What kind of charges can a company levy when customers are late paying a bill?
That was the question the Supreme Court of Canada dealt with in Garland vs. Enbridge Gas Distribution. The company was in the business of supplying natural gas to 500,000 Ontario customers.
In 1975, the company implemented a policy of charging a penalty of a flat five percent of the outstanding bill as soon as the bill was in arrears. Depending on whether it was a residential or commercial customer, payment was due either 10 or 16 days after the date of mailing. The late payment penalty had been approved by the Ontario Energy Board, which is responsible for regulating utility rates in that province.
Read Also
Ag in Motion 2025 celebrates agriculture through the generations
Ag in Motion 2025 an event for families to spend quality time together
This was a class action case, begun in 1994, and the lead plaintiff, a fishing store operator called Garland, had paid $75 in late charges between 1983 and 1995. He produced evidence to show that a five percent flat penalty amounted to an interest rate in excess of 60 percent for most customers who paid late. By his calculations, only if the payment was more than 38 days late did the effective interest rate fall below 60 percent.
According to court records, approximately half the company’s customers were late payers, but most paid the money within 10 days.
In Canada, it is a criminal offence to charge a rate of interest exceeding 60 percent a year.
The Supreme Court of Canada ruled twice in this case. In 1998, it ruled that a five percent flat penalty indeed amounted to a criminal interest rate, a decision it reaffirmed in April 2004.
In that latter decision, the court ruled the gas company must return money that had been overcharged – estimated at more than $80 million, although the case went back to the trial judge to determine the actual amount. It is important to note that this case did not involve a criminal charge of an exorbitant rate of interest. Rather it was about the company’s ability to charge the interest penalty and whether it had to be refunded.
The court found that even though the energy board had approved the penalty, this did not make it legal. A provincial law or body cannot overrule the validity of a federal law, in this case the Criminal Code.
The court applied the unjust enrichment rule to order that the penalties collected after 1994, when the company was informed it might be violating the law, must be returned. Under this rule, one cannot unjustly enrich oneself at the expense of another unless there is good legal reason to do so. The court also noted one is not allowed to profit from wrongdoing, which in this case meant keeping a penalty deemed in violation of the law.
This means consumers and small business operators should scrutinize late fees on our bills carefully. If they amount to an effective rate of 60 percent, they are illegal and must be returned. Thus a $10 charge on a $100 bill that is two days late will be well over the legal rate.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
