Judge's opinion on excessive loan interest not enough to warrant reduction: BC Court of Appeal

The British Columbia Court of Appeal has overturned a trial judge’s reduction of a commercial interest rate on a loan agreement, ruling that neither law nor equity allows a court to make substantive changes to an otherwise valid contract.

In Century Services Corp. v. LeRoy, 2022 BCCA 239, Ted Leroy Trucking Ltd. (TLT) entered into a loan with Century Services Corp. Cynthia LeRoy also guaranteed this loan on a limited recourse basis with her home as security for the guarantee. TLT failed to pay and later declared bankruptcy. Price Waterhouse Coopers (PWC) was appointed as private receivers during the auction of TLT’s assets.

Despite liquidation, the loan was not fully paid. Century sought to enforce LeRoy’s guarantee as well as the mortgage. LeRoy resisted, arguing that the auction conducted by PWC had been carried out negligently and certain charges had been improperly made by Century to TLT’s loan account, preventing her from knowing the amount of her liability.

The trial judge found no irregularities in the auction. However, she found that the interest rate on the loan agreement was excessive and reduced it.

On appeal, Century argued that the court could not deny commercial interest rates based on moral culpability or on the facts in this case.

The appellate court agreed.

No discretion to ignore or vary contractual terms

While some authorities allow varying of interest – usually from when the date interest starts to run – the Law and Equity Act, RSBC 1996, c 253 mandates that interest be paid in full unless exceptional circumstances exist.

In this case, the judge erred in purporting to exercise an equitable jurisdiction to disallow the contractually agreed‑upon rate of interest, said the court. Neither law nor equity permits a court to make substantive changes to the terms of an otherwise valid contract, said the court.

“I am not aware of any equitable principle that would permit a court to rewrite a commercial loan agreement solely by virtue of the judge’s opinion that an interest rate (though legal) was excessive, or that a party’s misconduct was deserving of punishment in the form of the denial of interest at the rate agreed upon,” said Justice Mary Newburry, the author of the decision.

The appellate court encouraged the parties to reach an agreement on a redemption amount, but if one could not be reached, the matter would be remitted back to the lower court for consideration.