Post-Judgment Interest: Principles and Practice

Astrazeneca Canada Inc v Apotex Inc 2011 FC 663 Hughes J 

Hughes J’s very brief costs decision packs a great deal of significance into a single paragraph awarding compound post-judgment interest.

At common law the courts were reluctant to grant interest at all, much less compound interest, as being punitive. The prohibition on interest was legislatively reversed, but many jurisdictions at the same time expressly prohibited compound interest. So s 36(2) of the Federal Courts Act permits “reasonable” prejudgment interest, but s 36(4)(b) prohibits compound interest. The Federal Courts Act, again in common with many other jurisdictions, distinguishes between pre- and post-judgment interest, in that they are dealt with in separate sections (s 37 deals with post-judgment interest), and there is no express prohibition on compound post-judgment interest. This lack of prohibition did not imply that compound interest would normally be awarded, given the common law prohibition on compound interest. Consequently, compound interest was not traditionally awarded in patent cases.

In Bank of America Canada v Mutual Trust Co 2002 SCC 43, (known as Clarica Trust, the respondent’s name at the time of the SCC decision) the Supreme Court recognized that interest is not punitive, but compensatory, and, in the context of Ontario legislation substantially the same as the Federal Courts Act, held that the courts “have the jurisdiction to award pre-judgment and post-judgment interest at both common law and equity.” The statutory prohibition on compound interest is avoided if compound interest is awarded as compensation, rather than as interest on the judgment. However, the Supreme Court did not say that compound interest must necessarily be awarded, and it did not give direct guidance as to the appropriate rate: Clarica Trust itself was a financial contract case, and the rate allowed was that specified by contract.

In Eli Lilly Co v Apotex Inc. 2009 FC 991 affm’d 2010 FCA 240 Gauthier J applied Clarica Trust at [665]ff and held that the successful patentee would be entitled to compound prejudgment interest if it could be proven that this was necessary to achieve full compensation. At the same time, despite the fact that the Supreme Court in Clarica Trust stated at [50] that “[t]his analysis applies equally to pre-judgment interest and post-judgment interest,” Gauthier J declined to award compound post-judgment interest, saying at [675] “it is well established that the appropriate rate is 5%, not compounded, as established by s. 4 of the Interest Act, R.S.C. c.I-15.” However, none of the authorities cited by Gauthier J for this proposition considered Clarica Trust. So, in spite of the Supreme Court’s endorsement of compound post-judgment interest at a compensatory rate, Gauthier J awarded simple interest at a fixed rate.

That is the background to Hughes J’s decision. The relevant paragraph is worth setting out in full:

[5] Section 37(2) of the Federal Courts Act R.S.C. 1985, c. F-7 provides that in respect of a cause of action arising in more than one province, such as Notice of Compliance proceedings which apply throughout Canada, that the Court shall fix the rate of interest at a rate that it considers reasonable from the date of giving Judgment. A party should not be encouraged not to pay a Judgment simply because it is cheaper to let the interest accumulate. On the other hand the interest rates should be in line with current commercial rates. I have set the rate at 4.5% compounded annually which approximates a current three year mortgage rate. It is reasonable to give a party a brief time to pay without attracting interest therefore I will provide, in effect, that the rate shall be 0% until July 1, 2011, by stipulating that interest shall not run until that date.

Without citing Clarica Trust, Hughes J has fully embraced it by awarding compound post-judgment interest at a commercially reasonable rate. While this is a striking contrast with Gauthier J's decision in Eli Lilly, the Federal Courts Act gives considerable discretion to set a rate “that court considers reasonable in the circumstances,” so it remains to be seen whether this marks a shift in Federal Court practice.

There is also an important point of principle in Hughes J’s statement that “[a] party should not be encouraged not to pay a Judgment simply because it is cheaper to let the interest accumulate.” While the Federal Courts Act is like most other interest legislation in treating pre- and post-judgment separately, there has been little discussion in the case-law as to what principled distinction there is between the two, and in Clarica Trust the Supreme Court treated them as being on the same footing. But as Hughes J points out, there is an important difference. Pre-judgment interest should be as close as possible to a truly compensatory rate: the prevailing plaintiff is entitled to full compensation, yet a defendant should not be reluctant to mount its defence due to fear of punitive interest rates. Post-judgment, however, the defendant can avoid the burden of a supra-compensatory rate by simply paying promptly, which it is in any rate required to do. This suggests that it may be reasonable to set post-judgment interest at a rate modestly higher than a purely compensatory rate. There may be practical problems with this, particularly if the trial decision is appealed, and it should be emphasized that Hughes J did not actually award a supra-compensatory rate: he set a rate that is, on its face, no more than reasonable compensation in the circumstances. However, his statement does at least open the point to a more thorough debate.

This single paragraph is an important step forward in the law of interest, both in practice and in principle.