This Appeal pursuant to Rule 6.14 arose from a Summary Judgment that awarded the Respondent, Mr. Egger, $588,000 (principal $300,000 plus interest) on a promissory note. The Appellant, Mr. Hanlon (through 1994426 Alberta Ltd.), re-argued his set-off theory and, for the first time on Appeal, invoked s. 4 of the Federal Interest Act, RSC 1985, c I-15.

On set off, the Court upheld the decision of the Applications Judge. The debt and payment history were proven on the record. The alleged later arrangement was that the parties would submit fraudulent CERCA rent subsidy materials and split the proceeds, which the Appellant said should be credited against the loan. The Court found no enforceable agreement to vary the promissory note, noted that any CERCA payments were related to a tenancy with Egger Developments Ltd. rather than the individual lender, and observed that the CERCA application was dated August 30, 2020, after the principal had already fallen due and after the borrower continued to make interest payments acknowledging default. In any event, courts will not enforce an illegal bargain, so the set off theory could not succeed. Summary Judgment was therefore appropriate on the case presented below.

The Interest Act point was raised for the first time on the morning of the Appeal hearing, after an overnight adjournment. The Court found that this violated Rule 13.6(3), which required a party to plead any enactment or illegality it intends to rely on, particularly where it may take the other side by surprise. The Court still allowed the Appellant’s argument while noting that reliance at Trial would require proper pleadings and any amendment is for the Trial Judge to determine.

On the substance, the Court concluded that there was a potential issue arising from s. 4 of the Interest Act, with the post-default interest provisions warranting a Trial, including whether s. 4 applied in a commercial context and how it affected the calculation of interest after default.

Since the Appellant raised a new arguable issue requiring further evidence, Justice McGuire concluded there was a triable issue. The Summary Judgment was therefore set aside only as it related to the calculation of post-default interest, and there was no arguable issue with respect to the $300,000 principal amount. Although the Appellant was partially successful, the Appeal would have been unnecessary had the Appellant’s defence been properly pled from the outset before the Applications Judge. For this reason, the Court ordered that each party bear their own Costs.