The Supreme Court has dismissed an application for leave to appeal Solar Power Network Inc. v. ClearFlow Energy Finance Corp. The Court of Appeal for Ontario earlier held that the use of formulas to express annual interest rates can satisfy Section 4 of the Interest Act.
As we wrote following the Court of Appeal’s judgment last September, this is welcome news for lenders. Justice Sharpe’s reasons overturned a surprising decision by the Superior Court of Justice,3 which held that a common loan agreement interest rate provision contravened Section 4.
Section 4 requires that any written agreement for the payment of interest at a rate or percentage per day, week, month or any period less than one year contain an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.
The sun has set on the uncertainty first caused by the Superior Court’s decision. Nevertheless, lenders should continue to exercise caution when they use formulas to express annual interest rates, to ensure that the borrower clearly understands its obligations and that the interest rate provisions of loan agreements meet Section 4 requirements.
The Financial Services Group at Aird & Berlis can advise lenders on their obligations under the Interest Act. Details are available at our Financial Services web page.