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Section 347 of the Canadian Criminal Code makes it an offence to enter an agreement to receive interest at a rate above 60% p.a., or actually to receive interest at such a rate. Lots of commercial lenders have inadvertently violated this section, with various holdings as to the restitutionary consequences (RLRs passim). On 30 Oct the Supreme Court of Canada released Garland v. Consumers' Gas Co.

‹http://www.droit.umontreal.ca/doc/csc-scc/ en/rec/html/ garland.en.html›.

From the official headnote:

The respondent gas utility, whose rates and payment policies are governed by the Ontario Energy Board, bills its customers on a monthly basis, and each bill includes a "due date" for the payment of current charges. Customers who do not pay by the due date incur a late payment penalty ("LPP") calculated at five percent of the unpaid charges for that month. The LPP is a one-time penalty which does not compound or increase over time. The appellant commenced proceedings alleging that the LPP violates s. 347 of the Criminal Code because -- for a significant number of customers each month -- it constitutes interest at a rate exceeding 60 percent per year. The appellant obtained leave to turn the action into a class proceeding on behalf of all customers who paid LPP charges after April 1, 1981, when s. 347 of the Code came into force.

The Court has now allowed the appeal from the summary dismissal of the appellant's claim, holding that the LPP is covered by s. 347 and remitting the matter for trial. Can the utility argue that it has changed its position by adjusting its expenditures generally to meet the cash flow from LPPs?

There is a companion case, Degelder Construction Co. v. Dancorp Developments Ltd.

‹http://www.droit.umontreal.ca/doc/csc-scc/ en/rec/html/ dancorp.en.html›,

involving a commercial loan but holding (perhaps unfortunately from our point of view) that the section was not violated and so restitution to the borrower (who had repaid at the agreed rate) was not on.

Lionel