Docket: A-146-16
Citation:
2017 FCA 184
|
CORAM:
|
NADON J.A.
DAWSON J.A.
GAUTHIER J.A.
|
|
BETWEEN:
|
|
PLATYPUS
MARINE, INC.
|
|
Appellant
|
|
and
|
|
THE OWNERS AND
ALL OTHERS INTERESTED IN THE SHIP "TATU" and THE SHIP
"TATU"
|
|
Respondents
|
REASONS
FOR JUDGMENT
NADON J.A.
I.
Introduction
[1]
Before us are an appeal and a cross appeal from
a judgment (2016 FC 501) of Hughes J. (the Judge) of the Federal Court dated
May 4, 2016 wherein he determined the rate of interest payable by the
respondents on an undisputed amount owing to the appellant.
[2]
For the reasons that follow, I would allow the
appeal and I would dismiss the cross appeal.
II.
Facts
[3]
The appellant, Platypus Marine, Inc. (Platypus),
is a ship repairer based in Port Angeles, in the State of Washington, U.S.A.
Platypus provided repairs and maintenance (the work) to the respondent ship
“Tatu,” owned by the respondent Platinum Premier Corporation Limited
(Platinum). The work was conducted over several months in 2014 and, in due
course, Platypus sent Platinum ten invoices between May 28, 2014 and September
19, 2014 totalling the sum of US $285,508.92. Each invoice was marked “INVOICE DUE UPON RECEIPT” and made no mention of
interest.
[4]
The final invoice sent to Platinum by Platypus
is dated September 19, 2014. At that time, Platinum had not paid any of
Platypus’ previous invoices. Shortly after the sending of the last invoice, the
parties came to an agreement (the oral agreement) made at the suggestion of
Platinum whereby it agreed to pay to Platypus the sum of US $100,000 as
interest on the amount due for the work performed by Platypus. In consideration
thereof, Platinum would not have to effect payment of Platypus’ invoices before
the end of January 2015.
[5]
Because of Platinum’s failure to settle
Platypus’ invoices by the end of January 2015, Platypus arrested the “Tatu” (by
way of a caveat release) and on October 29, 2015 commenced an action against
the respondents (hereinafter referred to as Platinum).
[6]
On December 4, 2015, Platypus brought an ex
parte motion against Platinum for judgment in the Canadian dollar
equivalent of US $385,508.92 (US $285,508.92 plus US $100,000.00). Platypus’
motion was heard by Fothergill J. of the Federal Court on December 15, 2015, at
which time he heard representations from counsel for both Platypus and
Platinum. At the end of the day, he granted judgment in favour of Platypus in the
following terms:
Judgment is granted to the Plaintiff against
the Defendants in the amount of $363,455.61, representing the Canadian dollar
equivalent (on January 30, 2015) of the amounts shown on the invoices issued to
the Defendants by the Plaintiff between the dates May 28, 2014 and September
19, 2014, exclusive of interest.
(emphasis added)
[7]
Fothergill J. also allowed a motion brought by Platinum
for an extension of time to file a Statement of Defence to Platypus’ claim for
interest.
[8]
On January 25, 2016, Platinum paid the principal
sum owed to Platypus in full, including costs and post judgment interest on
that amount.
[9]
On April 12, 2016, Platinum filed a motion for
summary judgment pursuant to rules 213 and 216 of the Federal Courts Rules,
SOR/98-106 seeking the dismissal of Platypus’ claim for US $100,000 in interest
and any other claims to interest. More particularly, Platinum sought the
dismissal of the US $100,000 on the ground that it constituted a rate of
interest contrary to section 347 of the Canadian Criminal Code, R.S.C.
1985, c. C-46 (the Criminal Code), which prohibits charging annual
interest rates above 60%.
[10]
Platinum’s motion was heard by the Judge on May 3,
2016 and, on the following day, he rendered the following judgment:
FOR THE REASONS PROVIDED, THIS COURT’S
JUDGMENT is that:
1. The agreement to pay interest at the sum
of US $100,000.00 is set aside.
2. The Defendants shall pay to the Plaintiff
the sum of $35,000.00 as interest.
3. No Order as to costs.
III.
The Federal Court’s Reasons
[11]
Before the Judge, Platypus argued that the US
$100,000 did not constitute a criminal rate of interest and consequently that
it was entitled to the full amount. In support of its submission, Platypus
presented a chart in which it calculated interest beginning from the day after
the issue of each invoice to January 31, 2015. According to this calculation, US
$100,000 equals an effective annual interest rate of 59.5%. The Judge did not accept
those calculations. At paragraph 15 of his reasons, he made the following
remarks:
I question calculations that use the invoice
date as the basis for start time of accrual of interest, as the second
affidavit of Linnabary [Mr. Judson Linnabary, the President of Platypus], April
21, 2016, paragraph 3 says that the invoices were “usually” delivered on the
date of the invoice and, in any event, all were e-mailed within two days of the
invoice date. Even a change of two days would render a calculation of interest
in excess of 60%.
[12]
The calculations put forward by Platinum before
the Judge were based on interest accumulating from September 19, 2014, the date
of the last invoice and approximate date of the oral agreement to pay, to
January 31, 2015. Platinum calculated that the effective annual interest rate was
95.4% (appeal book, page 33). Its calculation is as follows:
|
Principal
|
Percentage per annum
|
From Date
|
To Date
|
Days
|
Interest
|
|
$285,508.92
|
.954044%
|
Sept 19, 2014
|
Jan 31, 2015
|
134/365
|
$100,000
|
[13]
The Judge found that the interest rate, using
either Platypus’ or Platinum’s calculations, constituted a criminal rate of
interest. At paragraph 17 of his reasons, he expressed his view as follows:
17. I find that the sum of US $100,000.00
represents an interest rate in excess of 60% per annum. Even the Plaintiff’s calculations,
properly considered, would come to that. No demand for interest was made in the
Statement date of August 27, 2014. No interest seems to have been discussed
until on or after the date of the last invoice, September 19, 2014. Beginning
on whichever of those dates, the interest rate is well in excess of 60% per
annum.
[14]
The Judge then turned to the question of whether
he should strike the contract to pay the US $100,000 or substitute a different
rate of interest. He began by indicating that the leading case on point was the
Supreme Court’s decision in Transport North American Express Inc. v. New
Solutions Financial Corp., 2004 SCC 7, [2004] 1 S.C.R. 249 (Transport
North American Express) where the Supreme Court gave its approval to the
view expressed by the Ontario Court of Appeal in William E. Thomson
Associates Inc. v. Carpenter (1989), 1989 CanLII 185 (ON CA), 61 D.L.R.
(4th) 1. More particularly, at paragraph 24 of her reasons for a majority of
the Supreme Court in Transport North American Express, Arbour J. made
the following remarks:
24. In Thomson, at p. 8, Blair
J.A. considered the following four factors in deciding between partial
enforcement and declaring a contract void ab initio: (i) whether the
purpose or the policy of s. 347 would be subverted by severance; (ii) whether
the parties entered into the agreement for an illegal purpose or with an evil
intention; (iii) the relative bargaining positions of the parties and their
conduct in reaching the agreement; and (iv) whether the debtor would be given
an unjustified windfall. He did not foreclose the possibility of applying other
considerations in other cases, however, and remarked (at p. 12) that whether
"a contract tainted by illegality is completely unenforceable depends upon
all the circumstances surrounding the contract and the balancing of the
considerations discussed above and, in appropriate cases, other
considerations".
[15]
This led the Judge to the following
determination at paragraph 18 of his reasons:
18. Turning to the four factors outlined
by Blair J.A. in the Thomson case as set out in paragraph 18 of the Canmerica
decision above, those four factors are directed to whether the contract as a
whole can be declared void or whether there can be a severance of the interest
portion from the rest. In this case a severance has already been effected by
the Order of Justice Fothergill. The principal debt has been ordered to be paid
and has been paid. The only question is whether the US $100,000.00 should be
allowed as interest or some other amount, or none.
[16]
As Fothergill J. had already severed the two
parts of the dispute and as the principal amount had been paid, the Judge was
of the view that the only remaining question was what amount, if any, should be
substituted as interest.
[17]
The Judge then pointed out that the parties had
agreed that if the US $100,000 was set aside, the 5% interest rate provided in
section 3 of the Interest Act, R.S.C. 1985, c. I-15, should prevail. He
calculated that a 5% rate, rounded to an even figure, resulted in $35,000 of interest
owing.
[18]
Then, at paragraph 21 of his reasons, he set
aside the oral agreement and ordered the payment of $35,000. As success was
divided in his view, he made no award of costs.
IV.
The Parties’ Submissions on the Appeal
[19]
Platypus first argues that the sum of US $100,000
does not violate the criminal interest provisions of the Criminal Code
and refers to the calculations which it filed before the Judge, using the day
following the date of each invoice as the starting date for calculating the
accruing interest to the end of January, 2015.
[20]
In response to the Judge’s concerns regarding
the effective delivery date of each invoice, Platypus submitted a chart of
calculations wherein its calculation of the interest began three days after the
date of each invoice (i.e. to allow a three day grace period for delivery and
receipt of the invoice). It should be remembered that the Judge held that a two
day difference in delivery would result in a criminal rate of interest.
However, what Platypus’ calculations show is that using a 60% interest rate, a
three day grace period results in a payment higher than $100,000. The margin
is, however, very narrow - the resulting interest is $100,082.21 (by their
calculations). Consequently, on the basis of that calculation, the rate does
not violate the Criminal Code.
[21]
Platypus argues that interest begins to accrue
on the date of the invoice and that there is no support for Platinum’s
submissions to the contrary. Even absent an agreed upon interest rate, Platypus
says that it could have sued on the principal amount and received pre-judgment
interest from the date of each breach.
[22]
Platypus further argues that it never conceded
that the 5% interest rate from the Interest Act was an appropriate
substitute to the US $100,000. If that sum cannot stand, Platypus says that the
rate of interest should be reduced to 60% as the best reflection of the parties’
intention, as was done in Transport North American Express. By failing
to address this argument, Platypus says that the Judge made an error of law.
[23]
In response to Platinum’s cross appeal, Platypus
argues that the $35,000 of interest determined by the Judge was a rounded
figure which was within his discretion to fix. Alternatively, it says that if
the calculations are to be re-done, interest should be calculated from the date
of each invoice.
[24]
Platinum, not surprisingly, argues that the US $100,000
amount violates the criminal interest provisions of the Criminal Code. It
maintains that the appropriate date to start calculating interest is the date
of the oral agreement, i.e. September 19, 2014 and therefore that the interest
rate is a criminal rate of 95%.
[25]
Because the determination of the appeal and the
cross appeal turns, in my view, on the commencement date for the calculation of
the interest, I will set out in greater detail Platinum’s argument. If Platinum
is correct that we should start calculating from September 19, 2014, then there
can be no doubt that the US $100,000 constitutes a rate which is well beyond
60%. However, if the calculation is to be made, as Platypus suggests, from the
date of the invoices or within three days thereof, the rate is slightly below
60% and therefore does not infringe the provisions of the Criminal Code.
[26]
Platinum’s argument can be summarized as
follows. It says that before September 19, 2014, there was no agreement on
interest and in support of that proposition, it says that the invoices do not
refer to interest, nor is there any other document which requires it to pay
interest on the amounts invoiced by Platypus.
[27]
Thus, in Platinum’s view, it owed no contractual
interest before the oral agreement of September 19, 2014 and consequently it
says that the US $100,000 “was new money”
(paragraph 43 of Platinum’s memorandum of fact and law).
[28]
Platinum further argues that Platypus confuses
contractual interest with pre-judgment interest which requires no agreement,
adding that pre-judgment interest will accrue from the date of the cause of
action. As Platypus seeks contractual interest, the onus is on it to establish
the terms of the agreement. As there is little evidence regarding the oral
agreement, it cannot be seriously argued that the interest agreed to as a
result of the oral agreement should be retroactive to the dates of the ten
invoices.
[29]
Platinum further submits that the Judge did not
make a finding that Platypus consented to the alternative 5% interest rate, but
rather that the Judge examined, and rejected, Platypus’ submissions on interest.
However, Platinum concedes that Platypus’ alternative position before the Judge
was to the effect that the interest rate should be reduced to 60%.
[30]
Platinum also says that the Judge made no error
in substituting the 5% rate. In its view, once the US $100,000 was invalidated,
the replacement rate was discretionary. However, Platinum says, on its cross appeal,
that the Judge’s calculation of interest based on the 5% per annum figure is
incorrect. It says that 5% calculated from September 19, 2014 until the date of
payment of the principal amount equals $24,794.64.
[31]
As each party makes submissions in the
alternative and further alternative, I have summarized their desired outcomes
in the table below:
|
Party
|
Argument
|
Alternative
|
Further Alternative
|
|
Platypus
|
US $100,000 is
not criminal
|
60% under the notion
of severance
|
~5% under the Interest
Act, as calculated by the Judge, i.e. $35,000 Canadian
|
|
Platinum
|
Zero interest
|
~3% under Court
Order Interest Act, R.S.B.C. 1996, c. 79
|
5% under the Interest
Act, recalculated to equal $24,794.64 Canadian
|
V.
Issues
[32]
This case raises the following three issues:
1.
Did the Judge err in finding that the US $100,000
constituted criminal interest?
2.
Did the Judge err in substituting 5% as an
appropriate rate?
3.
On the cross appeal: If 5% is the appropriate
interest rate, did the Judge err in calculating the amount of interest owing?
VI.
Analysis
[33]
A few preliminary remarks are in order. First,
the standards of review relevant to this appeal are the ones enunciated by the
Supreme Court in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235,
i.e. that errors of fact or mixed fact and law are to be reviewed on the basis
of the overriding and palpable error standard and errors of law are to be reviewed
on the standard of correctness.
[34]
Second, it is worth noting that the existence of
the oral agreement to pay US $100,000 is not contested by Platinum. On this
point, the Judge did not have much to say other than that the evidence before
him was “scant”. In particular, at paragraph 10
of his reasons, he said that “[t]here appears to have
been an oral agreement of some kind entered into between the President of the
Plaintiff (Linnabary) and the owner of the Tatu (Sims)” and he then
referred to paragraph 9 of Mr. Linnabary’s affidavit of December 3, 2015 and
paragraph 4 of his affidavit of April 21, 2016. For the sake of completeness,
those paragraphs read as follows:
9. After the work had been provided,
Mr. Sims agreed to pay an additional US $100,000.00 as interest for work
provided as referred to in paragraphs 4 and 6 in exchange for Platypus agreeing
to defer payment until January 2015. He agreed that the interest would be
secured by the “TATU”.
4. With respect to the agreement
referred to in paragraph 9 of my December 3, 2015 Affidavit, it was Mr. Sims
who offered the arrangement. He advised that he was low on cash and wanted
additional time to pay the invoices and I agreed.
[35]
Third, the dates pertaining to the oral
agreement are also taken by default and not contested. The oral agreement was
made after the date of the last invoice. The parties have not supplied an
agreed-upon date, but the Judge held that the effective date was September 19,
2014 as this was the earliest possible date that the oral agreement could have
been made. The oral agreement was to delay the date of payment to “until January” and the parties have taken this to
mean the last day of the month: January 31, 2015.
[36]
Fourth, it must be noted that although the Judge
held that changing the calculation date from the date of the invoices to two
days after those dates resulted in a rate of interest above 60% (paragraph 15
of the Judge’s reasons), he did not provide any calculation to support that
view. The same remark applies to the Judge’s determination that 5% of interest
in lieu of the agreed US $100,000 resulted in an amount of $35,000.
[37]
Fifth, it should also be noted that the parties
do not challenge each other’s mathematics, nor did they do so before the Judge.
In other words, the parties arrive at different results because they do not
calculate the interest from the same date. As already indicated, Platinum begins
its calculation from September 19, 2014 whereas Platypus begins its calculation
from either the day after the date of the invoices or from three days after the
date of the invoices.
A.
Was the contractual interest illegal?
[38]
Whether or not the US $100,000 breaches the 60%
threshold depends on the period used to calculate the interest owed on the
principal sum. The Judge avoided making a determination regarding which period
was appropriate, finding that the parties’ calculations both resulted in
criminal rates. In my respectful view, not only did the Judge not make proper
calculations, he failed to consider that Platinum did not dispute Platypus’ calculations.
[39]
In my respectful view, the Judge clearly erred
in concluding, as he does at paragraph 17 of his reasons, that Platypus’
calculations show an interest rate in excess of 60% per annum. First, as I have
just indicated, the Judge did not provide any calculations in support of his
finding and second, it appears to me that Platypus’ calculations are correct. Further,
before us on the appeal and the cross appeal, Platinum does not challenge any
of Platypus’ calculations.
[40]
I cannot agree with Platinum’s position. My
reasons for that view are as follows. Platypus is correct that in the absence
of an agreement on interest, it would have been entitled to claim pre-judgment
interest starting from the date of the breach (or rather, in this case, ten
different dates of breach). In Canadian General Electric Co. v. Pickford
& Black Ltd., [1972] S.C.R. 52, the Supreme Court of Canada made it
clear that in admiralty matters, interest was owed from the time the debt
became payable. Ritchie J., who wrote for a unanimous court, made the following
comments at pages 56 and 57:
The rule in the
Admiralty Court is the same as that in force in admiralty matters in England,
and in my view the position is accurately stated by Mr. Justice A. K. McLean,
sitting as President of the Exchequer Court, in the case of The Pacifico v.
Winslow Marine Railway and Shipbuilding Company, where he said:
The
principle adopted by the Admiralty Court in its
equitable jurisdiction, as stated by Sir Robert Phillimore in The
Northumbria (1869), 3 A. & E. 5, and as founded upon the civil law, is
that interest was always due to the obligee when payment was delayed by the
obligor, and that, whether the obligation arose ex contractu or ex
delicto. It seems that the view adopted by the Admiralty Court has
been, that the person liable in debt or damages, having kept the sum which
ought to have been paid to the claimant, ought to be held to have received it
for the person to which the principal is payable. Damages and interest under
the civil law is the loss which a person has sustained, or the gain he has
missed. And the reasons are many and obvious I think, that a different
principle should prevail, in cases of this kind, from that obtaining in
ordinary mercantile transactions.
(emphasis added
and footnote omitted)
[41]
More recently, in Kuehne + Nagel Ltd. v.
Agrimax Ltd., 2010 FC 1303, 196 A.C.W.S. (3d) 3, Harrington J. of the
Federal Court, at paragraph 24 of his reasons, made the same point as follows:
[24] The provisions with respect to
pre-judgment interest set out in section 36 of the Federal Courts Act do
not, as provided in subsection 7 thereof, apply in respect to claims under
Canadian maritime law. There is a great wealth of jurisprudence which
establishes that pre-judgment interest in maritime cases is a function of
damages, is at the Court's discretion, and if properly pleaded runs from the
date the debt was due. One of the early cases is Bell Telephone Co. of
Canada v. Mar-Tirenno (The), [1974] 1 F.C. 294, affirmed by the Federal
Court of Appeal at [1976] 1 F.C. 539.
(emphasis added)
[42]
Consequently, irrespective of the oral
agreement, Platypus would have been entitled to claim interest from the date of
the invoices (by “date of invoice” I mean the
date upon which the invoice was delivered to or received by Platinum) which
clearly indicated that the amount covered thereunder was payable upon receipt.
Thus, the oral agreement must be characterized and understood in the light of
the fact that interest was indeed owed by Platinum on the amounts covered by
the ten invoices.
[43]
As I indicated earlier, there is very little
evidence on the record pertaining to the oral agreement which explains why the
Judge, at paragraph 10 of his reasons, made the point that the evidence in
regard thereto was “scant”. Notwithstanding the
lack of evidence, I have no difficulty finding that it was an implicit term of
the oral agreement that the US $100,000 would subsume the interest to which
Platypus was already entitled at the time the oral agreement was made. In other
words, the US $100,000 was a lump sum intended to cover all interest accrued on
the principal amount until the end of January 2015 when Platypus expected
Platinum to pay both the principal and the interest.
[44]
Thus, in my view, interest should therefore be
calculated using the date of each invoice. However, given the Judge's finding,
based on Mr. Linnabury's testimony, that the invoices were not always delivered
on the date shown on the invoice, a two-day grace period to account for
delivery seems appropriate and fair in the circumstances.
[45]
Consequently, I cannot subscribe to Platinum’s
arguments that the calculation should begin only on September 19, 2014. While
it is true that as of September 19, 2014, Platypus was not entitled to
contractual interest (indeed the invoices are silent on this), it is also true
that Platypus was entitled to pre-judgment interest because, as the case law makes
clear, in admiralty matters pre-judgment interest is a function of damages and
runs from the date of the breach. Thus, the only difference, for present
purposes, between admiralty pre-judgment interest and agreed contractual
interest is the rate. In all other respects, there is no difference.
[46]
Thus, by September 19, 2014, interest was owed
to Platinum and it is therefore incorrect to say, as Platinum does at paragraph
43 of its memorandum of fact and law, that the US $100,000 “was new money”. It may have been more money, but it
was not “new money”.
[47]
Platinum also says that because Platypus was
only entitled to pre-judgment interest as of September 19, 2014, it cannot be
argued that the oral agreement of September 19, 2014 somehow entitles Platypus
to retroactive interest. In other words, Platinum argues that it cannot be said
that the US $100,000, i.e. the contractual interest, began to run from the time
the first invoice was issued or received by it. In my respectful view,
Platinum’s argument misses the point. The issue is not whether the payment of
the US $100,000 was retroactive to the date of the first invoice, but rather
what the US $100,000 represents. As I indicated above, it is my view that that
sum was meant to cover all interest owed by Platinum between the time of the
first invoice to the end of January, 2015. Consequently, on that understanding,
calculation of the rate of interest must begin at the time of the initial
breach by Platinum.
[48]
Thus, I find that the US $100,000 does not
constitute a criminal rate of interest. As set out in the following chart, if
interest ran from two days after the invoice date (one day after the date of
the breach, and the guaranteed date of delivery of the invoice), then 60% per
annum would result in a payment of US $100,529.78. As US $100,000 is lower, the
rate of interest does not exceed the 60% effective rate.
|
Invoice
|
Principal USD
|
Date of invoice (2014)
|
Number of days from breach until January
31, 2015
|
Rate
|
Number of days from date of delivery
|
Interest
|
|
1
|
$10,941.79
|
May 28
|
248
|
60%
|
246
|
4424.68
|
|
2
|
$10,557.02
|
Jun 4
|
241
|
Blank
|
239
|
4147.61
|
|
3
|
$31,845.97
|
Jun 11
|
234
|
Blank
|
232
|
12145.09
|
|
4
|
$43,096.78
|
Jun 18
|
227
|
Blank
|
225
|
15939.9
|
|
5
|
$71,936.92
|
Jun 25
|
220
|
Blank
|
218
|
25779.04
|
|
6
|
$36,998.86
|
Jul 2
|
213
|
Blank
|
211
|
12833.03
|
|
7
|
$21,907.10
|
Jul 9
|
206
|
Blank
|
204
|
7346.38
|
|
8
|
$44,753.35
|
Jul 14
|
201
|
Blank
|
199
|
14639.86
|
|
9
|
$9,287.50
|
Aug 27
|
157
|
Blank
|
155
|
2366.40
|
|
10
|
$4,183.63
|
Sep 19
|
134
|
Blank
|
132
|
907.79
|
|
TOTAL
|
|
|
|
|
|
|
[49]
I wish to point out that the calculations
provided by Platypus at paragraph 27 of its memorandum of fact and law
regarding a three day grace period contain some minor errors. Rounded to the
nearest dollar figure, I arrive at the figure of US $100,060 using the same
calculation. However, this figure is still larger than US $100,000 and so Platypus’
point remains valid: even with a three day grace period, the US $100,000 does
not amount to a criminal rate of interest.
[50]
Because of my view that the Judge erred in
finding that the US $100,000 constituted a criminal rate of interest, I need
not address the remaining two issues.
VII.
Conclusion
[51]
For these reasons, I would allow the appeal and
I would dismiss the cross appeal. I would set aside the decision of the Federal
Court and, rendering the judgment which ought to have been rendered, I would
award to Platypus the Canadian equivalent of the sum of US $100,000, plus
post-judgment interest at 5% per annum.
[52]
As Platypus seeks costs on the cross appeal, but
none on the appeal, it shall have its costs on the cross appeal only.
"M Nadon"
“I agree.
Eleanor R.
Dawson J.A.”
“I agree.
Johanne
Gauthier J.A.”
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