Garland v. Consumers' Gas Co., (1998) 231 N.R. 1 (SCC)

• Judge: Iacobucci, Major, Bastarache and Binnie, JJ.
• Court: Supreme Court (Canada)
• Case Date: October 30, 1998
• Jurisdiction: Canada (Federal)
• Citations: (1998), 231 N.R. 1 (SCC);165 DLR (4th) 385;40 OR (3d) 479;114 OAC 1;40 WCB (2d) 49;[1998] SCJ No 76 (QL);231 NR 1;1998 CanLII 766 (SCC);[1998] 3 SCR 112;129 CCC (3d) 97;20 CR (5th) 44;83 ACWS (3d) 283;49 MPLR (2d) 77

Garland v. Consumers' Gas Co. (1998), 231 N.R. 1 (SCC)

MLB Headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [1998] N.R. TBEd. OC.024

Gordon Garland (appellant) v. Consumers' Gas Company Ltd. (respondent)

(25644)

Indexed As: Garland v. Consumers' Gas Co.

Supreme Court of Canada

L'Heureux-Dubé, Cory, McLachlin,

Iacobucci, Major, Bastarache

and Binnie, JJ.

October 30, 1998.

Summary:

Garland commenced a class action against Consumers' Gas, seeking restitution for late payment penalties paid by customers since 1981. Garland claimed that, inter alia, the payments, depending upon when they were made, could constitute payment of a criminal interest rate contrary to s. 347 of the Crimi­nal Code. Both Garland and Consumers' Gas sought summary judgment.

The Ontario Court (General Division), in a judgment reported 22 O.R.(3d) 451, granted Consumers' Gas summary judgment dismiss­ing the action. The court held that (1) s. 347 applied to transactions where the credit advanced consisted solely of the monetary value of goods, services or benefits advanced; (2) the penalty provisions did not necessitate payment at a criminal interest rate, accordingly, there was no breach of s. 347; and (3) the late payment penalties did not constitute "interest" within the meaning of s. 347 as they were not "payable for the advancing of credit under an agreement or arrangement". Garland appealed.

The Ontario Court of Appeal, in a judg­ment reported 93 O.A.C. 155, dismissed the appeal. The court agreed that the penalty provisions did not necessi­tate payment at a criminal interest rate con­trary to s. 347 and that was sufficient to dismiss the appeal and the action. The court agreed that s. 347 applied to transac­tions where the credit advanced consisted solely of the monetary value of goods, ser­vices or benefits advanced and expressed no opinion on the interpreta­tion of the words "payable for the advancing of credit under an agree­ment or arrange­ment". Garland appealed.

The Supreme Court of Canada, Bastarache, J., dissenting, allowed the appeal. Section 347 applied to the late payment penalties, which were interest charges under s. 347(2). The court set aside the summary judgment and remitted the matter to the General Divi­sion for proceedings in accordance with the Class Proceedings Act. The court also set aside the award of costs ($500) against Garland in his personal capacity.

Criminal Law - Topic 1741

Offences against property - Criminal inter­est rate - General - The Supreme Court of Canada stated that following general prin­ciples respecting s. 347 of the Criminal Code: "(1) Section 347(1)(a) should be narrowly construed. Whether an agreement or arrangement for credit viol­ates s. 347(1)(a) is determined as of the time the transaction is entered into. If the agreement or arrangement permits the payment of interest at a criminal rate but does not require it, there is no violation of s. 347(1)(a), although s. 347(1)(b) might be engaged. (2) Section 347(1)(b) should be broadly construed. Whether an interest payment violates s. 347(1)(b) is determined as of the time the payment is received. For the purposes of s. 347(1)(b), the effective annual rate of interest arising from a pay­ment is calculated over the period during which credit is actually outstanding. (3) There is no violation of s. 347(1)(b) where a payment of interest at a criminal rate arises from a voluntary act of the debtor, that is, an act wholly within the control of the debtor and not compelled by the lender or by the occurrence of a determining event set out in the agreement." - See paragraph 56.

Criminal Law - Topic 1742

Offences against property - Criminal inter­est rate - Interest defined - A com­pany charged customers a 5% penalty on bills not paid by a specified date - It was a one-time charge, unvaried by when late pay­ment was actually made - The Supreme Court of Canada held that the penalty constituted "interest" under s. 347 of the Criminal Code, as a charge or expense "paid or payable for the advancing of credit under an agreement or arrange­ment" - Deferring payment of a debt past the due date constituted an ex­tension of credit - Where the contractual terms between the parties permitted defer­ral, at a price, there existed an "ar­rangement" for the advancing of credit - Accordingly, s. 347 applied - The court distinguished Nelson v. C.T.C. Mortgage Corp., which provided that "an agreement or arrange­ment for credit which is legal on its face cannot become illegal under s. 347 through the voluntary act of the debtor" - Payment of the penalty with­in 38 days resulted in an effective annual interest rate over the criminal rate of 60% - Pay­ment of the penalty within 38 days was not a "volun­tary" act within the meaning of Nelson.

Criminal Law - Topic 1744

Offences against property - Criminal inter­est rate - Effective rate of interest - [See Criminal Law - Topic 1742 ].

Criminal Law - Topic 1746

Offences against property - Criminal inter­est rate - Credit advanced defined - [See Criminal Law - Topic 1742 ].

Criminal Law - Topic 1746

Offences against property - Criminal inter­est rate - Credit advanced defined - The Supreme Court of Canada held that a late payment charge of 5% charged by a na­tural gas utility to its customers was sub­ject to scrutiny under the criminal rate of interest provisions of s. 347 of the Crimi­nal Code as "interest", being a charge or expense paid or payable for the advanc­ing of credit under an agreement or ar­range­ment - The utility submitted that late pay­ment penalties in provincial and federal statutes would likewise be subject to s. 347 - The Supreme Court of Canada stated that "such penalties are readily distin­guishable from the [penalty] at issue here. The con­tractual relationship between a public utility and its customers regarding the payment of monthly charges is not com­parable to the political relationship between a government and its citizens regarding the payment of taxes. There is no agreement or arrangement between the latter parties governing the imposition of taxes, let alone permitting the payment of one amount by a due date and another amount thereafter. In any event, for the purposes of s. 347, tax is not the monetary value of goods, services, or benefits pro­vided by the government, and the deferral of tax, even if such deferral were per­mitted, would not constitute 'credit' within the meaning of s. 347(2)." - See paragraph 49.

Practice - Topic 7053.1

Costs - Party and party costs - Entitle­ment to - Class actions - The representa­tive plaintiff in a class action against a public utility (defendant) refused to con­sent to a motion by the defendant - The defendant was successful and the judge awarded $500 costs to the defendant to be paid personally by the plaintiff - The Supreme Court of Canada held that the costs award violated s. 59.4 of the Law Society Act (Ont.), which protected class representatives from personal liability to costs in actions where financial support was granted by the Class Proceedings Fund - That protection from personal liability extended to costs incurred in the context of procedural motions in the class action - See paragraphs 67 to 68.

Cases Noticed:

Nelson v. C.T.C. Mortgage Corp. (1984), 67 N.R. 162; 16 D.L.R.(4th) 139 (B.C.C.A.), affd. [1986] 1 S.C.R. 749; 67 N.R. 161, dist. [para. 16].

Thomson (William E.) Associates Inc. v. Carpenter (1989), 34 O.A.C. 365; 69 O.R.(2d) 545 (C.A.), refd to. [para. 23].

Tomell Investments Ltd. v. East Marstock Ltd., [1978] 1 S.C.R. 974; 16 N.R. 139, refd to. [para. 27].

Construction St-Hilaire Ltée v. Immeubles Fournier Inc., [1975] 2 S.C.R. 2; 10 N.R. 541, refd to. [para. 27].

Ontario (Attorney General) v. Barfried Enterprises Ltd., [1963] S.C.R. 570, refd to. [para. 27].

Delta v. Active Chemicals Ltd. (1984), 57 B.C.L.R. 213 (C.A.), refd to. [para. 49].

Mira Design Co. v. Seascape Holdings Ltd. (1981), 34 B.C.L.R. 55 (S.C.), refd to. [para. 51].

Aectra Refining & Marketing Inc. v. Lin­coln Capital Funding Corp. (1991), 6 O.R.(3d) 146 (Gen. Div.), refd to. [para. 54].

Degelder Construction Co. v. Dancorp Developments Ltd. et al. (1998), 231 N.R. 122 (S.C.C.), refd to. [para. 55].

Coffelt v. Arkansas Power & Light Co. (1970), 451 S.W.2d 881 (Ark.), refd to. [para. 77].

State (ex rel. Utilities Commission) v. North Carolina Consumers Council Inc. (1973), 198 S.E.2d 98 (N.C. Ct. App.), refd to. [para. 77].

Statutes Noticed:

Criminal Code, R.S.C. 1985, c. C-46, sect. 347 [para. 14].

Law Society Act, R.S.O. 1990, c. L-8, sect. 59.4 [para. 68].

Authors and Works Noticed:

Antle, Stephen, A Practical Guide to Sec­tion 347 of the Criminal Code -- Crim­inal Rates of Interest (1994), 23 C.B.L.J. 323, pp. 327 [para. 62]; 334 [para. 54].

Canada, Hansard, House of Commons Debates, 1st Sess., 32nd Parl., July 21, 1980, p. 3146 [para. 25].

Feldman, Michael, Criminal Interest Rates in the Context of Early Payment of a Debt Obligation (1985), 2 Bus. & L. 70, generally [para. 54].

Goode, Royston M., Consumer Credit Law (1989), pp. 108 [para. 45]; 109 [para. 35].

Keest, Kathleen E., The Cost of Credit: Regulation and Legal Challenges (1995), p. 38 [para. 28].

Oxford English Dictionary (2nd Ed. 1989) [para. 75].

Ziegel, Jacob S., Editorial (1994), 23 C.B.L.J. 321, generally [para. 25].

Ziegel, Jacob S., The Usury Provisions in the Criminal Code: The Chickens Come Home to Roost (1986), 11 C.B.L.J. 233, p. 240 [para. 54].

Counsel:

Barbara L. Gross­man, Michael L. McGowan, Christopher D. Woodbury and Dorothy Wong, for the appellant;

Fred D. Cass, John J. Longo, Daniel Boivin and Janet Clark, for the respon­dent.

Solicitors of Record:

McGowan & Associates, Toronto, Ontario, for the appellant;

Aird & Berlis, Toronto, Ontario, for the respondent.

This appeal was heard on March 23, 1998, before L'Heureux-Dubé, Cory, McLachlin, Iacobucci, Major, Bastarache and Binnie, JJ., of the Supreme Court of Canada.

On October 30, 1998, the judgment of the Supreme Court of Canada was delivered in both official languages and the following opinions were filed:

Major, J. (L'Heureux-Dubé, Cory, McLachlin, Iacobucci and Binnie, JJ., concurring) - see paragraphs 1 to 69;

Bastarache, J., dissenting - see para­graphs 70 to 83.