interest on her damages was piling up at the rate of 5% per year – the Cirillo decision may have come as a blow. Depending on when her claim was commenced, that plaintiff could end up with a substantially lower than expected bottom line.
We understand that plaintiff’s counsel in Cirillo is seeking instructions to appeal. If an appeal is taken, you can bet that there will be a lot of plaintiffs – and plaintiffs’ lawyers – who will be keenly interested in the outcome.
Personal Injury, Tags-Motor Vehicle Accidents, Prejudgment Interest