Robert Holmes QC has stepped down as President of the BC Civil Liberties Association after four years of exemplary service.  He continues to serve on the Board of Directors.

John Bilawich will continue as Chair of the CBA-BC Vancouver Civil Litigation section for 2012-2013

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By John W. Bilawich, Holmes & King

Pre-judgment interest is admittedly not, at first blush, the most scintillating subject, but there are some aspects of which counsel should be aware when prosecuting or defending a claim which can make a significant monetary difference to your client.  This article focuses on pre-judgment interest claims in the context of debt and contract claims only.

Court Order Interest Act

Where no contractual rate of interest applies, one normally claims pre-judgment interest pursuant to the Court Order Interest Act, R.S.B.C. 1996, c. 79.

Section 1(1) addresses pre-judgment interest in cases involving a pecuniary judgment and specifies that the addition of interest is mandatory.

       Court order interest

1  (1) Subject to section 2, a court must add to a pecuniary judgment an amount of interest calculated on the amount ordered to be paid at a rate the court considers appropriate in the circumstances from the date on which the cause of action arose to the date of the order.

Section 1 gives the court discretion when setting the interest rate, but in most cases the court applies the rate of pre-judgment interest fixed by the Registrar from time to time.  That rate tends to be modest – at present it is 1% per annum.

Section 2(b) of the Act states that interest under section 1 is not awarded in certain cases, including if there is an agreement about interest between the parties.

Contractual Interest

Where the parties have an agreement which addresses interest on amounts due, how that interest rate is expressed is important.  Failure to express it the right way can render the rate unenforceable.

Debt claims often arise in circumstances where there are relatively informal arrangements between the service provider /supplier and the customer.  Often there is little in the way of negotiation or discussion about credit terms prior to the transaction. There may simply an interest term stuck into the fine print on the bottom of a printed invoice form.

If the parties did not apply their minds to interest rate before they formed the agreement, arguably there is no agreement about interest, and any interest rate unilaterally imposed after the fact would not be unenforceable for lack of consideration.  If so, only Court Order Interest Act pre-judgment interest would be available.

In N.B.C. Mechanical Inc. v. A.H. Lundberg Equipment Ltd., 1999 BCCA 775 at para 35 the Court of Appeal found the trial judge in that case had erred in finding an agreement to pay interest could be inferred because the defendant was aware the plaintiff would be charging interest on overdue accounts based on the interest notation appearing on numerous invoices rendered.  The most that could be said was that the defendant was aware the plaintiff was claiming the right to charge interest on overdue accounts, but that was not enough to create an obligation on the part of the defendant.  It found that “A right to charge interest cannot be based simply on a unilateral assertion in an invoice”.  See Alex Gair & Sons Ltd. v. Marr Holdings Ltd., [1987] B.C.J. No. 329 (BCSC).

Where parties do not have an express agreement to pay interest, in some cases agreement can still be inferred from a course of conduct or an acknowledgment by the defendant subsequent to the contract being entered into.  See N.B.C. Mechanical at para 39, and Macklin Mailey Advisertising Ltd. v. Budget Brake & Muffler Distributors Ltd., [1987] B.C.J. No. 2268 (BCCA).

In N.B.C. Mechanical at para 41 the court comments that cases seemed to reflect a tendency in recent years to be less willing to imply a contract to pay interest in the absence of a clear intention between the parties.  If one wishes to charge interest, the most direct path to success is to deal with this in a contractual document.  How the interest rate is expressed is also critical.

One often sees estimates, quotations, agreements or credit agreements which express the interest rate as “per day” or “per month” For example, (a) “1.5% per month”, or an annual rate but compounded on a shorter time cycle, such as (b) “18% per annum, compounded monthly”.  Contractual interest rates tend to be set relatively high to encourage timely payment.  Interest rates expressed in this way, however, are not enforceable.

Interest Act (Canada)

Section 4 of the Interest Act (Canada), R.S.C. 1985 c. I-15 states that if an agreement about interest expresses the rate per day, week or month or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of 5% per annum shall be chargeable, payable or recoverable unless the contract contains an express statement of the equivalent yearly rate or percentage of interest.  The section is as follows:

4.  Except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract, whether under seal or not, made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.

A case which applies this section is Aluminex Extrusions Ltd. v. Double “D” Glass Ltd. (1987), 22 B.C.L.R. (2d) 220 (S.C.).  In it the court found that a monthly interest rate was void because it did not include an effective annual rate, and as such contravened section 4 of the Interest Act.  It found there was an agreement to pay interest, but because the rate was void, the court substituted interest at the rate 5% per annum.

Accordingly, in the examples used above:

(a)   expressing the rate as 1.5% per month would make it unenforceable if no equivalent annual rate (18% per annum) is included; and

(b)  expressing the rate as “18% per annum, compounded monthly” would make it unenforceable if no equivalent annual rate (19.56% per annum) is included.

Criminal / Unconscionable Interest Rates

I will not address criminal or unconscionable interest rates in this article. It is a topic deserving of its own article.

Conclusion

Counsel should apply their mind to pre-judgment interest issues when prosecuting or defending a debt or contract claim, including whether the interest rate claimed is contractual or statutory and whether a contractual rate is expressed in a form that is enforceable. The difference between a typical contractual rate (variable, but frequently between 12% and 30% per year), Interest Act (Canada) interest (up to 5% per year) and Court Order Interest Act pre-judgment interest (currently 1% per year) is significant.

Counsel should also make it their practice to warn their client when the form of invoice, credit agreement and/or contract they use in their business expresses the interest rate in a manner which runs afoul of section 4 of the Interest Act (Canada), and recommend changes to make the rate enforceable.

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By John W. Bilawich, Holmes & King

The object of the Supreme Court Civil Rules is to secure the just, speedy and inexpensive determination of every proceeding on its merits.  Our civil justice system relies on the parties to set the pace at which a proceeding is prosecuted, subject to the availability of scarce judicial resources.  The plaintiff is responsible for moving its case to a timely conclusion.  However, in some cases the plaintiff may lack either the will or the resources to do so.

When a proceeding has languished, a question which arises is whether and when a defendant should apply to dismiss the action for want of prosecution.  Some believe applying before the relevant limitation period expires is futile.  Even if successful, dismissal for want of prosecution does not dispose of the claim on its merits, meaning that the plaintiff could simply start a new action.  If so, applying has dubious value, however, recent decisions suggest that in some cases it may be possible to obtain an effective remedy before the limitation period expires.

The Rule and Test

Rule 22-7(7) of the Supreme Court Civil Rules governs dismissal for want of prosecution.  The test is found in Irving v. Irving, [1982] B.C.J. No. 970 (BCCA):

1. There has been inordinate delay;
2. The inordinate delay is inexcusable; and
3. The delay has caused, or is likely to cause, serious prejudice to the applicant.
4. If these three elements are met, the court considers whether or not the balance of justice demands that the action should be dismissed.

Effect of Non-Expiry of Limitation Period

In Lui v. West Granville Manor Ltd. (1985), 61 B.C.L.R. 315 (CA) Mr. Justice Lambert found that as a general rule dismissal for want of prosecution should only happen after the limitation period has expired:

“… It also seems to be a general rule that dismissal for want of prosecution should only be done if the limitation period has expired. Otherwise the dismissal would be likely to be pointless, because the plaintiff could always start a new action.  And it seems to be the accepted view that the court has no power to prevent a plaintiff from suing, so long as the action is begun within the limitation period. …”

This was qualified in Rhyolite v. CanQuest, 1999 BCCA 36 (paras 10, 11, 29), where two judges commented that the non-expiry of a limitation period is a relevant consideration but not determinative.  In 0690860 Manitoba v. Country West Construction, 2009 BCCA 535 @ para 59 the court comments there is more to be said about the effect of expiry or non-expiry of a limitation period on dismissal for want of prosecution, but non-expiry should be taken into consideration when determining the balance of justice.

Two cases where actions were dismissed for want of prosecution before the limitation period help to illustrate how such a dismissal can provide the plaintiff an effective remedy.  See Sea Gull Leasing Ltd. v. Wildcat Enterprises 2012 BCSC 417 and First National Properties Ltd. v. Northland Road Services Ltd. 2008 BCSC 569.  Both involved claims for recovery of environmental remediation costs for contaminated sites pursuant to the Waste Management Act (BC), replaced by the Environmental Management Act (BC) (s. 47).  On April 1, 1997 the BC government created a new statutory cause of action that was absolute, retroactive and which imposed liability on a broad range of “responsible persons”. A party who voluntarily has incurred remediation costs can commence an action to recover reasonable remediation costs from responsible persons.

First National was a claim to recover remediation costs for salt contamination. The contamination was first complained of in 1992 and was known to the plaintiff by 1996.  In December 2002 the plaintiff started an action and delayed serving the Writ until December 2003.  The defendant filed an Appearance, after which the action was dormant.  The plaintiff eventually carried out remediation, which was completed in 2006.  In December 2007 the defendant applied to dismiss based on a missed limitation period or alternatively for want of prosecution.

Madam Justice D. Smith dismissed the application based on a missed limitation period on the basis that it had not started to run until the quantum of remediation costs was known in 2006.  She went on to find that the defendant had established all four elements of the Irving test and dismissed the action for want of prosecution.  She said plaintiffs who sought to rely on the advantages of this remedy had a parallel obligation to proceed in a diligent and expeditious manner in order to minimize the risk of prejudice to the defendants’ ability to effectively respond to their claim.  She found the plaintiff’s delay in giving notice of the action (Dec 2003) and completing remediation (2006) had significantly diminished the defendant’s ability to defend the action and pursue a limitation defence.  The plaintiff had the power to pursue its claim as early as 1997 but chose not to do so.  She found the plaintiff’s deliberate conduct had exacerbated the extent of the defendant’s prejudice.

Sea Gull Leasing was a claim to recover remediation costs for historical hydrocarbon contamination.  The action was started in March 2003.  An endorsed Writ was served in March 2004.  No further steps were taken in the action, and no substantive remediation was carried out to the property.  In February 2012 the defendants applied to dismiss for want of prosecution.  The plaintiff argued, among other things, that the passage of time could not have caused relevant prejudice because the limitation period had not expired.  Madam Justice Humphries rejected that and found the defendant had established all four elements of the Irving test, dismissing the action for want of prosecution.  She commented on the proposition that the plaintiff could simply start a new action.

[43]           The object of the Rules, the passage of time, the necessity to gather evidence after many years on the issues of whether the site is contaminated, when it became contaminated, whose fuel pumps were responsible, what role, if any, each of the defendants’ played, “creates a significant imbalance in favour of the plaintiff that is a direct result of the plaintiff’s failure to pursue its claim in a timely manner,” to use the words of the chambers judge in First National.  While the plaintiff may simply chose to file another claim, even though it has not incurred the majority of the remediation costs, the defendants will have the opportunity to mount arguments as to the effect of this delay on their ability to defend the action. [Underlining added]

A finding that the plaintiff’s conduct significantly prejudiced the defendant’s ability to defend the claim provide grounds for the defendant to argue that any new claim is an abuse of process,  that the plaintiff is estopped by its conduct from pursuing it, and the action should be dismissed.

If a defendant has evidence that the plaintiff’s delay has caused specific prejudice to its ability to defend an action, dismissal for want of prosecution can be an effective remedy even if the relevant limitation period has not yet expired.

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It is sad to be losing her as a colleague, but we will all benefit from this exciting new stage in her legal career. Congratulations, Leslie!

Ministry of Justice News Release:  http://www2.news.gov.bc.ca/news_releases_2009-2013/2012JAG0054-000549.htm

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On March 30, 2012 the Trial Lawyers Association of BC presented its 2012 Bar Award to Robert Holmes, Q.C. at its Bench & Bar Awards Luncheon, held at the Vancouver Convention Centre.

The award recognizes his efforts to ensure the highest standards prevail when it comes to the practice of law and delivery of justice, countless volunteer hours dedicated to numerous special projects whose aim is to improve BC’s system of justice, his service on the TLABC executive including two consecutive terms as President (2009 – 2010) and his involvement in writing or co-writing various written submissions including critiques of proposed rules changes, a submission to the Public Commission on Legal  Aid and a position paper concerning the use and importance of civil juries.  Congratulations to Robert on this well-deserved honour!

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Leslie Muir is Co-Chair / Presenter and Robert Holmes is Presenter in an upcoming Trial Lawyers of British Columbia seminar, “Throwing Dirt Around: Current Directions in Real Property Litigation” to be held on April 27, 2012.

Robert will present a paper on “Expropriation: Do they have to pay and how much?”  Leslie will present a paper on “Negligence in Construction:  Developers, Builders and Design Professionals”.

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The offer to settle process in the Rules should be straight-forward, but in practice is unpredictable.  The amount of court time and legal resources spent arguing about costs consequences of an offer can become substantial and disproportionate.  To maximize the chance that an offer will be effective, it is important that when formulating the offer counsel consider the requirements of the rule and the process the court will follow.

There is extensive case authority and commentary dealing with offers to settle.  This article is not intended as an exhaustive review of offers generally.  My intention is to focus on one of the court’s considerations, whether the offer was one which reasonably ought to have been accepted, and offer suggestions on how to make an offer more effective.

Overview

Formal offers to settle are governed by Rule 9-1.

Rule 9-1(1) sets out the required form for an offer to settle.  Offers must be made in writing, served on all parties of record and include “The …, [parties, names of parties] reserve(s) the right to bring this offer to the attention of the court for consideration in relation to costs after the court has pronounced judgment on all other issues in this proceeding.”

Rule 9-1(5) sets out the costs options available to the court.  Rule 9-1(6) sets out considerations of the court when making an order under sub-rule (5).  These factors include (a) whether the offer to settle was one that ought reasonably to have been accepted on the date served or on any later date, (b) the relationship between the terms offered and the final judgment of the court, (c) the relative financial circumstances of the parties and (d) any other factor the court considers appropriate.  I will focus on factor (a) only.

Purposes of Offers to Settle

It is useful to keep in mind the general purposes for an offer settle. A recent summary in Hartshorne v. Hartshorne, 2011 BCCA 29 is as follows:

[25] An award of double costs is a punitive measure against a litigant for that party’s failure … to have accepted an offer to settle that should have been accepted. Litigants are to be reminded that costs rules are in place “to encourage the early settlement of disputes by rewarding the party who makes a reasonable settlement offer and penalizing the party who declines to accept such an offer” … Mr. Justice Frankel’s comments in Giles are apposite:

[74]      The purposes for which costs rules exist must be kept in mind in determining whether appellate intervention is warranted.  In addition to indemnifying a successful litigant, those purposes have been described as follows by this Court:

• “[D]eterring frivolous actions or defences”
• “[T]o encourage conduct that reduces the duration and expense of litigation and to discourage conduct that has the opposite effect”:
•  “[E]ncouraging litigants to settle whenever possible, thus freeing up judicial resources for other cases:
•  “[T]o have a winnowing function in the litigation process” by “requir[ing] litigants to make a careful assessment of the strength or lack thereof of their cases at the commencement and throughout the course of the litigation”, and by “discourag[ing] the continuance of doubtful cases or defences”:

[citations omitted]

Rule 9-1(6)(a) – Considerations – whether the offer ought to have been accepted

Counsel should be aware of what the court considers under this factor when drafting the offer.  The considerations are described in Hartshorne at para 27.

• It is not determined by reference to the award ultimately made. Rather, the court must determine whether, when the offer was open for acceptance, it would have been reasonable to accept it.

• “The reasonableness of the plaintiff’s decision not to accept the offer to settle must be assessed without reference to the court’s decision.”

• Reasonableness is assessed by considering such factors as the timing of the offer, whether it had some relationship to the claim (as opposed to simply being a “nuisance offer”), whether it could be easily evaluated, and whether some rationale for the offer was provided.

• This is not a comprehensive list.

Another consideration is whether the offer provided a genuine incentive to settle – Giles v. Westminster Savings & Credit Union, 2010 BCCA 282, para 88.

Timing and Duration

The offer should remain open for acceptance until the offeree has had an opportunity to assess the strength of both sides’ cases.  In Houston v. O’Connor, 2011 BCSC 509 the judge found the plaintiff had a detailed understanding of the defendant’s case when the offer was made due to completion of exchange of documents and examinations for discovery.

Offers can have an expiry date, but should remain open for a reasonable time.  Making it expire quickly or making it too close to trial can render it ineffective.  In Bailey v. Jang, 2008 BCSC 1372 the court found that an offeree should have at least 7 days to consider an offer.  In Coquitlam (City) v. Crawford, 2008 BCSC 1507 the judge found the offeree should have a “reasonable time” to consider it.  How long is “reasonable” depends on the circumstances.

Content – Narrative

I recommend counsel include in the offer an analysis which sets out factual and legal reasons why the offer is reasonable.  This gives the offering party the opportunity to create a self-serving advocacy piece which will become a key exhibit when costs are argued and allows the offeror to ensure that facts and law supporting their offer are brought to the offeree’s attention.

When costs are argued, the offeree will be able to tender affidavit evidence setting out what they knew and understood about the merits of the case when the offer was open.  This allows them to craft a self-serving explanation of why they they thought the offer was unreasonable.  It can be difficult to test and respond to this.  It may include subjective evidence and require production of documents, cross-examination on affidavits and responding material.  Framing the issues with a detailed narrative in the offer can help the offeror address the merits of the offer in an efficient manner.

Where an action includes claims and counterclaims, consider addressing the merits of each separately in the narrative.  This may help the court assess reasonableness in relation to each component of the action.

Nominal Offers

Failure to accept a nominal offer will normally not trigger costs consequences because it confers no benefit on the plaintiff. Coquitlam (City) v. Crawford 2008 BCSC 1507, BCSPCA v. Baker 2008 BCSC 947.  An offer that confers significant benefits is more likely to have costs consequences. Where a claim is obviously lacking in merit the court may find that a nominal offer should have been accepted. MacKinlay v. MacKinlay Estate 2008 BCSC 1570.

In Exclusive Flor Sales v. Fipke 2010 BCSC 1551 a plaintiff’s offer to settle for mutual abandonment of its claim and the counterclaim resulted in double costs.  The judge said the offer was not nominal because the plaintiff offered to waive monetary damages.

Conclusion

By investing time and thought when formulating an offer, counsel can improve its chances of success.

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Faced with the daunting task of applying to set aside a default judgment, the commonly cited authority is the decision of Mr. Justice Hinds in Miracle Feeds v. D. & H. Enterprises Ltd., [1979] B.C.J. No. 1965, 10 B.C.L.R. P 58.  It establishes a four part test … three really, since the fourth step simply addresses mode of proving the previous three: (1) That the applicant did not willfully or deliberately fail to enter an appearance or file a defence to the plaintiff’s claim, (2) That the application to set aside the default judgment was made as soon as reasonably possible after obtaining knowledge of it, or explain any delay in bringing the application, (3) That the applicant has a meritorious defence or at least a defence worthy of investigation, and (4) Establish the foregoing to the satisfaction of the court through affidavit material.  The court’s application of this test involves an exercise of discretion when assessing the weight given the test’s individual factors and reasonableness of the defendant’s explanation in each case.  This test has effectively been codified in the Small Claims Rules which address cancelling a dismissal or default order – see Rule 17(2).

A different and stronger authority is available if a defendant can prove they were not served with the proceeding.  Where a defendant has not received notice, the granting of default judgment becomes a failure of natural justice.  The defendant has been deprived of their right to be heard and the default judgment is considered a nullity, which the defendant is entitled to have set aside as of right.  In Bache Halsey Stuart Shields Inc. v. Charles Estate [1982] B.C.J. No. 1757, 40 B.C.L.R. 103, Mr. Justice Spencer contrasted the different approach taken where natural justice was an issue, at paragraph 4:

4     Inasmuch as the Rules of Court require notice to any person who has entered an appearance of any order which the court may be asked to make against him, the failure to give notice here would be an irregularity.  …  In this case it was the court which was asked to and which gave judgment, no notice having first been given to the defendant. Apart from being a breach of the Rules, however, there is in my opinion a broader basis upon which the impugned order may be attacked. It was a judgment given without notice to the defendant and therefore under circumstances where he was deprived of his right to be heard. Such a judgment is contrary to the rules of natural justice and is, in my opinion, capable of being declared a nullity for that reason rather than being treated merely as an irregularity for a breach of the rules. ….

This remedy was applied where a defendant had not been properly served with process, but was aware of the existence of the proceeding.  In Hudson’s Bay Co. c. Kallweit [1976] B.C.J. No. 71 (Co. Ct.) at paragraph 4:

4     … I am prepared to find that she was aware of the existence of the writ before the default judgment was taken against her, but mere knowledge of the existence of the writ against her without service of the document upon her is, in my opinion, insufficient to found further proceedings in the action against her. Order 9, R. 3 requires that where husband and wife are both defendants to an action both shall be served unless otherwise ordered. No such order has been made in this case. Whilst the applicant could have been served by her husband handing her a copy of the writ there is no evidence that he did so. Since the applicant was not served with the writ she is entitled ex debito justitiae to have the purported service and the judgment flowing from it to be set aside. See Hagemeister v. Walters, [1925] 2 W.W.R. 682, and Hamp-Adams v. Hall, [1911] 2 K.B. 942.

It is worthy of note that Hudson’s Bay Co. involved consideration of conflicting affidavit evidence tendered by a process server and the defendant, which was ultimately resolved in favour of the defendant.  Counsel should make it part of their practice to obtain and review affidavits of service for adequacy.

This remedy was also applied where a defendant had notice of the proceeding, but did not receive notice of a hearing scheduled in the course of the action and their non-attendance resulted in a default judgment.  In Michalakis v. Nikolitsas [2002] B.C.J. No. 2808, 2002 BCSC 1708, the court considered an application for judicial review of the dismissal of the defendant’s application to set aside a Small Claims default judgment, issued because he failed to attend a Settlement Conference.  The Small Claims chambers judge accepted that the defendant had not received notice of the Settlement Conference, but declined to set aside the default judgment.  At paragraph 7 of his Reasons, Mr. Justice Rogers quoted Lord Greene M.R. in Craig v. Kanssen, [1943] 1 K.B. 256:

“In my opinion, it is beyond question that failure to serve process where service of process is required goes to the root of our conceptions of the proper procedure in litigation. Apart from proper ex parte proceedings, the idea that an order can validly be made against a man who has had no notification of any intention to apply for it has never been adopted in this country. It cannot be maintained that an order which has been made in those circumstances is to be treated as a mere irregularity and not as something which is affected by a fundamental vice.”

He went on to apply this principle to the case before him at paragraphs 9 and 10:

9     This case is different from one where there is service of process in accord with the applicable procedural rules, but the defendant is culpably unaware of the proceeding. When the defendant does not attend to his business as he should, then ignorance of the proceeding resulting in default might not bottom his application to set aside the consequence of his default. It is in that situation that the court may consider the merit, equity, and justice of the defendant’s application and may exercise its discretion to confirm or cancel the default.

10     The fact that Mr. Michalakis did not have notice of the second settlement conference is the kind of flaw Lord Greene contemplated in Craig. Natural justice requires that a party not be found in default of a proceeding he does not know about. Where the court finds that process has been taken against a litigant without notice where notice was required, the principles of natural justice apply and the situation is one in which the court must set aside the default. That is not a situation that calls for an exercise of discretion. It seems to me that it was patently unreasonable for the learned chambers judge to have held on the one hand that the defendant had no notice of his jeopardy and on the other hand to confirm judgment against him. That result flies in the face of the rules of natural justice and cannot stand.

Faced with having to apply to set aside a default judgment, counsel would be well served by reviewing whether the defendant was properly served with process and received actual notice of the proceeding or step taken in the proceeding which led to the default judgment.  If evidence is available to show the defendant did not have notice, a stronger, non-discretionary test applies and the default judgment should be set aside as of right.

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