In our last two issues of Fully Secured[1] we have followed the case of Solar Power Network Inc v ClearFlow Energy Finance Corp[2], a case which has created significant uncertainty in the lending community.
To recap, the case raised two main issues with respect to the Interest Act (Canada)[3]:
1. Does an annualizing formula satisfy the requirements in section 4 of the Interest Act that a lender provide "an express statement" of an "equivalent" annual interest rate?
2. What is the remedy mandated by section 4 of the Interest Act if a loan agreement contains multiple interest rates, some of which are not expressed on an annual basis (i.e. are non-compliant)?
In an expedited hearing, the Ontario Court of Appeal provided certainty to lenders, holding that (i) annualizing interest rate formulas can satisfy the requirements of section 4 of the Interest Act (Canada)[4] and (ii) absent evidence of an attempt to circumvent the legislation, the section 4 remedy of limiting interest to 5% per annum is only applicable to the non-compliant interest provision[5]. However, this certainty proved to be temporary when the borrower filed an application seeking leave to appeal to the Supreme Court of Canada (the "SCC") in November, 2018.
We are pleased to report that lenders can feel relief once again, as the SCC dismissed the borrower's leave application on March 28, 2019[6], thus affirming the Ontario Court of Appeal's decision, finally putting this issue to rest. The SCC issued no written reasons for the dismissal.
Going forward, lenders should continue to exercise caution by ensuring that the formulas used to express annual interest rates are clearly set out in the underlying loan agreements, and furthermore that the borrower has a clear understanding of the interest payable under those agreements. However, lenders can do so knowing that this approach will satisfy the disclosure requirements of section 4 of the Interest Act (Canada).
[2] 2018 ONSC 7286; 2018 ONCA 727; Solar Power Network Inc v ClearFlow Energy Finance Corp, 2018 ONCA 727 (Application for Leave to Appeal on Behalf of the Applicants, Solar Power Network Inc., Memorandum of Argument, Simon Bieber and Nathaniel Read-Ellis)(Submitted 5 November 2018)
[3] Interest Act, RSC 1985, c I-15
[4] 2018 ONCA 727, para 58
[5] 2018 ONCA 727, para 80
[6] Solar Power Network Inc v ClearFlow Energy Finance Corp, 2018 ONCA 727, leave to appeal to SCC refused, 38385 (28 March 2019)