In Canada, it is not everyday one witnesses a loan shark resorting to judicial process to collect on outstanding obligations. In fact, outside cases involving payday loans and hidden credit card fees, where legitimate loans might inadvertently cross the 60% interest rate threshold under s. 347 of the Criminal Code, we have to date not seen any cases where the court has considered enforcement of blatantly usurious loans bearing interest of, say, 2,000% APR, as the Superior Court did in Ikpa v. Itamunoala, now available on line.
Gilbertson Davis successfully obtained summary judgment rejecting the bid by the plaintiff, a resident of the United Kingdom (where laws banning usury no longer exist), to recover USD$500,000 on a USD$100,000 promissory note that had remained outstanding for four months before the start of litigation. The plaintiff sought to have an equitable mortgage securing the note paid out in priority to the defendants’ registered mortgage. Justice Woollcombe concluded:
the usurious interest charged in the promissory note should, in the circumstances of this case, make the promissory note unenforceable as an equitable mortgage in priority to the defendants’ registered mortgage.
The rarity of the cases stems from the fact that lenders who charge such rates of interest have ‘other’ means at their disposal to collect their debts. Interestingly, the plaintiff here had originally obtained a Certificate of Pending Litigation from the court, based on affidavit evidence clearly showing the criminal rate of interest as being part of the claim. The case’s significance is that a claim should not be assumed to have been bona fide or legitimate, simply because it was issued at the request of a lawyer or law firm. Every law suit must be scrutinized and reviewed by a qualified lawyer to advise the defendant about the legal merits. On occasion, one might find that the actual claim itself is illegal.
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