Quick Auto Lease Inc. v. Nordin, 2014 MBCA 32

Citation: Quick Auto Lease Inc. v. Nordin, 2014 MBCA 32 Date: 20140325 Docket: AI 13-30-08096 IN THE COURT OF APPEAL OF MANITOBA BETWEEN: ) R. I. Holloway andQUICK AUTO LEASE INC. ) T. J. Webber ) for the Applicant (Claimant) (Appellant) Applicant ) ) B. Nordin- and - ) no appearance ) ) Chambers motion heard:BONNIE NORDIN ) March 13, 2014 ) (Defendant) (Respondent) Respondent ) Decision pronounced: ) March 25, 2014 MAINELLA J.A. [1] The applicant seeks leave to appeal from a decision of a Queen’s Bench judge in a small claims appeal under TheCourt of Queen’s Bench Small Claims Practices Act, C.C.S.M., c.

C285 (the Small Claims Act). The application for leave to appealproceeded in the absence of the respondent, although served substitutionally by order of Steel J.A. [2] At the small claims appeal, the judge dismissed the applicant’s claim to recover $5,969.17 plus interest. The applicantsays the respondent owed this amount under the terms of a lease for the acquisition of a five-year-old Hyundai Sonata.

The judge foundthat the respondent did not actually “lease” the used car; rather, the transaction was a “sale.” The judge found that the nature and termsof the transaction were unclear, and to the extent the respondent still owed any money for the used car, the judge relieved her frompaying any further amounts pursuant to s. 2 of The Unconscionable Transactions Relief Act, C.C.S.M., c.

U20 (the Act). [3] The applicant argues that the judge erred in law by invoking her authority under s. 2 of the Act to relieve the debt in theabsence of evidence of one of the statute’s prerequisites: demonstration of a serious inequality in bargaining positions between thecontracting parties. The applicant says a judge cannot relieve a debtor under s. 2 of the Act merely on the basis that they made animprovident bargain (Bomek and Bomek v.

Bomek and Dauphin Plains Credit Union (1983), (MB CA), 20 Man.R.(2d) 150 at para. 25 (C.A.), leave to appeal to S.C.C. dismissed, 27 Man.R. (2d) 239; and Granville Savings and Mortgage Corp. v.Slevin et al. (1992), (MB CA), 78 Man.R. (2d) 241 at paras. 83, 155-57 (C.A.), rev’d for other reasons, (SCC), [1993] 4 S.C.R. 279). [4] The applicant submits that such an error is material, because demonstration of inequality of bargaining power is, asKerans J.A. explained, the “touchstone for intervention” by the courts in claims of unconscionability (Calgary (City) v.

NorthernConstruction Co. (1985), 1985 ABCA 285 , 67 A.R. 95 at para. 54 (C.A.), aff’d, (SCC), [1987] 2 S.C.R. 757). The applicant says the judge’s failure to consider a required factor of a legal test is an error of law (Housen v. Nikolaisen, 2002 SCC 33at para. 36, [2002] 2 S.C.R. 235). [5]

Section 15 of the Small Claims Act limits appeals to this court to questions of law only. The question of law must be ofsufficient importance to merit the attention of this court and the appeal must have arguable merit (i.e., a reasonable prospect of success)(Penta Protective Coatings Ltd. v. Scott, 2006 MBCA 50 at para. 2; and Schultz v. Kopp Farms et al., 2010 MBCA 30 at para. 2). [6] In her reasons, the judge reviewed the breakdown of the $5,969.17 the applicant claimed.

The judge determined thatsome of the items that made up this amount (an early lease termination fee of $1,699 and the fee for the residual value of the used car of$650) were unenforceable as the transaction was a sale, not a lease, and aspects of the contract ran afoul of the disclosure requirements ofThe Consumer Protection Act, C.C.S.M., c. C200 (the CPA). [7] Generally, the application of a legal principle, such as the disclosure requirements of the CPA, to the language of aspecific contract raises a question of mixed fact and law (King v.

Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA80 at para. 23, 270 Man.R. (2d) 63). In my view, consideration of the requirements of the CPA and the unique language of the used carcontract raises a question where the facts and the law are inextricably intertwined. Therefore, this aspect of the judge’s decision does not

raise an appealable question of law. [8] The remaining portion of the applicant’s claim related to financing costs, interest and service charges for late or NSFpayments. The judge’s exercise of her authority under s. 2 of the Act related to this part of the applicant’s claim.

The judge found therespondent’s cost of borrowing “excessive” (25 per cent interest rate before other fees) and the terms of the transaction “unconscionable”in the circumstances (at para. 33). [9] The judge also criticised, what she called, the applicant’s “questionable methods”: standard form contracts that requirecustomers to waive rights under the CPA; a clause of the contract whereby the lessee agrees to criminal theft charges being filed againstthemselves in certain circumstances; and a verbal threat to the respondent by a credit representative for the applicant that the used carwould have the immobilizer activated if the respondent did not pay all monies claimed by the applicant.

The applicant does notchallenge these findings of the judge. [10] The applicant is correct that the judge, in her reasons, did not make an express finding of a serious inequality ofbargaining power between the applicant’s agent and the respondent when the contract was made. Unlike in Bomek or Slevin, the judgemade no findings at all about the intelligence, experience, financial sophistication or other qualities of the debtor and creditor in thiscase, other than to say that the used car deal was the result of the respondent experiencing five hours of “high pressure tactics” (at para.4).

However, given my decision, it is unnecessary to consider whether the requisite aspect of inequality of the contracting parties for thepurposes of s. 2 of the Act can reasonably be inferred from the judge’s findings as to the conduct of the applicant and the wording of thecontract itself. [11] In my view, the applicant’s concerns about the judge’s application of s. 2 of the Act does not raise a question of law thatis of sufficient importance to merit the attention of this court and for which it has a reasonable prospect of success.

Even if the judgeerred in law, which it is unnecessary to determine, the precedential value of her decision is limited to the specific contract in question. The proper application of the Act is well known and does not need to be revisited by this court. [12] Counsel for the applicant suggested the proposed appeal is significant as it could impact the Canadian subprime lendingmarket where, apparently, one-third of all auto loans are financed in situations similar to this case.

Counsel for the applicant argued thatthe judge’s determination that the cost of the respondent’s loan was “excessive” has serious implications to subprime lenders, such as theapplicant. In an affidavit filed in support of the application, Mr. Thawani, the owner of the applicant, deposes that his company hasapproximately 1,476 similar lease/financing arrangements outstanding. Counsel for the applicant suggested the judge’s decision, if notcorrected, could release a floodgate of litigation under the Act seeking alteration of similar financing contracts. [13] I am less pessimistic.

The judge’s decision is, as mentioned previously, a result of the particular facts of this case; shedid not determine, nor could she, as a matter of law, a maximum interest rate that can be charged for a car loan. The courts will notlightly interfere with a commercial agreement; the burden to do so is very high. Responsible creditors acting in good faith who extendcredit based on the true risks of a particular loan will not have their contracts set aside under the Act (Milani v. Banks (1997), (ON CA), 32 O.R. (3d) 557 at 564 (C.A.)).

Determination of whether the cost of the loan is excessive depends on the risksof the loan and other relevant circumstances at the time a loan is made. A high cost of a loan can be justifiable with a commensurate riskof default (Mintage Financial Corp. v. Shah, 2005 ABCA 86 at para. 86, 363 A.R. 243, leave to appeal to S.C.C. dismissed, [2005]S.C.C.A. No. 192 (QL)). [14] The Act, as interpreted in Bomek and Slevin, is clear as to when a judge can use the statutory remedy to relieve a debtor. The judge’s decision does not alter the law enunciated in Bomek and Slevin.

The debtor must demonstrate both the inequality of theparties and the improvidence of the bargain, before the creditor is obligated to show that a contract freely entered into by the parties wasfair, just and reasonable in the circumstances. Only then, if the creditor fails to do so, can the court set aside a valid contract in whole orin part under the Act. [15] The respondent has not been unjustly enriched by the judge’s decision.

She has paid the applicant almost $17,000 overthe course of a four-year loan for $9,956 with an interest rate of 25 per cent, for, what was at the time of the transaction, a five-year-oldused car. I am satisfied that refusing leave would not create an injustice in the circumstances (4784881 Manitoba Ltd. v. Khidir, 2008MBCA 49 at paras. 14-15, 228 Man.R. (2d) 81). [16] Leave to appeal is denied. I make no order as to costs. The registry is to send a copy of these reasons by regular lettermail addressed to the respondent at Box 180, Gunton, Manitoba, R0C 1H0. J.A.