Two recent decisions, released together, Aubin v. Synagogue and Jewish Community Centre of Ottawa (Soloway Jewish Community Centre), 2024 ONCA 615  (“Aubin”) and Henry v Zaitlen, 2024 ONCA 614 (“Henry”) from the Ontario Court of Appeal have updated the approach for calculating prejudgment interest for non-pecuniary damages in personal injury actions. In both cases, the Court made it clear that deviating from the presumptive entitlement to prejudgment interest at the 5% prescribed rate should only be done in special circumstances, and only when it is just to do so. The overall effect of these rulings is that it will be less common for courts to deviate from the presumptive 5% rate.

Pursuant to section 128(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”), the rate of interest on damages for non-pecuniary loss in an action for personal injury is fixed at a prescribed rate. Since 1989 the prescribed rate has been 5% as reflected in Rule 53.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). The default 5% rate in motor vehicle cases changed in 2015 when the Insurance Act was amended to add section 258.3(8.1). The effect of this was that for personal injury claims that involved a motor vehicle, s. 128(2) of the CJA and Rule 53.10 of the Rules did not apply. Instead, the prejudgment interest rate on non-pecuniary damages in motor vehicle accident claims is based on the floating bank rate.

The statutory presumption that the 5% rate of interest applies to non-pecuniary loss on personal injury is “baked” into s. 128(2) of the CJA:

Despite subsection (1), the rate of interest on damages for non-pecuniary loss in an action for personal injury shall be the rate determined by the rules of court under clause 66(2)(w).

In 2019 the Court of Appeal for Ontario in MacLeod v. Marshall 2019 ONCA 842 (“MacLeod”) began to shift away from the default rule of 5% prejudgment interest for non-pecuniary damages in personal injury actions. MacLeod was a historic sexual assault case where the court used their discretion to deviate from the presumptive rate and instead calculated the rate to be 1.3%. After MacLeod, courts generally began calculating the rate at a lower percentage. The trial decisions in Aubin and Henry were both such decisions. In each trial decision, the trial judge calculated the rate to be lower than the presumptive rate of 5%. Aubin’s trial decision was a slip-and-fall case where one of the plaintiffs, Ms. Aubin, suffered a head injury at the defendant’s premises. Henry’s trial decision was a medical malpractice lawsuit.

The appeals turned on the trial judges’ approach to prejudgment interest for non-pecuniary damages prescribed under s. 128(2) of the CJA and r. 53.10 of the Rules and to the exercise of the discretion under ss. 130(1) and (2) of the CJA to deviate from the presumptive entitlement to prejudgment interest.

In Henry, the respondents tried to argue that Cobb v. Long Estate, 2017 ONCA 717  (“Cobb”) determined there is no presumptive statutory prejudgment interest rate. The Court explained that Cobb does not stand for that conclusion. Cobb explained that the presumptive statutory entitlement to prejudgment interest and to the presumptive rates can be displaced where the court “considers it just to do so”, in accordance with the discretion afforded under section 130(1) of the CJA. Section 130(1) of the CJA reads as follows:

The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 128 or 129 [postjudgment interest],

(a) disallow interest under either section;

(b) allow interest at a rate higher or lower than that provided in either section;

(c) allow interest for a period other than that provided in either section.

This presumption places the onus on the party seeking to depart from the prima facie entitlement to the presumptive statutory interest rate to demonstrate why the court should exercise its discretion to do so.

Furthermore, the Court in Henry explained that while the court may exercise its discretion under s. 130(1) of the CJA to deviate from the presumptive rate of interest, it is not mandatory that it do so. Moreover, it should only do so where “it considers it just to do so”. The rationale for this is that prejudgment interest should be viewed as part of the compensation due to the party. Also, the Court stated that in their view, this means that the prescribed interest rates should not be deviated from unless the court determines that there are unusual or special circumstances sufficient to justify such a departure, having regard to the mandatory criteria under s. 130(2) of the CJA and all other relevant considerations.

In both decisions, the Court noted that in order to deviate from the presumptive rate, the courts must carefully consider all of the factors contained in s. 130(2) of the CJA The factors are as follows:

a) changes in market interest rates;

b) the circumstances of the case;

c) the fact that an advance payment was made;

d) the circumstances of medical disclosure by the plaintiff;

e) the amount claimed and the amount recovered in the proceeding;

f) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; and

g) any other relevant consideration

In both cases, the Court found that the trial judges focused only on the first factor, changes in market interest rates.

In Aubin, at para 37, the Court was of the opinion that the trial judge mistakenly relied on obiter from Awan v Levant, 2015 ONSC 2209 (“Awan”) that “the mischief” that gave rise to the five percent rate prescribed under s. 128(2) of the CJA and r. 53.10 of the Rules “was no longer being served by a five percent rate given the interest rate climate”, to justify departing from the statutory presumption established by the legislature. The Court noted that the trial judge misinterpreted the reference to Awan in Macleod as meaning that this court effectively determined that the 5% rate could be ignored as no longer relevant given the fluctuations in interest rates. The Court stated that “MacLeod does not stand for that conclusion. In MacLeod, this court reiterated that relevant factors under s. 130(2) had to be considered in the court’s exercise of its discretion and that the trial judge in that case therefore erred by failing to look at changes in market interest rates.”

The ONCA allowed the appeals, reversing the trial judges’ deviations. The Court explained that the trial judges effectively exercised their discretion based on the incorrect principle that there is no presumptive statutory prejudgment interest rate and that the overarching consideration in the exercise of their discretion must be the “prevailing market interest rates”. The Court explained that these were errors. There is a presumptive statutory prejudgment interest rate, and furthermore, it is not true that the overarching consideration when deviating from the presumptive rate should be “prevailing market interest rates”. The Court in Henry at para 26 noted that:

“While one factor may predominate over others in the circumstances of a given case, it is important for the court not to limit immediately its review to only one factor. Rather, the proper exercise of the court’s discretion requires an examination of all the mandatory factors, including the catchall categories of “the circumstances of the case” and “any other relevant consideration”.

Interestingly enough, the Court in Aubin did not just reverse the trial judge’s decision to lower the presumptive prejudgment interest rate, but they actually deviated from the presumptive rate themselves. However, when the Court deviated from the presumptive rate in the appeal, they increased the rate applicable in that case to 8.46%. In the Court’s view, after considering the factors under s. 130(2) of the CJA, the appellants had met their onus to demonstrate that there were special circumstances and that it would be just in the circumstances to increase the presumptive prejudgment interest rates on their awards of non-pecuniary and past pecuniary damages. The Court noted that the average rate of return enjoyed by the respondent’s insurer was over two times the 5% presumptive rate on non-pecuniary damages (the annual rate of return for the insurer was 12.99% during the period). Also, the respondent’s insurer had the benefit of the use of the funds that were ultimately paid to the appellants. The Court found that the combined weighted average of the rates of return on the appellants’ investments portfolios were 8.46%. As a result, the Court was persuaded that, if available, those funds could and would have been invested at comparable rates earned by the appellants. So, in the Court’s view, it was just in this case to set the prejudgment interest rate on the appellant’s non-pecuniary damages at 8.46%.

In conclusion, as a result of these two cases, the courts will likely be far more hesitant to deviate from the presumptive 5% prejudgment interest rate for non-pecuniary damages. When the courts do deviate from the presumptive rate, they must do so only in special or unusual circumstances, having regard to all the s. 130(2) CJA factors, and only where it is “just to do so”. What remains unknown is the effect of these decisions on what evidence will be considered when deciding whether the 5% rate should be deviated from, including insurers annual rate of return during the relevant period, and that of the plaintiff.