Equipment finance cases rarely make it before the courts and, when they do, they generally relate to the Personal Property Security Act. The recent B.C. Supreme Court case of Summit Leasing Corporation v. Virtual Softnet Canada Inc., 2012 BCSC 1858, nicely summarizes a few issues that, while neither new nor particularly groundbreaking, confirm what we believe the law to be in connection with equipment finance transactions. Specifically, the court confirmed the following:
- Interest Rate: there is no need to set out an effective annual rate of interest where a lease contains a statement of an annual interest rate with compounding over a shorter period of time, and the Criminal Code only makes effective annual rates of interest above 60% criminal offences. However, please note that this is not true in consumer leases;
- Relief under consumer protection legislation is only available if a consumer transaction is involved;
- Amending a lease is not a defence to non-payment of amounts owing under that lease; and
- Payment terms of the lease govern, even if the cumulative amount of payments made under that lease may have exceeded the actual value of the leased equipment.
The plaintiff brought an action for non-payment of required regular monthly payments under a commercial lease (the "Lease"). The plaintiff was ultimately awarded judgment of $25,273.97 plus interest and special costs via summary trial pursuant to Rule 9-7.
Interest: The court held that the interest provisions in the Lease were enforceable, violating neither the Interest Act, R.S.C. 1985, c. I-15 (the "Interest Act") nor the Criminal Code, R.S.C. 1985, c. C-46 (the "Criminal Code"). Specifically, a statement of an annual interest rate with compounding over a shorter time period meets the requirements of the Interest Act and there is no requirement to provide an effective annual rate. Accordingly, the Lease satisfied the statutory requirements by stipulating a 36% annual interest rate compounded monthly for interest on overdue amounts. Further, section 347 of the Criminal Code only makes effective annual rates of interest above 60% criminal offences, and the rate in the Lease did not reach this level.
Consumer Protection: Despite the defendants' attempt to obtain relief under Parts 6 and 7 of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, which apply regardless of whether they involve a consumer, neither of these Parts helped the defendants (Part 6 defines the limits on credit reporting and Part 7 relates to prohibited debt collection practices). The court accepted that the plaintiff does not finance consumer loans and relied on express statements in the Lease limiting the uses to which the defendants may put the equipment to commercial purposes only to conclude that no consumer transaction was involved.
Amended Lease: The parties had entered an earlier lease for the same equipment, which the defendants sought to amend by extending the term to reduce the monthly payment amounts; the Lease represents that subsequent agreement. Despite the defendants' assertion that they should not be bound by the Lease, that the defendants made consistent payments under the Lease for many months indicated both their knowledge and acceptance of the Lease.
Contractual Amount of Payment: The defendants were bound by the payment terms of the Lease despite their argument that there was no balance owing on the leased equipment, as they had already paid more by the time of default in instalment payments than the leased equipment was worth. Contractually, the defendants had agreed to the amount of the monthly fixed charge and to make those payments in accordance with the Lease, and the defendants had been making those payments without complaint prior to the default.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
