Bernardin – Quebec Court of Appeal finds that interest that arose prior to a class action judgment becoming res judicata was non-taxable

An individual, by virtue of being part of a group of class action claimants, was awarded damages in 2004 of $1,200 for each of the seven winter seasons in which she had endured snowmobile noise. In 2010 she received damages pursuant to Article 1619 of the Quebec Civil Code of $8,400 (capital) and $6,148 (interest).

Gagné JCA applied the principle:

[O]ne cannot speak of interest in the strict sense unless the debt is both certain and liquidated. These two qualities arise at the time when the judgment becomes res judicata, that is, when it is not, and is no longer, subject to appeal. As long as the validity and/or the amount of the debt is the subject to debate on appeal, it cannot constitute a debt that is certain and liquidated or, in other words, a capital sum on which interest may accrue.

Accordingly, the damages did not become a liquidated sum until all rights of appeal against the 2004 judgment were abandoned on October 1, 2009. It was only at that point that the 2004 judgment became res judicata.

On the other hand, it did not matter that the precise quantum of the amount payable to that individual was not established until the judgment of the Court Clerk issued on March 3, 2010. In this regard, Gagné JCA stated:

[T]he debt does not have to be due and payable to bear interest. It is sufficient (and here I paraphrase Rand J. in … Farm Security) that there be a use or retention by one person of a sum of money belonging to or owed to another. This, in my view, is a debt that is certain and liquidated. …

The fact that [the Quebec Attorney General] was unaware of the extent of the members' claims at the time is irrelevant. … [T]he determination of whether an amount received or receivable is interest income must be made from the perspective of the taxpayer.

Neal Armstrong. Summary of Agence du revenu du Québec v. Bernardin, 2021 QCCA 625 under s. 12(1)(c).