2019 QCCA 413, 2019 QCCA 413

162568 Canada inc. c. 9195-8223 Québec inc. 2019 QCCA 413 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-027123-173 (500-22-221170-155) MINUTES OF THE HEARING DATE: March 12, 2019 CORAM: THE HONOURABLE ALLAN R. HILTON , J.A. GENEVIÈVE MARCOTTE , J.A. MARK SCHRAGER , J.A. APPELLANT COUNSEL 162568 CANADA INC Mtre ANAS QIABI (Mercadante Di Pace) RESPONDENT COUNSEL 9195-8223 QUÉBEC INC Mtre OLIVIER LESSARD M tre STÉPHANIE PIERFELICE (Roussin Lessard s.n.) On appeal from a judgment rendered on September 26 2017, by the Honourable Justice Enrico Forlini of the Court of Quebec, District of Montreal.

DESCRIPTION : Obligations – Execution – Receipt of a payment not due. Clerk: Stéphane Robinson Courtroom: Pierre-Basile-Mignault (RC.08) HEARING 12:12 Commencement of the hearing. Commentary by the Court. 12:12 Submissions by Mtre Qiabi. 12:44 Suspension of the hearing. 12:48 Resumption of the hearing. 12:48 Justice Hilton informs Mtre Lessard that it will not be necessary for him to be heard by the Court. 12:49 BY THE COURT: Judgment – See page 3. 12:49 Conclusion of the hearing. (

s) Stéphane Robinson Clerk BY THE COURT JUDGMENT [ 1 ] This is an appeal from a judgment rendered by the Court of Quebec, Civil Division, on September 26, 2017 (the Honourable Justice Enrico Forlini), condemning the Appellant to pay to the Respondent the sum of $56,888.71 with interest at the legal rate and the additional indemnity provided by

Article 1619 of the Civil Code of Québec , calculated from September 19, 2014. [1] [ 2 ] The Appellant lent $300,000 to the Respondent for a term of one year secured by a hypothec on an immovable property. Interest was payable in virtue of Clause 5 of the Deed of Loan and Hypothec as follows: The loan shall bear interest at the rate of SEVEN PERCENT (7%) per annum until the end of the term. After the end of the term the interest rate becomes EIGHTEEN PERCENT (18%) per annum.

Interest shall be paid monthly and the borrower will give twelve post- dated cheques to lender. [ 3 ] At the expiration of the term, the Respondent, unable to reimburse the principal of the loan, asked the Appellant’s representative to “wait a bit longer”, considering the imminent sale of the property. The Appellant agreed. [2] [ 4 ] The Respondent continued to pay interest monthly calculated at the rate of 7% per annum. The Appellant accepted the payments. This situation continued for about two years. Eventually, the property was sold allowing for repayment of the principal.

The Appellant in reviewing the Deed of Loan and Hypothec insisted at the payout that interest should have been paid after the expiration of the twelve month term at the higher rate of 18% per annum and thereupon insisted on payment of the difference, which the Respondent paid under protest. The judgment of the lower Court ordered reimbursement of that sum, hence the appeal. [ 5 ] The judge correctly concluded that

Section 8 of the Canada Interest Act [3] applies to prohibit the 18% interest rate on overdue or arrears of principal since that rate is higher than the rate applicable prior to default. Moreover, the principal and interest are clearly secured by a hypothec.

[ 6 ] The Appellant argues that Clause 5 of the deed cited above provided for a renewal which is what the parties agreed upon. In the Appellant’s submission, there was no default and thus,

Section 8 of the Interest Act does not apply. [ 7 ] The Appellant is wrong. [ 8 ] Clause 14

b) of the Deed of Loan and Hypothec clearly provides that failure to pay principal on its due date is an event of default. Thus, when the principal was not paid upon the expiration of twelve months, the loan was in default even though the Appellant did not exercise any rights or remedies stemming from such default and evidently decided to forbear. [ 9 ] On its face, Clause 5 of the deed does not provide for the renewal of the term of the loan. Furthermore, the facts as found by the judge, do not make out any renewal agreement.

The Appellant cannot even point to a new maturity date in asserting that the loan was renewed and pleads the existence of an agreement to renew the loan for an indeterminate term. [ 10 ] The principal of Appellant, Mr. Wildenstein, testified that the 18% rate applied after “expiry of the loan” and “if the loan is not paid on time” and “from default”. The parties themselves did not, by their behaviour, act as if the loan had been renewed. Rather, there was merely a forbearance by the Appellant of the default to repay the principal. To the extent that Clause 5 of the deed requires

interpretation (and we do not concede that it does) [4] the manner in which the parties gave effect to it is an indication of its meaning [5] – i.e. that it does not provide for a renewal of the loan. Consequently, there is no support in the record for Appellant’s argument that the term of the loan was renewed. [ 11 ] The decision of the Supreme Court in the matter of Krayzel is of no help to the Appellant notwithstanding its submission. In that case, the Supreme Court held that a “rate increase triggered by default does infringe

Section 8 , irrespective of whether the impugned term is cast as imposing a higher rate penalizing default, or as allowing a lower rate by way of a reward for the absence of default”. [6] The majority did, however, add that a rate increase triggered by the passage of time alone does not infringe

Section 8 . [7] For example, a loan guaranteed by a hypothec on an immovable property for a term of three years where the interest rate is 8% during the first year, 9% during the second year and 10% in the third year, would not infringe

Section 8 of the Interest Act . None of this furthers the case of the Appellant because there was a default to reimburse the principal. [ 12 ] Significantly, our Court in Bitzanis v. Fortin , [8] found that a virtually identical clause, albeit drafted in French, contravened

Section 8 : (…) 6. INTÉRÊTS PAYABLES PAR VERSEMENTS EN INTÉRÊTS SEULEMENT : Jusqu'au complet remboursement, la somme prêtée ou tout résidu impayé portera intérêt au taux de DOUZE pour cent (12.0%) l'an, calculé semestriellement et non à l'avance. L'intérêt sera de VINGT- CINQ pour cent (25.0%) l'an après l'échéance du présent prêt, sur tout solde non remboursé ou qui n'est pas payé à temps. (…) [ 13 ] There is no reason to decide otherwise in this case. [ 14 ] The judgment of the Court of Quebec is correct. FOR THESE REASONS, THE COURT: [ 15 ] DISMISSES the appeal with legal costs. ALLAN R. HILTON , J.A. GENEVIÈVE MARCOTTE, J.A. MARK SCHRAGER, J.A.